A new report by the United Nation Conference on Trade and Development (UNCTAD) has revealed that every year, an estimated $88.6 billion which is equivalent to 3.7 percent of Africa’s GDP, leaves the continent as illicit capital flight. – By Ramadhan Kambi
The report titled ‘Tackling illicit financial flows for sustainable development in Africa’ was released on September 28 and it terms illicit financial flows (IFFs) as movements of money and assets across borders which are illegal in source, transfer or use.
It shows that these outflows are nearly as much as the combined total annual inflows of official development assistance, valued at $48 billion, and yearly foreign direct investment, pegged at $54 billion, received by African countries – the average for 2013 to 2015.
According to UNCTAD Secretary-General Mukhisa Kituyi, Illicit financial flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions.
These outflows include illicit capital flight, tax and commercial practices like mis-invoicing of trade shipments and criminal activities such as illegal markets, corruption or theft.
“From 2000 to 2015, the total illicit capital flight from Africa amounted to $836 billion. Compared to Africa’s total external debt stock of $770 billion in 2018, this makes Africa a “net creditor to the world”, the report says.
IFFs related to the export of extractive commodities ($40 billion in 2015) are the largest component of illicit capital flight from Africa. Although estimates of IFFs are large, they likely understate the problem and its impact.
For example, the report finds that, in African countries with high IFFs, governments spend 25 per cent less than countries with low IFFs on health and 58 per cent less on education. Since women and girls often have less access to health and education, they suffer most from the negative fiscal effects of IFFs.
The report further says that Africa will not be able to bridge the large financing gap to achieve the SDGs, estimated at $200 billion per year, with existing government revenues and development assistance.
The report finds that tackling capital flight and IFFs represents a large potential source of capital to finance much-needed investments in, for example, infrastructure, education, health, and productive capacity.
In Africa, IFFs originate mainly from extractive industries and are therefore associated with poor environmental outcomes.
The report shows that curbing illicit capital flight could generate enough capital by 2030 to finance almost 50 per cent of the $2.4 trillion needed by sub-Saharan African countries for climate change adaptation and mitigation.
The report’s analysis also demonstrates that IFFs in Africa are not endemic to specific countries, but rather to certain high-value, low-weight commodities.
Of the estimated $40 billion of IFFs derived from extractive commodities in 2015, 77 per cent concentrated in the gold supply chain, followed by diamonds (12 per cent) and platinum (6 per cent).
The report aims to equip African governments with knowledge on how to identify and evaluate risks associated with IFFs, as well as solutions to curb IFFs and redirect the proceeds towards the achievement of national priorities and the SDGs.
It calls for global efforts to promote international cooperation to combat IFFs. It also advocates for strengthening good practices on the return of assets to foster sustainable development and the achievement of the 2030 Agenda for Sustainable Development.
The report highlights the importance of collecting more and better trade data to detect risks related to IFFs, increase transparency in extractive industries and tax collection.
Although IFFs are a major constraint to domestic resource mobilization in Africa, the report says that African governments are not yet sufficiently engaging in the reform of the international taxation system.
Transparency and cooperation between tax administrations globally and within the continent is key to the fight against tax evasion and tax avoidance.
Regarding regional cooperation on taxation within the continent, the African Tax Administration Forum can provide a platform for regional cooperation among African countries.
Regional knowledge networks to enhance national capacities to tackle the proceeds of money laundering and recover stolen assets, including within the context of the African Continental Free Trade Area (AfCFTA), are crucial in the fight against corruption and crime-related IFFs, the report says.
