Africa loses $90 billion to corruption annually. The amount is equivalent to the sum industrial countries give to the continent in the form of development assistance and direct investment.

These findings were released in a United Nations Conference on Trade and Development (UNCTAD) report entitled “Tackling illicit financial flows for sustainable development in Africa”, published 28 September.

“Every year, an estimated $88.6 billion, which is equivalent to 3.7 per cent of Africa’s GDP, leaves the continent in the form of illicit capital,” said the report, which defined illicit financial flows (IFFs) as “movements of money and assets across borders which are illegal in source, transfer or use”.

“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,” the report noted.

The report 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 — which represents the average investment between 2013 to 2015.”

From 2000 to 2015, 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 added.
IFFs in Africa are not endemic to specific countries, but rather to certain high-value, low-weight commodities that can easily be smuggled, such as gold (77 per cent), diamonds (12 per cent) and platinum (six per cent), the report stated.

The countries most harmed by IFFs are Sierra Leone, Congo, the Seychelles and Burundi.

Congo’s natural wealth was the reason the country has been suffering for more than 150 years, since the bloody Belgium occupation that rendered more than 10 million people dead in mining and agriculture camps over a span of 80 years.

After the Congo gained independence in 1960 it endured massacres, civil wars and genocide that killed five million people during the Great African War between 1998 and 2003.

Thousands of people died in Sierra Leone’s Civil War over diamonds in the 1990s. Thousands others died in Burundi during conflicts between the Hutus and Tutsis.

IFFs represent a major drain on capital and revenues in Africa, undermining productive capacity and Africa’s prospects for achieving UN Sustainable Development Goals (SDGs) by 2030, the report said.

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 the most from the negative fiscal effects of IFFs, added the report.

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 continued.

The report finds that tackling capital flight and IFFs represents a large potential source of capital to finance much-needed investment in, for example, infrastructure, education, health and productive capacity.

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 stated.

Specific data limitations affected efforts to estimate IFFs. Only 41 out of 54 African countries provide data to the UN International Trade Statistics Database (UN Comtrade) in a continuous manner, allowing trade statistics to be compared over time.

The report highlights the importance of collecting more and better trade data to detect risks related to IFFs, and increase transparency in extractive industries and tax collection.

The UNCTAD Automated System for Customs Data (ASYCUDA), including its new module for mineral production and export, called MOSES (Mineral Output Statistical Evaluation System), are potential available solutions, said the report.

African countries also need to enter automatic exchange of tax information agreements to effectively tackle IFFs.

In 2014, Africa lost an estimated $9.6 billion to tax havens and money laundering, equivalent to 2.5 per cent of total tax revenue. Africa’s financial system suffers from data limitations that may allow the entry of illegal money into its banks. In many cases, agents in multinational financial companies commit financial crimes, in others the companies strike deals with armed local groups involved in illegal extraction of gold and diamonds.

But IFFs are not just a national concern in Africa, said Nigeria’s President Muhammadu Buhari: “Illicit financial flows are multidimensional and transnational in character. Like the concept of migration, they have countries of origin and destination, and there are several transit locations. The whole process of mitigating illicit financial flows, therefore, cuts across several jurisdictions.”

Solutions to the problem must involve international tax cooperation and anti-corruption measures. The international community should devote more resources to tackle IFFs, including capacity-building for tax and customs authorities in developing countries, the UNCTAD report said.

An African trade free zone may be a good start to curb the spread of such crimes, the report advised. The project, however, was postponed until 2022 owing to the coronavirus outbreak.

*A version of this article appears in print in the 8 October, 2020 edition of Al-Ahram Weekly