Multinational corporations illegally transfer $1.5 trillion out of Africa yearly – Report

Multinational corporations operating in Africa are responsible for the illicit transfer of most of the $1.5 trillion they make on the continent, a report has said.

The report “Illicit Financial Flows from Africa: Scale and Developmental Challenges”, says the money is transferred back to the developed countries, draining hard currency reserves from the continent, stimulating inflation, reducing tax collection and deepening income gaps.

It notes that multinational corporations are engaged in what some call Africa’s greatest economic sabotage, because it “perpetuates Africa’s economic dependence on other regions,” it says.

The report which has been circulated among members of the “High-Level Panel on Illicit Financial Flows from Africa”; an African Union-endorsed think-tank charged with recommending appropriate policies to counter the phenomenon and seek repatriation of the stolen moneys back to the continent, says the act adds to the depletion of investments and stifling of competition, undermines trade and worsens the socio-economic fabric of poor communities in Africa, leading to shorter life expectancy due to limited spending in providing social services such as health care.

A press release from the Information Communication Service of the United Nations Economic Commission for Africa (ECA) cites the report saying that since the early 1960s when multinationals entered Africa, “foreign direct investment by the multinationals could have been as high as $1.5 trillion a year, although most is directed towards the developed world.”

“In addition to local businesses, the most significant perpetrators of trade mispricing are multinational corporations” because of their “strong global presence and influence, which facilitate the illicit transfer of funds”, it adds, referring to the World Trade Organisation which estimates that corporations control about 60% of world trade, which amounts to about $40 trillion, it says.

According to the report, others estimate that Africa lost about $854 billion in illicit financial flows over the 39 year period (1970-2008); corresponding to a yearly average of about $22 billion, which is a  considerable amount compared to both the external debt of the continent and the official development aid (ODA) received over the same period.

“Indeed, it is equivalent to nearly all the ODA received by Africa during that timeframe – a record level of $46 billion in 2010. Just one-third of the loss associated with illicit financial flows would have been enough to fully cover the continent’s external debt that reached $279 billion in 2008”, it adds.

The trend has been increasing over time and especially in the last decade, it notes, with an annual average illicit financial flow of $50 billion between 2000 and 2008 against a yearly average of only $9 billion for the period 1970-1999.

The report records great variations between regions, countries and even between sectors of activities.

“Two-third of the outflows was attributed to only two regions, namely West Africa and North Africa, with 38% and 28%, respectively,” it says.

The report warns that, “Each of the other three regions (Southern, Eastern and Central Africa) registered about 10% of the total of Africa’s illicit financial flows” perhaps because of lack of data and due to the poor quality of available data.

It also stresses that Illicit financial flows worsen the socio-economic fabric of poor communities and leads to shorter life expectancy due to limited spending in providing social services such as health care, the loss of $10 for every $1 received in aid is both economically and financially detrimental to the continent.

The High-Level Panel on Illicit Financial Flows from Africa is chaired by Thabo Mbeki.

By Emmanuel K. Dogbevi