Curbing Illicit Financial Flows from Africa requires more than usual rhetoric
The African continent is said to be losing about $60 billion every year through illicit financial outflows (IFFs). The activities of multinational corporations have been identified to be responsible for 60 per cent of the outflows, while criminal activities such as human trafficking and money laundering drive 35 per cent, corruption plays a five per cent role in shifting all these money out of the continent.
Global volumes of illicit financial flows have reportedly reached $1.1 trillion in 2013. The developing world lost $7.8 trillion between 2004 and 2013, the last year for which data are available, according to a report by the Global Financial Integrity (GFI), a Washington DC-based research and advisory organization.
African countries however, have realized the need to do something about the issue. As part of the continent’s practical steps to dealing with IFFs a High Level Panel on Curbing Illicit Financial Flows from Africa has been formed. The panel headed by former South African President Thabo Mbeki is working with other institutions on the continent to throw light on the problem, build capacity and tackle it in the most efficient way.
The Economic Commission for Africa and African Union Commission established High Level Panel was commissioned by the ECA to do background studies on the status of illicit financial flows in Africa and created the advocacy slogan: “IFF: Track it; Stop it; Get it” in support of the work of the panel.
“By many accounts; about $50 billion is taken away from Africa yearly due to trade mispricing. (Estimates by the ECA place this figure to $60 billion based on a different data set and approach). These constitute funds that would otherwise be used for development,” a concept note on a workshop in Ghana said.
Adding that, African gross domestic product would be at least 16 per cent higher were it not for illicit financial outflows based on conservative estimates.
Stating the key findings of the report, the organisers said it underscores the fact that illicit financial flows from Africa are large and increasing because they constitute a substantive drain on the domestic resources of Africa which could otherwise assist in the continent’s structural transformation.
They noted that it is crucial to assist African countries to develop the capacity to track, stop and return the funds.
African countries were urged to build the capacity of legal practitioners to equip them to draft laws on illicit financial flows.
The GFI report for instance compared IFFs to official development assistance (ODA) and foreign direct investment (FDI) and found that IFFs have exceeded those measures—combined—for seven of the ten years of the study.
“Despite these substantial recorded inflows, the continued growth of unrecorded, illicit outflows has a pernicious impact on development aspirations in many countries. For example: for every dollar of ODA that entered the developing world in 2012, ten dollars flowed out illicitly,” it adds.
The report discovered that taken together, growth of ODA and FDI (6.8 per cent a year) just barely outpaced the change in IFFs (6.5 per cent a year) between 2004 and 2013. Most of that growth came from increased FDI, as ODA to developing countries has stagnated over the period.
The report also found that sub-Sahara Africa is the hardest hit region suffering the largest illicit financial outflows—averaging 6.1 per cent of GDP.
Making a dent on illicit financial flows out of Africa would require more than the rhetoric that African leadership has come to be associated with. It requires action, decisive, informed and backed by functional laws.
By Emmanuel K. Dogbevi
Email: [email protected]