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Africa can gain $89bn annually by curbing IFFs – UN

THE United Nations says Africa can gain $89 billion annually by curbing illicit financial flows.

According to UNCTAD’s Economic Development in Africa Report 2020 launched on Tuesday, every year, an estimated $88.6 billion, equivalent to 3.7 per cent of Africa’s GDP, leaves the continent as illicit capital flight.

Illicit financial flows (IFFs) are movements of money and assets across borders which are illegal in source, transfer or use, according to the report entitled “Tackling illicit financial flows for sustainable development in Africa.”

It shows that these outflows were nearly as much as the combined total annual inflows of official development assistance (ODA), valued at $48 billion, and yearly foreign direct investment, pegged at $54 billion, received by African countries – the average for 2013 to 2015.

“Illicit financial flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions,” said UNCTAD secretary-general Mukhisa Kituyi.

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.

It stated that IFFs related to the export of extractive commodities ($40 billion in 2015) are the largest component of illicit capital flight from Africa.

It stated that although estimates of IFFs were large, they likely understate the problem and its impact.

It stated that IFFs undermined Africa’s potential to achieve the SDGs as they represent a major drain on capital and revenues in Africa, undermining productive capacity and Africa’s prospects for achieving the Sustainable Development Goals (SDGs).

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.

It stated that Africa would 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.

It cites Sierra Leone, which has one of the highest under-five mortality rates on the continent (105 per 1,000 live births in 2018), curbing capital flight and investing a constant share of revenues in public health could save an additional 2,322 of the 258,000 children born in the country annually.

It stated that 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.

It stated that IFFs were concentrated in high-value, low-weight commodities, especially gold.

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 were concentrated in the gold supply chain, followed by diamonds (12 per cent) and platinum (6 per cent).

This finding offers new insights for researchers and policymakers studying how to identify and curb IFFs and is relevant to all gold-exporting countries in Africa, for example, despite their differing local conditions.

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 called for global efforts to promote international cooperation to combat IFFs.

It stated that only 45 out of 53 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, 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), were potential available solutions.

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

Nigeria’s President Muhammadu Buhari said: “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.”

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