Illicit financial flows threaten Africa's growth, says UNECA

Africa is being drained of resources for development as a result of the illegal movement of money and capital, say officials from a UN body concerned with the continent's development.

Collins Mwai

ILLICIT financial flows across the continent continue to be the biggest avenue of losses of revenue across Africa, officials from the United Nations Economic Commission for Africa (UNECA) have said.

Officials from the commission say that Africa continues to lose a significant amount of revenue, which has had grave consequences on the development of the continent.

Illicit financial flows are illegal movements of money or capital from one country to another, especially to safe havens, without paying necessary taxes and appropriate revenues in countries where they are earned. This in turn reduces domestic resources and tax revenue needed to fund development.

A 2015 report by the Africa Progress Panel led by former South African president Thabo Mbeki had put the value of illicit financial flows at $50 billion, but UNECA puts it at over $80 billion.

Abdalla Hamdok, Deputy Executive Secretary and Chief Economist at UNECA, said that the illicit flows mostly stem from capacity deficits of some countries to deal with tax evasion as well as inadequacies in tax collection.

'The illicit financial flows also arise due to legal capacities in governments' negotiation with multinationals which at times see countries getting raw deals,' Hamdok told The New Times in an interview.

He added that only a small portion of the illicit financial flows were due to corruption as most people assume, with most being related to the nature of agreements and capacities.

Of all the illicit financial flows across the continent, about 60% are linked to commercial activities of multinationals while about 35% are linked to criminal activities.

Hamdok said that by addressing illicit financial flows, African governments would collect revenue that would enable them to not only finance their development but also rid themselves of development assistance.

'The total value of revenue lost through illicit financial flows is more than what Africa gets in foreign aid each year. By taking quick action to curb the financial flows, the continent can easily fund its development agenda,' he said.

Among interventions proposed by UNECA to curb the illicit financial flows are reforms that will tackle tax evasion as well as capacities to administer the reforms. The commission also proposes the boosting of capacities in litigation and contract negotiations of governments when dealing with firms.

'Multinationals operating across the continent should adopt a country-by-country reporting system that will give clear insights to the performances and expected tax revenues,' Hamdok said.

He also called for increased awareness and sensitisation for countries to be more aware of such activities.

The African Union Commission says that by curbing illicit financial flows, Africa stands a high chance of self-financing and ridding itself of donor dependence.

African Union Commissioner of Economic Affairs Anthony Mothae in a separate interview said curbing illicit financial flows is one of the much-sought avenues to fund high-cost development projects. He said that governments should not be afraid of putting in place measures to curb the trend for fear that they will scare away multinationals with interest in investing on the continent.

'We have no interest in dealing with rogue investors and firms. As a continent we want to do business [with] and engage serious and "clean" investors,' he said.

He noted that going forward, a consortium composed of African Union officials, African finance ministers and UNECA was working in partnership with global financial institutions, including the World Bank and International Monetary Fund, to try to address the issue.                 

This article was first published in The New Times (Rwanda) (26 July 2016).

*Third World Resurgence No. 310/311, Jun/July 2016, p 31