Wasted potential: Africa loses over $50 billion annually in illicit financial flows

Africa, the world’s poorest region, is losing over $50 billion a year in illegal transactions — an amount that could have been used to address the region’s glaring development needs. This is according to a report on the region’s illicit financial flows — or money illegally earned, transferred or utilized — published early this week by a joint panel commissioned by the U.N. Economic Commission for Africa and the African Union. Putting a huge dent on African economy and development progress, IFFs are caused mainly by commercial tax evasion, trade misinvoicing, abusive transfer pricing and criminal activities including drug trade, human trafficking and illegal arms dealing as well as corruption and bribery. The $50 billion lost in illegal transactions presents a classic case of money going from gold to dust: The figure could finance half of Africa’s $93 billion annual infrastructure needs for the next 10 years or send millions of kids to school for the rest of their lives. It could even fund the fight against Ebola, according to the United Nations, over 50 times. While African economies like Nigeria and Ethiopia have been enjoying growth in recent years — the region’s average growth of around 5 percent annually itself has outpaced the growth of other regions — this massive draining of resources hurts Africa’s potential. The report revealed that in the last 50 years, Africa has lost over $1 trillion in these IFFs — almost the same as the amount of official development assistance that the region has received over the same period of time. Beyond money, beyond Africa IFFs also have a costly impact on development. For example, IFFs have a profound negative effect on Africa’s pursuit of the Millennium Development Goals. The goal of reducing child mortality, while admittedly a multidimensional issue with no silver bullet solutions, can be improved if the occurrence of IFFs is curtailed. One particular case is Angola, which can reach this particular MDG by two-thirds in 17 years if its IFFs are reduced — a significant improvement compared with the 41 years that it currently needs to attain this target. But Africa is not the only victim of IFFs. A report by Global Financial Integrity in September last year revealed that from 2003 to 2012, developing and emerging economies lost a whopping $6.6 trillion in IFFs, which are growing at an alarming rate of 9.4 percent annually — “roughly as fast as global growth,” according to the GFI report. This waste of resources should be a cause of alarm for the international development community, which has been advocating for transparency and accountability. Global initiatives to combat these illegal and wasteful activities include GFI, the Organization for Economic Cooperation and Development’s Global Forum for Transparency and Exchange of Information for Tax Purposes, and Multilateral Convention on Mutual Cooperation in Tax Matters, the Extractive Industries Transparency Initiative, the U.N. Convention Against Corruption, and the Open Government Partnership, to name a few. Check out more practical business and development advice online, and subscribe to Money Matters to receive the latest contract award and shortlist announcements, and procurement and fundraising news.