Illicit financial flows: Africa a net creditor to the rest of the world

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The result of over eight months of research is overwhelming: since 1980, Africa has lost the same amount of money it received from abroad, from all sources, due to illicit financial flows, according to a joint report launched Wednesday by the African Development Bank (AfDB) and Global Financial Integrity (GFI). The report was discussed during the Bank’s Annual Meetings in Marrakech, as part of a seminar entitled: “Africa’s illicit financial flows: What do they tell us?”

“We traditionally think that it is only the countries from the North that pour their money in Africa with the aid and flows of the private sector, without getting anything in return,” said Raymond Baker, President of GFI, a Washington-based organization. Our report shows the opposite: Africa has become a net creditor to the rest of the world during the last decades."

Between 1980 and 2009, the net transfers of financial resources directed from Africa to the rest of the world were estimated at between US $597 billion and $1.4 trillion. Illicit transfers over the same period increased within a range of US $1.22 to $1.35 trillion, the report shows.

“Resources drawn from Africa over the last 30 years, almost equivalent to the continent’s current GDP, have crippled Africa’s economic take-off,” stated AfDB Chief Economist and Vice-President, Mthuli Ncube.

“The continent is suffering a hold-up in broad daylight and that has to stop. The level of political engagement needs to be at the highest level,” estimated the Norwegian Minister of International Development, Arvinn Gadgil, during the presentation of the report, calling for Africa to assume responsibility over the global movement for more financial transparency.

The report, entitled “Illicit financial flows and the problem of net resource transfers from Africa: 1980-2009”, is based on data disclosed by African States to the World Bank and the International Monetary Fund and on estimates of unregistered illicit transfers confirmed by other published research.

Moreover, there is an illegal division of illicit financial flows: the countries in Sub-Saharan Africa have lost more resources than Northern Africa during the period analyzed, but the trend is about to turn. The report also shows that the countries rich in natural resources, namely oil exporters from West Africa and Central Africa, have contributed to a large share of capital flows leaving the continent.

The report does not explain the reasons in depth for this capital flight, estimating that more research needs to be done in the different countries.

The researchers assume that “non-registered capital flows are illicit by nature and refer to transfers of money obtained through corruption, bribes, tax evasion, criminal activities and smuggling. Similarly, legal funds obtained through legal activities, but transferred abroad infringe exchange control regulation, thus becoming illegal.”

“In terms of the volume of illicit financial funds, Nigeria, Egypt and South Africa are at the top of the ranks. In West Africa and Central Africa, the illicit capital flight is the order of the day in Nigeria, Republic of Congo and Ivory Coast, by order of importance, while illicit capital flight in North Africa is particularly dominated by Egypt, Algeria and Libya, respectively. In Southern Africa, capital flight is mainly dominated by South Africa, Mauritius and Angola,” the report explains.

Baker highlighted that illicit money has three main sources: “Corruption represents approximately 5% of the total, crime 30% to 35%, while commercial fraud and price fraud 60% to 65%.”
According to him, the phenomenon cannot “be fully eradicated, but it can be stemmed. This is an issue of political will.”

Some measures have been evoked in the report to fight against illicit financial transfers. They are articulated along three lines: initiatives to restrain the absorption of illicit financial flows in the receiving countries, policies aiming to limit illicit financial flight from Africa, and finally, policies to boost registered net transfers through the improvement of the business environment.

The intervening parties insisted on the need to reinforce transaction transparency and the surveillance of the different economic operators, which could be achieved namely through a reinforcement of the states’ capabilities in customs and taxation, for example.

However, to achieve efficiency, these policies should be implemented in the context of an increased cooperation between the countries all over the world, both the beneficiaries and the victims of capital flight, in the fight against money laundering and tax havens.