Huge sums of money flowing out of Africa through corrupt practices and illegal means are robbing the continent of billions of dollars and hampering efforts aimed at achieving the Sustainable Development Goals, a new UN report said.
The report by the United Nations Conference on Trade and Development (UNCTAD) estimates illegal cash flowing out of Africa at $89 billion annually. The outflow nearly matches the total annual inflow of cash received as development assistance and foreign direct investment.
The 248-page report is the most comprehensive to date for Africa, showing that nearly half of the $89 billion is accounted for by the export of commodities such as gold, diamonds and platinum. According to the report, gold accounted for 77 percent of total under-invoiced exports worth $40 billion in 2015.
Illicit financial flows, the report found, emanate from tax evasion, corruption and offshore account and illicit flows from other criminal activities such as trafficking in drugs, weapons, humans, human organs and cultural property; counterfeiting; illegal wildlife trade, fishing trade, logging and mining; and crude oil theft.
The scale of the capital flight, said to be around 3.7 Gross Domestic Product (GDP), and the economic effect of COVID-19 threatened to affect gains African countries have made in education, health and other areas, the report said.
The General Secretary of UNCTAD, Mukhisa Kituyi, in a statement said illicit financial flows are a drain on capital and revenues of African States which could derail development on the continent. He added that Africa will need $200 billion to achieve the SDGs, however, only half of the money is available.
“Illicit financial flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions,” Kituyi said.
“Countries with high illicit financial flows invest about 25 percent less in health, 58 percent less in education than comparable countries on the continent,” Kituyi said. “And, half of the countries in sub-Saharan Africa do not have sufficiently developed domestic transfer pricing rules and regulations in their jurisprudence.”
In a video address, Nigeria’s Vice President Oluyemi Osinbajo warned that illicit financial flows fuel conflicts on the continent, undermine democracy and provide incentives for terrorists.
“The enormity of efforts required to tackle illicit financial flows is evidenced in the many dimensions the scourge presents itself,” Osinbajo said. “It manifests through harmful tax policies and practices, abusive transfer pricing, trade mispricing and mis-invoicing, legal exploitation of natural resources, as well as official corruption and organized crime.”
UNCTAD said tackling illicit financial flows and capital flight would free fiscal space for investments in infrastructure, education, health and productive capacity. In addition, it could generate substantial capital by 2030 to finance nearly half of the $2.4 trillion needed by sub-Saharan African countries for climate change adaptation