Illicit Financial Flows (IFFs) continue to weaken Africa’s resource mobilisation efforts, with crippling impact on country-level development, at a time when the continent is battling the disruptive economic effect of the Covid-19 pandemic.
African countries are estimated to be losing up to US$89 billion per year to illicit financial flows, dwarfing the amount of official development assistance the continent receives annually. IFFs come in various forms such as cross border exchanges of value, monetary or otherwise, which are illegally earned, transferred or used.
Economic experts say IFFs are a shared problem and a shared responsibility for developed and developing countries whose economic impacts are a major development issue across the globe. African economies are believed to be suffering more from IFFs given that their sustainable development prospects critically pivot on massive investments.
In Zimbabwe, illegal forex dealers and other illicit money deals outside the formal system have resulted in a huge loss of revenue with impact on budgetary deficit, according to the Reserve Bank Governor, Dr John Mangudya.
The latest United Nations Conference on Trade and Development (UNCTAD) Economic Development in Africa 2020 Report, stresses the need for the continent to urgently tackle the scourge of illicit financial flows so as to bring about sustainable development in line with the global 2030 Agenda.
The report shows that the large financing gap for the Sustainable Development Goals (SDGs) cannot be closed solely through Government revenues but tackling illicit financial flows as well. This is more significant in the aftermath of the Covid-19 as African countries will need to intensify their resource mobilisation efforts to reboot economies and steer robust development.
Tackling IFFs, thus, is envisaged to open the door to releasing much needed investments in education, health and productive sectors.
UNCTAD secretary-general, Mukhisa Kituyi, is quoted in the report saying: “Illicit financial flows and corruption are inhibiting African development by draining foreign exchange, reducing domestic resources, stifling trade and macro-economic stability and worsening poverty and inequality.
“These illicit flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions.”
African governments and private sector actors have since been called to take the lead in strengthening “stolen asset” recovery and setting new standards for curbing IFFS and committing to more concerted actions to combat attendant negative impacts.
Revenue authorities within the region and lobby organisations such as the African Tax Administration Forum (ATAF), have equally expressed concern that in the face of high capital flight, tax avoidance and a marked dependence on corporate income taxes, African states risk suffering significant constraints to widening their tax base. In the 2020 UNCTAD report, Nigerian President Muhammadu Buhari expands the fact that IFFs often involve funds from jurisdictions with scarce resources for development financing, depleted foreign reserves, drastic reduction in collectable revenue, tax underpayment or evasion and poor investment in-flows.
“The whole process of mitigating illicit financial flows, therefore, cuts across several jurisdictions,” he said, adding: “These jurisdictions may protect fake charitable organisations, facilitate money-laundering, warehouse disguised corporations and conceal anonymous trust accounts.”
However, the growing awareness of the scale, scope and cost of illicit financial flows is stoking growing scepticism about the power of collective action versus unilateral measures. This is critical given the seemingly worldwide loss of trust in multi-lateralism, which is weakening the capacity of globalisation to deliver a more sustainable and fairer world.
Anchored on an inclusive approach that integrates a gender lens and gives voice from multiple vantage points to various actors, the UNCTAD 2020 report seeks to tackle the relationship between illicit financial flows and the economic, social and environmental dimensions of sustainable development in Africa.