ADDIS ABEBA – An estimated $88.6 billion or equivalent to 3.7% of Africa’s GDP leaves the continent as illicit capital flight annually, a new report by the UN agency for trade and development (UNCTAD) estimates.
The report, entitled ‘tackling illicit financial flows for sustainable development in Africa’, shows Illicit financial flows (IFFs) are nearly as much as the combined total annual inflows of official development assistance, valued at $48 billion.
African countries annually received $54bln foreign direct investment in average between 2013 and 2015.
“Illicit financial flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions,” said UNCTAD Secretary-General Mukhisa Kituyi.
These outflows include illicit capital flight, tax and commercial practices like mis-invoicing of trade shipments and criminal activities such as illegal markets, corruption or theft.
From 2000 to 2015, the continent lost a total of $836 billion in illicit capital flight, according to UNCTAD’s report.
Compared to Africa’s total external debt stock of $770 billion in 2018, this makes Africa a “net creditor to the world”, the report says.
The illicit flows related to the export of extractive commodities – estimated to be $40 billion in 2015 – are the largest component of illicit capital flight from Africa.
‘Undermine Africa’s potential’
The report cautions that although the amounts of the illegal flows are large, the figures could underestimate the problem and its impact.
The report notes that the loss undermines African government’s ability to provide services like healthcare, education, and infrastructure.
Africa will not be able to bridge the large financing gap to achieve the Sustainable Development Goals or SDGs, estimated at $200 billion per year, with existing government revenues and development assistance, according to the report.
The report finds that tackling capital flight and IFFs represents a large potential source of capital to finance much-needed investments in, for example, infrastructure, education, health, and productive capacity.
“Illicit financial flows and corruption are inhibiting African development by draining foreign exchange, reducing domestic resources, stifling trade and macroeconomic stability and worsening poverty and inequality.” the UNCTAD secretary-general said.
The report shows that curbing illicit capital flight could generate enough capital by 2030 to finance almost 50% of the $2.4 trillion needed by sub-Saharan African countries for climate change adaptation and mitigation.
The UN agency says solutions to the problem must involve international tax cooperation and anti-corruption measures.
“The international community should devote more resources to tackle IFFs, including capacity-building for tax and customs authorities in developing countries,” the report says.
Conversely, it says African countries need to strengthen engagement in international taxation reform, make tax competition consistent with free trade protocols of the AfCFTA and aim for more taxing rights.