Illicit financial flows are among the constraints to the development of South Africa according to Professor Serges Kamga from the Thabo Mbeki African School of Public and International Affairs at the University of Pretoria. Moreover, he notes that this problem affects the entire continent with experts putting the figure at US$88.6 billion annually – almost half the amount needed for the implementation of the Sustainable Development Goals.
Although little information regarding this issue has been made public so far, Professor Kamga pointed out the findings of the Zondo Commission – the Judicial Commission of Inquiry into Allegations of State Capture. The commission is responsible for conducting a public investigation launched by the government of former South African President, Jacob Zuma in January 2018 to “investigate allegations of state capture, corruption, fraud, and other allegations in the public sector including organs of state” in the country.
“In South Africa, revelations at the Zondo Commission saw a lot of corruption unveiled, where a lot of money from South Africa went abroad,” Professor Kamga noted in his recently published book, Illicit Financial Flows from South Africa: Decolonial Perspectives on Political Economy and Corruption.
Michael Marchant, a researcher at Open Secrets, has noted that state capture would not have been possible without the willingness of both domestic and foreign banks to facilitate obviously unlawful transactions and illicit financial flows for years without taking decisive action to stop this.
Kamga’s research cuts across society and zooms in on how illicit financial flows affect human rights and contribute to extreme poverty. It also takes a bird’s eye view of the macro-economic impact, exploring the nexus of illicit financial flows and the downgrading of South Africa to below investment grade level at the onset of the COVID-19 pandemic in March 2020 and the start of the strict lockdowns that ravaged the country’s private sector.
“It is necessary to consider solutions to these challenges. Should rating agencies be reactive or should they be constructive in combatting illicit financial flows? The ethics of power demonstrates how people in power in their illicit activities violate rights to development in the country,” he explained.
Professor Cephas Lumina, former United Nations Independent Expert on the effects of foreign and other related international financial obligations of states on the full enjoyment of all human rights, particularly economic, social and cultural rights, said:
“As of last year, the total volume of illicit financial flows on the continent was US$88.6 billion annually. In terms of development, implementation of the Sustainable Development Goals it is estimated to require about US$200 billion every year. So, about half of the required amount is leaving the continent. It is a huge financing gap.”
“Illicit financial flows can have adverse implications for foreign debt levels. Typically, when a government faces a fiscal deficit, it often has to borrow to meet financing needs. Illicit financial flows represent foregone revenue, revenue the country has lost, including revenue from potential tax streams. This will compound a government’s indebtedness,” he explained.
A recent report from the Institute for Economic Justice, titled The impact of public debt on human rights during COVID-19, notes that the country should be doing more “to tackle illicit financial flows that rob South Africa of much-needed tax revenue.”
This comment was made on the back of the significant rise in the country’s debt-to-GDP ratio since 2008 from 26.02% to 80.3% in 2020/21. This has largely been driven by reduced tax revenues and increased spending in the aftermath of the 2007/08 global financial crisis, domestic economic stagnation (a slow-growing or not growing economy), and high borrowing costs.
The National Treasury projects that this ratio will rise to 88.9% in 2023 with the projection largely the result of the COVID-19 crisis.
