Africa could gain $89 billion annually by curbing illicit financial flows

Every year, an estimated $88.6 billion, equivalent to 3.7% of Africa’s GDP, leaves the continent as illicit capital flight, according to UNCTAD’s Economic Development in Africa Report 2020.

Illicit financial flows (IFFs) are movements of money and assets across borders which are illegal in source, transfer, or use, according to the report entitled “Tackling illicit financial flows for sustainable development in Africa.”

It shows that these outflows are nearly as much as the combined total annual inflows of official development assistance, valued at $48 billion, and yearly foreign direct investment, pegged at $54 billion, received by African countries – the average for 2013 to 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 total illicit capital flight from Africa amounted to $836 billion. 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.

IFFs represent a major drain on capital and revenues in Africa, undermining productive capacity, and Africa’s prospects for achieving the Sustainable Development Goals (SDGs).

For example, the report finds that, in African countries with high IFFs, governments spend 25% less than countries with low IFFs on health and 58% less on education. Since women and girls often have less access to health and education, they suffer most from the negative fiscal effects of IFFs.

Africa will not be able to bridge the large financing gap to achieve the SDGs, estimated at $200 billion per year, with existing government revenues and development assistance.

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.

Although IFFs are a major constraint to domestic resource mobilization in Africa, African governments are not yet sufficiently engaging in the reform of the international taxation system.

Transparency and cooperation between tax administrations globally and within the continent is key to the fight against tax evasion and tax avoidance.

African countries need to strengthen engagement in international taxation reform, make tax competition consistent with protocols of the AfCFTA and aim for more taxing rights.

Read the report: Tackling illicit financial flows for sustainable development in Africa.

Original source: UNCTAD