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Costs of Illegal Flows in Africa
By admin November 28, 2014

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Africa is losing about $150 billion annually due to illegal financial flows through corruption, financial embezzlement and tax incentives to conglomerates. Between $1.2 trillion and $1.4 trillion has left Africa in illicit financial flows between 1980 and 2009, roughly equal to Africa’s current gross domestic product, and surpassing by far the money it received from outside over the same period. Illicit financial flows are money earned illegally and transferred for use elsewhere. The money is usually generated from criminal activities, corruption, tax evasion, bribes and transactions from cross-border smuggling The African Forum and Network on Debt and Development (AFRODAD),  organized the Financing Africa’s Structural Transformation Pan African Conference, titled “Curbing Illicit Financial Flows and Mobilizing Domestic Resources.” At the conference, policy director Tafadzwa Chikumbu said Africa would not need any external financial aid if it could curb illicit financial flows. Zimbabwe is one of the countries that are suffering from illicit financial flows. Zimbabwe’s diamond trade has been operating clandestinely since it was discovered in Marange in 2007. Former Finance minister Tendai Biti stated during the tenure of the inclusive government that diamond revenue was not reaching the treasury. The composition of these outflows also challenges the traditional thinking about illicit money. According to estimates by Global Financial Integrity, corrupt activities such as bribery and embezzlement constitute only about 3% of illicit outflows criminal activities such as drug trafficking and smuggling make up 30% to 35% and commercial transactions by multinational companies make up a whopping 60% to 65%. Contrary to popular belief, argues Professor Baker, money stolen by corrupt governments is insignificant compared to the other forms of illicit outflow. The most common way illicit money is moved across borders is through international trade.

Illicit financial flows are affecting developing countries more, and undermining African states in their effort to mobilize domestic resources and transform the lives of their citizens. Illicit financial flows undermine the role of the states in mobilizing internal resources and some would argue that because of this, greater calls for social transformation are openly expressed. Most African governments end up relying on external sources of finance, and this weaken the country’s political institutions. Most countries with high illicit finance inflows have high poverty levels. A September report by the Zimbabwe Vulnerability Assessment Committee (ZIMVAC) estimates that 63 percent of Zimbabweans are poor, with 16 percent of the country’s 12.5 million people deemed extremely poor. While the number of extremely poor households in the country has reduced from 42.3 percent in 2001, Sydney Mhishi, a principal director in the Ministry of Labour and Social Welfare in Zimbabwe, told IPS that there is an overwhelming demand for cash transfers because of rising poverty and inequalities, mostly in rural areas.

Though Zimbabwe has vast natural resources, the blessings of its natural wealth have not benefited its people. The nation has of some of the largest diamond and platinum reserves in Africa and the world, and has over 40 exploitable minerals. All of this could potentially transform the lives of Zimbabwe’s citizens. But the valuation of the country’s mineral deposits, experts say, remains unknown because of the shadowy arrangements under which most Zimbabwean mines are being exploited. The Zimbabwe Environmental Law Association (ZELA) points to a dearth of transparency and accountability in the management of the Marange diamond mines. Africa is taken advantage of by powerful nations when they offer tax incentives and tax holidays to attract foreign investment. African governments need to be more objective and take control of its resources, particularly in the extractive industry which generates about $3.5 trillion in global annual gross revenue. Financial flows in the mining industry are rampant due to declared revenue. The industries are affected by bribes, undervalued royalties, corruption, tax evasion and financial embezzlement. Zimbabwe earned $596.4 million from mineral revenue during first half of 2014, which is an 8% decline when compared with the same period the prior year, figures released by the Minerals and Marketing Corporation (MMCZ) indicate. The state owned minerals marketing company said during the period under review, the mining industry faced a cocktail of challenges, among them, high production costs, constrained capital and liquidity, resulting in an 8% revenue fall from the $652m realised in 2013.

“Illicit financial inflows cause inequalities because the government loses revenue that should in turn be redistributed to the poor through the trickle-down effect. The rich should pay taxes and subsidize the underprivileged so that they get access to social services”, said Janet Zhou, a programs director with the Zimbabwe Coalition on Debt and Development. Zimbabwe has been affected by illicit financial flows, as money is illegally transferred or utilized elsewhere usually through criminal activities, corruption, tax evasion, bribes and cross-border smuggling. Research conducted in August by AFRODAD and the Zimbabwe Economic Policy Analysis and Research Unit approximates that between 2009 and 2013, cash-strapped Zimbabwe lost $2.85 billion dollars through illicit financial flows in mining, fisheries, forestry and illegal safari activities.

 

More can be found on:

https://www.newsday.co.zw/2014/11/05/africa-losing-150bn-illegal-financial-flows/

http://allafrica.com/stories/201410280988.html

http://www.postzambia.com/news.php?id=4193

http://www.un.org/africarenewal/magazine/december-2013/illicit-financial-flows-africa-track-it-stop-it-get-it

http://www.thezimmail.co.zw/2014/07/30/mineral-revenue-falls-by-8-to-596m/

 

 

 


Thanks for sharing !


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