Gold makes up the largest portion of illicit capital flights from Africa, totaling tens of billions of dollars annually.  (Wikipedia Commons)

By Gary Raynaldo   DIPLOMATIC TIMES

The United Nations estimates that every year, $88.6 billion, equivalent to 3.7% of Africa’s GDP, leaves the continent as illicit capital flight. That equates to about $830 billion during the the period from the  year 2000 to 2015, according to  the U.N. Conference on Trade and Development in Africa Report 2020 released this week.  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.”  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.

“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

GOLD Is King In Africa IFF 

IFFs related to the export of extractive commodities such as gold ($40 billion in 2015) are the largest component of illicit capital flight from Africa. Although estimates of IFFs are large, they likely understate the problem and its impact, according to the report.  Of the estimated $40 billion of IFFs derived from extractive commodities in 2015, 77% were concentrated in the gold supply chain, followed by diamonds (12%) and platinum (6%).

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.

IFFs undermine Africa’s potential to achieve the SDGs

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.

Tackling IFFs requires international action

Tax revenues lost to IFFs are especially costly for Africa, where public investments and spending on the SDGs are most lacking. In 2014, Africa lost an estimated $9.6 billion to tax havens, equivalent to 2.5% of total tax revenue.

But IFFs are not just a national concern in Africa. Nigeria’s President Muhammadu Buhari said: “Illicit financial flows are multidimensional and transnational in character. Like the concept of migration, they have countries of origin and destination, and there are several transit locations. The whole process of mitigating illicit financial flows, therefore, cuts across several jurisdictions.”

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.