Mbabane: There is money which the continent, Sub-Saharan Africa, has lost in the form of illicit financial flows (IFFs).
In the past 38 years (1980-2018), the continent has lost almost E21.8 trillion (US$1.3 trillion through illicit financial flows. Of this illicitly shipped money to different destinations, Eswatini has not been spared and it accounts for E177.9 million over the same period, according to a report compiled by Africa Growth Initiative, published in March 2020.
According to the report, the volume of illicit flow from the Kingdom is about 25.5 per cent of the trade volume. However, there is no break down of the different amounts that were illegitimately moved out of the country. Illicit financial flows cover activities including hiding the proceeds of crime, channelling funds towards criminal destinations, and evading tariffs and taxes through misreporting of transactions.
Global Financial Integrity, a non-profit, Washington, D.C.-based research and advisory organization, defines illicit financial flows as “the illegal movement of money or capital from one country to another.”
Wider definitions generally focus on actions that are not strictly illegal, but which are undesirable because they result in reduced tax revenues, including tax avoidance actions such as strategic transfer pricing.
Based on these definitions, this suggest that these are the practices which are currently playing out themselves in the country, that has resulted in the aforesaid amount of money reported to have illicitly channelled to overseas destinations. moved out of the country.
According to the World Customs Organisations, 2018, trade misinvoicing is one method which is used to launder money for illegal transfer to another country. It occurs when exporters or importers deliberately misreport the value, quantity, or nature of goods and services inorder to evade taxes, take advantage of tax incentives, avoid capital controls, or launder money. It has been observed that multinational companies regularly evade taxes in countries where they operate, especially in developing countries, through trade misinvoicing, among other schemes.
According to the report, illicit financial outflows from Africa are concentrated in a few countries and a few sectors—in particular, the extractive and mining industries. In fact fuel exporters were responsible for nearly half of the illicit financial flows from Africa between 1970 and 2008. In addition, oil is not the sole resource conducive to illicit outflows of capital. In South Africa, the vast majority of illicit capital flows arose out of transfer pricing from the mining sector.
The top 10 leading destinations for illicit flows from Africa are China, United States, Japan, United Kingdom, United Arab Emirates, Germany, Spain, Belgium, South Korea, Democratic Republic of Congo, Zambia and Italy.
China hosts the greatest extent of illicit flows, almost twice as much as the second-position United States. Between 1980 and 2018, China hosted 16.6 percent of all estimated illicit flows from sub-Saharan African countries, while the United States hosted 9.1 percent, the United Kingdom 5.4 percent, and India 5.0 percent.
Reflecting the drastic increase in China-Africa trade in the past two decades, the majority of China’s illicit financial flows from Africa have occurred in recent years and analysis of the report authors found that 85 percent of total illicit flows to China have taken place between 2010 and 2018.
The top four emitters of illicit flows-South Africa, the Democratic Republic of the Congo, Ethiopia, and Nigeria-emit over 50 percent of total illicit financial flows from Africa.
Among the top 10 emitters of illicit flows, nine countries attribute a significant portion of total exports to natural resources: mining products in South Africa, the Democratic Republic of the Congo, Botswana, and Zambia, and oil and gas in Nigeria, the Republic of the Congo, Angola, Sudan, and Cameroon.
Natural resources provide countries with opportunities to expand the volume of total trade, which is correlated with the volume of illicit financial flows; studies also suggest that extractive industries are particularly prone to illicit financial flows.
As a percent of trade, illicit financial flows are highest – in excess of 50 per cent – in São Tomé and Príncipe and Sierra Leone.
Small countries tend to have higher illicit flows as a percent of trade, suggesting that these countries lack the capacity to sufficiently regulate their domestic resources.
Notably, however, and in contrast to this trend, Ethiopia and the Republic of the Congo are found in both the top 10 emitters of total illicit flows and the top 10 emitters of illicit flows as a percent of trade.
Impact of illicit financial flows Illicit financial flows drain resources that could be used for the continent’s development, meaning that a reduction in illicit financial flows could potentially lead to a corresponding reduction in aid dependence by increasing the availability of domestic resources.
“While illicit financial flows are a constraint to development financing in Africa, it remains difficult to assess the link between illicit financial flows and poverty reduction, as the channel through which this link materializes is through reduced government funding for poverty reduction programs such as in health and education, or through indirect channels such the negative effect of low investment on incomes,” reads the report
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