Africa is losing large amounts of money through trade misinvoicing and leakages in the balance of payment with the active connivance of its political class, making illicit financial flows (IFFs) one of the major sources of economic loss to the continent.
Through the manipulation of trade figures and leakages in the balance of payment, all African countries put together lost more than $862.6 billion from 2004 to 2013 according to ghanabusinessnews.com computations of data published by the Global Finance Integrity, (GFI) a not-for-profit research organization based in Washington DC that focuses on illicit financial flows.
South Africa is the largest loser. The country lost more than $209 billion, followed by Nigeria, which lost more than $178 billion during the period. Figures for Somalia were not available, and figures for Sudan, was at a time that South Sudan was part of the country, South Sudan has since seceded from Sudan.
The GFI found out the losses by measuring illicit financial outflows using two sources: 1) deliberate trade misinvoicing (gross excluding reversals or GER) and 2) leakages in the balance of payments (hot money narrow or HMN).
In a response to ghanabusinessnews.com on the matter, Economist, Joseph Spanjers of the GFI said, “This staggering figure represents countless lost opportunities for domestic resource mobilization across Africa. Illicit financial flows drain not only potential public revenues, they also reduce domestic private sector investment as money instead flows offshore.
Countries can work together to stem these flows by implementing the automatic exchange of tax information, enacting beneficial ownership information, and strengthening cooperation across customs agencies to combat smuggling and trade misinvoicing.”
Illicit financial flows (IFFs) are a major source of income loss around the world, reaching $1.1 trillion in 2013, the GFI found .
The developing world lost $7.8 trillion between 2004 and 2013, the last year for which data are available.
“Trade misinvoicing is the primary measurable means for shifting funds out of developing countries illicitly.
Over the ten-year time period of this study, an average of 83.4 per cent of illicit financial outflows were due to the fraudulent misinvoicing of trade,” the GFI said.
Latest revelations from the Panama Papers show that some 1400 offshore companies registered by Mossack Fonseca are doing business in 44 of the 54 African countries.
According to the report, the Mossack Fonseca’s files reveal offshore companies that were established to own, hold or do business with petroleum, natural gas and mining operations in 44 of Africa’s 54 countries. These industries have been found to be fraught with the conditions that facilitate IFFs from Africa.
The report also, pointed out that companies that drill or dig for oil, gas, diamonds, gold and other resources have long been dogged by evidence that contracts are often secured through bribery and other corrupt tactics that benefit a few and harm average citizens, in reference to cases involving 12 of 17 companies under investigation by authorities in Italy in relation to a $10 billion oil and gas deal in Algeria. All the ventures were created by Mossack Fonseca, the report said..
Citing corruption experts, the report noted that suspect mining and energy deals are usually organized through secretive companies and hard-to-trace bank accounts.
By Emmanuel K Dogbevi
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