Coalition for Dialogue on Africa (CDA), an initiative of the African Union that focuses on illicit financial flows (IFFs) in Africa, is deliberately seeking to combat illegal movements of money from tax evasion to corruption, and crime, to help accelerate growth of African countries.
In its two reports unveiled on March 24, the “successes and Challenges of implementing the recommendations of the AU IFFs” and the “Five Years of Common African Position on Asset Recovery”, CDA reveals that Africa loses $50 billion per annum through illicit financial flows.
The reports add that rising cases of illicit financial flows from Africa to foreign countries are primarily driven by “trade mispricing, aggressive tax avoidance, profit shifting, unequal contracts and commercial misinvoicing.”
At least 65 percent of this is lost through commercial activities, while the remaining 35 percent is on the back of criminal activities and corruption, CDA adds, indicating that these losses continue to rise despite the fact that African countries have in place institutions to combat IFFs, such as financial intelligence units, transfer pricing units, and beneficial ownership registries.
According to Dr. Redge Nkosi, executive director at FirstSource Money, with the rapid growth of financial outflows comes challenges of development and growth. To Nkosi, there is need to analyze the gaps and take collective action in battle against significant leakage caused by illicit financial outflows.
He says key measures that will help change the narrative and plug the leakage include strengthening regulatory frameworks, enhancing tax transparency, and implementing strict beneficial ownership registers to combat corruption-linked hiding of assets that are crucial for the continent’s sustainable development.
“Around 2015, there was $50 billion in loss to the African economy. 10 years later, we have doubled that number. It’s now $90 billion,” Dr. Nkosi says.
The result is African countries under strain where funds that could be used for expanding education, health and other development activities are repatriated to foreign accounts.
Prof. Florens Luoga believes that Africa has the capacity to plug the resources leakage which works roughly to $90 billion at the moment.
“Multinational companies,” he points out, “are actually looting our economy” so much that “we need to come up with suggestions and strategies on how to come out of the predicament that we are facing.”
“Initial financial flows have kept growing without stopping, greatly raising the opportunity cost for Africa, which is experiencing a 2.4 percent annual population growth. Recent international efforts like the United Nations Convention on Global Tax Cooperation are positive steps; however, ongoing issues with global debt restructuring and unequal governance in international financing institutions it’s too soon to celebrate success,” Dr. Abdalla Hamkok, CDA’s chair of Board of Directors and former Prime Minister of Sudan, says.
