The African Development Bank has revealed that the continent loses about $1.6bn every day to illicit financial flows and profit shifting on the part of multinationals operating in Africa.
This was disclosed by the Chief Economist of AfDB, Kevin Urama, in an exclusive interview with The PUNCH.
According to the International Monetary Fund, illicit financial flows refer to the movement of money across borders that is illegal in its source (e.g. corruption, smuggling), its transfer (e.g. tax evasion), or its use (e.g. terrorist financing).
For decades, the IMF has played a key role in international efforts to combat these opaque and often destabilising transfers. It also has longstanding concerns with flows that are not strictly illegal but are associated with tax avoidance.
Urama said that Africa was losing more than it was getting back via Foreign Direct Investment and said that the focus of stakeholders should be on blocking the outflow rather than chasing inflows.
He said, “There are so many things that happen on the continent that actually make corruption a big issue. And some estimations show that Africa loses about 248 billion US dollars every year due to corruption. If you add illicit financial flows of over $90bn and add profit shifting; corporates operating in Africa but then maybe have headquarters somewhere else and they find clever accounting ways of legally not paying taxes. In Africa, we are losing about $275bn. When you sum all these up, these are things you can trace through banks, then you find that Africa is losing about $587bn every year.
“That’s about $1.61bn every day. Yet we spend all our time chasing FDI, foreign direct investment, official development assistance, portfolio flows and remittances. All these together during the year we did this study for 2022 was about $174.5bn. That’s less than three times, I mean what we are losing is three times more than what we are getting from the global market. So how do we engage with the global market? Are we not focusing on the wrong priorities? Because if you ask me if I’m losing almost $600bn, I will focus on how not to lose it instead of going to get more. Tackling it, is what we are doing.
Highlighting some of the ways to shut the door on the outflow, Urama said, “It all comes down to the quality of institutions, the accountability systems for institutions, the capacity of individuals in government, in public service to first understand the implications of decisions they make but also to have the tools, the regulations, the policies and principles and technologies to be able to track it down and stem it.
“And that is why in the African Development Bank, we not only are developing these issues on debt but we’ve also now developed what we call a Public Service Delivery Index for Africa which measures the quantum of public services delivered in all key sectors of development but also the perceptions of the citizens on how that public service is. You may say you have provided electricity to me because you put a pole and wires passed behind my house, but maybe I have not been able to connect.”
Illicit financial flows were one of the reasons Nigeria has been on the greylist of the Financial Action Task Force since February 2023.
However, the Nigerian Financial Intelligence Unit in October said that FAFT had approved the fourth progress report of the country at its last plenary meeting.
Speaking on the sidelines of the last IMF’s annual meetings in Washington, Deputy Governor, Central Bank of Nigeria, Philip Ikeazor reinforced the commitment to exiting the grey list, saying, “Practically sending money home is impossible and if we are talking about driving remittances and FDI’s then we need to get out of the Grey List.”
The CBN Governor, Yemi Cardoso outlining measures to meet this target, said stronger oversight and collaboration with international money transfer operators and Nigeria’s diaspora were key.
