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Can the AfCFTA minimise trade misinvoicing and illicit financial flows in Africa?

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The African Continental Free Trade Area (AfCFTA) launched last year, aims to make trade easier and more lucrative for businesses and countries across Africa, but there are concerns that it will not do enough to counter trade misinvoicing, whereby import and export reports are falsified to avoid duties and other taxes.

The debate as to whether the AfCFTA will fight or fuel this kind of illicit financial flows (IFFs) still rages between civil society, academia and government officials.

One school of thought believes that trade misinvoicing – which entails movement of money illicitly across borders by deliberately falsifying value, volume and type of commodity in an international trade – would be business-as-usual and the continent will continue to bleed the much needed revenue as a result of this type of IFF.

The Global Financial Integrity (GFI), a Washington-based non-profit research and advisory entity, lists the main channels for IFFs as nefarious commercial activities of multinational companies, drug trafficking, money laundering as well as smuggling, bribery, embezzlement and trade misinvoicing.

Mr Benjamin Boakye, Executive Director of the Africa Centre for Energy Policy (ACEP), a think-tank in energy and the extractives industry believes the “AfCFTA will be business as usual” wondering what changes the new regime would bring since there are existing laws and protocols to check the illicit practice.

The phase one of the AfCFTA agreement, which became operational in July, 2019, is to harness trade potentials of the continent through intra-African trading mechanisms to create a single continental market for goods and services, with free movement of business, persons and investments, and thus pave the way for accelerating the establishment of the customs union to ease trading.

It is also expected to expand trade through better harmonisation and coordination of trade liberalisation including facilitation across Africa by 2030, and it is anticipated to increase Africa’s trade volumes from 17 per cent  to 52 per cent valued at $35 billion by 2022 with a combined population of 1.3 billion in 54 countries.

The other school of thought is optimistic that the AfCFTA is working towards tightening laws to curb trade misinvoicing with the hope that the new protocols in the agreement would mitigate under or over-invoicing cascading into IFFs.

Dr Stephen N. Karingi, Director, Regional Integration and Trade Division, Economic Commission for Africa, said it would be hard for people and businesses to misprice, under or over-invoice in the case of Ghana and the continent at large with the new regime.

He said the AfCFTA offers utmost transparency and dispute resolution mechanisms as well as rules of origin and uniform custom liberalisation schemes, which could minimise misinvoicing, transfer pricing and profit shifting.

‘‘When the next phase delivers all the investment opportunities, rolls-out the intellectual property rights as well as electronic and data commerce, and protection of other protocols, incidences of trade misinvoicing and IFFs would be hugely impeded.’’

Mr Mickson Opoku, who is in charge of Multilateral, Regional and Bilateral Trade at Ghana’s Ministry of Trade and Industry said a payment system developed by the Africa Export-Import Bank (Afreximbank) for the new AfCFTA scheme has the capacity to address cross border currency transactions to ward-off trade misinvoicing.

He said, ‘‘Punitive measures emanating from flouting regulations will serve as disincentive to launder money, shift profits or transfer price goods and services.’’

Mr Opoku said service protocols under the AfCFTA will be guided by transparency and with non-tariff barriers it will become the platform to monitor and track transactions with electronic software on the intra-African corridor to ward-off trade misinvoicing.

Nonetheless, the GFI 2020 report on trade misinvoicing released March 3, 2019 classified Ghana among the largest average trade value gaps of $3.75 billion, which translates to 26.5 per cent of the country’s dealings with all its global trading partners.

The report indicated that Ghana’s trade value gap or mismatches – which occurs when trade receipts between two countries disagree – equals $5 billion in 2017 alone with the value gaps for the global situation involving 135 developing countries and 36 advanced nations over a period of 10 years spanning 2008-2017 totalling $8.7 billion.

Basically, every illicit outflow through trade misinvoicing channel represents value that could have been kept in the country and invested in more productive activities that could lead to job creation and national economic development, which has major ramification for the quality of everyday life in Ghana and the population of the continent.

Again, according to the Mbeki high-level panel on IFFs published in 2015, Africa loses $50 billion annually in illegal transactions and trade misinvoicing is one of the methods contributing to the loss.

The panel suggests up to some $1 trillion may have been lost by Africa in the past 50 years.

By Maxwell Awumah

This story was produced by Ghana Business News. The story is part of Wealth of Nations, a media skills development programme run by the Thomson Reuters Foundation in partnership with the Institute for the Advancement of Journalism. More information at www.wealth-of-nations.org. The content is the sole responsibility of the author and the publisher.

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