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Africa loses $88.6b to illicit financial flows but receives $48b in aid – UNCTAD

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As the impacts of illicit financial flows (IFFs) from Africa continue to be felt in many ways, a new study by the UN agency on trade, the United Nations Conference on Trade and Development (UNCTAD) shows that every year the continent loses $88.6 billion to IFFs, and that amount is equivalent to 3.7 per cent of the continent’s GDP.

The UNCTAD’s Economic Development in Africa Report 2020, titled “Tackling illicit financial flows for sustainable development in Africa,” launched today September 28, 2020 says this shows that these outflows are nearly as much as the combined total annual inflows of official development assistance, valued at $48 billion, and yearly foreign direct investment, pegged at $54 billion, received by African countries – the average for 2013 to 2015.

According to the report copied to ghanabusinessnews.com, these outflows include illicit capital flight, tax and commercial practices like mis-invoicing of trade shipments and criminal activities such as illegal markets, corruption or theft.

From 2000 to 2015, the total illicit capital flight from Africa amounted to $836 billion. Compared to Africa’s total external debt stock of $770 billion in 2018, this makes Africa a “net creditor to the world”, the report adds.

Of the estimated $40 billion of IFFs derived from extractive commodities in 2015, 77 per cent were concentrated in the gold supply chain, followed by diamonds (12 per cent) and platinum (6 per cent).

It notes further that, IFFs related to the export of extractive commodities amounting to $40 billion in 2015, are the largest component of illicit capital flight from Africa. Although estimates of IFFs are large, they likely understate the problem and its impact.

“Illicit financial flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions,” UNCTAD Secretary-General Mukhisa Kituyi is quoted as saying.

IFFs, the report points out, represent a major drain on capital and revenues in Africa, undermining productive capacity and Africa’s prospects for achieving the Sustainable Development Goals (SDGs).

One example the report finds is that, in African countries with high IFFs, governments spend 25 per cent less than countries with low IFFs on health and 58 per cent less on education. Since women and girls often have less access to health and education, they suffer most from the negative fiscal effects of IFFs, it said.

The report indicates that in Africa, IFFs originate mainly from extractive industries and are therefore associated with poor environmental outcomes, and shows that curbing illicit capital flight could generate enough capital by 2030 to finance almost 50 per cent of the $2.4 trillion needed by sub-Saharan African countries for climate change adaptation and mitigation.

It finds also that IFFs are concentrated in high-value, low-weight commodities, especially gold.

In its analysis, the report also demonstrates that IFFs in Africa are not endemic to specific countries, but rather to certain high-value, low-weight commodities.

Of the estimated $40 billion of IFFs derived from extractive commodities in 2015, 77 per cent were concentrated in the gold supply chain, followed by diamonds (12 per cent) and platinum (6 per cent).

According to the UNCTAD, the aim of the report is to equip African governments with knowledge on how to identify and evaluate risks associated with IFFs, as well as solutions to curb IFFs and redirect the proceeds towards the achievement of national priorities and the SDGs.

By Emmanuel K. Dogbevi

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