News / Economy

Illicit Cash Flows Hurting African Economies

FILE - A Somali man counts his money at a Dahabshiil money transfer office in
FILE - A Somali man counts his money at a Dahabshiil money transfer office in "Kilometer Five" street of Soobe village, southern Mogadishu, May 8, 2013.
Jennifer Lazuta
Researchers working with the African Development Bank say that African countries have lost as much as $1.4 trillion in cash leakages over the last 30 years.  Much of the lost money is a result of illicit cash flows and corruption, and continues to hinder development in the region.

The amount of illicit cash flowing out of Africa has nearly doubled over the past three decades.

Illicit cash flows refer to funds leaving a country through irregular means, often to skirt local taxes. This can range from a foreign business underreporting its earnings in an African country and then funneling revenue into offshore accounts, corrupt officials embezzling state funds and tucking them away overseas, or organized crime groups just carrying cash out in suitcases.

Experts from the African Development Bank and advocacy group Global Financial Integrity (GFI) say West and Central Africa have lost the greatest amount of money.  An estimated $494 billion left those two regions between 1980 and 2009 as illicit cash flows.

Ibrahim Aidara, the economic governance program manager for the Open Society Initiative of West Africa (OSIWA), says the amount of money flowing out of the continent both legally and illegally is now nearly equal to Africa’s current total gross domestic product (GDP).

"The amount flowing out in Africa is, according to the estimation, more than all the foreign direct investment we are getting from the outside and more than the African debt by about four times, and even more than all the official aid Africa is receiving from the rest of the world," he said.

Aidara said nearly all of the loss stems from corrupt practices, such as trade mispricing, money laundering and tax evasion. The most affected countries are the ones rich in natural resources, such as oil producers Nigeria and Angola, or diamond producer Zimbabwe.

The managing director of GFI, Tom Cardamone, said that such practices undercut African economies.

"Any time you take that kind of money out of economies, certain things don’t happen," he said. "Investment in plant equipment doesn’t happen, job creation doesn’t happen, the tax revenue you would have had from those activities doesn’t exist.  Governments don’t have money to put into social programs, [like] health, education, and clean water programs.  So many things don’t happen.  It’s the opportunity cost of the loss of that money."

Cardamone says multi-national corporations should be required to report the profits they earn in each country where they work, but existing laws vary and enforcement can be nonexistent.

"There’s a push to have governments begin to require country-by-country reporting by multinationals so that taxes are paid when they are supposed to, in the amount they are supposed to be, and where they are supposed to be paid.  This is critically important for developing countries because many times… it’s companies not paying their fair share basically and putting the burden on the individual tax payers," he said.

Cardamome says a global system is necessary to tackle the problem.  That system would include public registries to track tax information, company ownership and double tax avoidance agreements to give African countries the information they need to crack down on misbehaving companies.

He says such a system is possible, but acknowledges it will take extensive effort, time and cooperation before it can be put in place, and the leakage of cash from the African continent can be stopped.

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