According to the United Nations study, Africa loses nearly $89bn a year in illicit cash flows such as tax evasion and theft, which amounts to more than it receives in official development aid.
Illicit Cash Flows
The 248-page United Nations Conference on Trade and Development’s (UNCTAD) report released on Monday which is most comprehensive to date for Africa describes Africa as a “net creditor to the world.”
It was discovered that companies under-declare the value of exports, and cheat on payments of taxes and royalties. Nearly half of the total annual figure of $88.6bn is accounted for by the export of commodities such as gold, diamonds, and platinum, the report revealed. For instance, gold accounted for 77 percent of the total under-invoiced exports worth $40bn in 2015, it showed.
UNCTAD Secretary-General Mukhisa Kituy said,
“Illicit financial flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions.”
In an interview monitored by Ghana Talks Business, the Head of Policy and Research at UNCTAD’s Africa division, Junior Davis said the figure could be much higher citing data limitations.
Not stating a commodity’s actual value conceals trade profits abroad and deprives developing countries of foreign exchange and erodes said countries’ tax base. It’s been argued by economists that despite Africa being aid-dependent, the continent is a net exporter of capital due to tax evasion and people hiding cash in offshore accounts.
These lost cash flows could have otherwise be used to provide basic social amenities or improve the health sector especially given the era of the global pandemic. Economists are therefore calling on countries to introduce stringent regulations on multinational companies and such practices as profit repatriation.
It is worth noting that in 2018, the United Nations General Assembly adopted a resolution to combat illicit cash flows.