Tuesday, September 29, 2020

Africa - a net creditor to the world

 Africa is losing nearly $89bn a year in illicit financial flows (IFFs) such as tax evasion and theft an estimate, published by the United Nations Conference on Trade and Development. It shows an increasing trend over time and is higher than most previous estimates and it is most likely an underestimate.

$88.6 billion is equivalent to 3.7 per cent of the continent’s GDP. 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. 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

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

According to the report 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.

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 said. For example, gold accounted for 77 percent of total under-invoiced exports worth $40bn in 2015, it showed (diamonds, 12 per cent and platinum ,6 per cent). Understating a commodity’s true value helps conceal trade profits abroad and deprives developing countries of foreign exchange and erodes their tax base, UNCTAD said. IFFs are concentrated in high-value, low-weight commodities, especially gold.

The report calls Africa a “net creditor to the world”, echoing economists’ observations that the aid-reliant continent is actually a net exporter of capital because of these practices.

 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.

 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.


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