Africa loses $1.6bn daily to illegal cross-border financial flows – AfDB

The African Development Bank Group (AfDB), has revealed that Africa loses almost $1.6 billion daily due to illicit financial flows and profit sharing relating to African multinational organizations. The agency explained that these illicit operations have been a major player in corrupt practices, as the region loses $587bn yearly.

The group pointed out that Africa has been losing out on foreign direct investment, losing more than it was getting back. It stressed that stakeholders across the region should be focused on blocking the outflow rather than chasing inflows.

The International Monetary Fund (IMF) defines illicit financial flows as the movement of money across borders that is illegal in its source, transfer, or use. These flows can range from corruption to smuggling, tax evasion, and terrorist financing.

According to the Chief Economist of AfDB, Kevin Urama, he pointed out that Africa is already on the losing end to corruption, and adding the illegal financial flow to the list makes it worse.

“There are so many things that happen on the continent that actually make corruption a big issue. Some estimates show that Africa loses about $248 billion every year due to corruption. If you add illicit financial flows of over $90bn and add profit shifting; corporates operating in Africa but then maybe have headquarters somewhere else and they find clever accounting ways of legally not paying taxes,” he said.

Urama stated that Africa loses $275bn to tax evasion which can be traced through banks, bringing the total yearly loss to about $587bn.

“That’s about $1.61bn every day. Yet we spend all our time chasing FDI, foreign direct investment, official development assistance, portfolio flows, and remittances. All these together during the year we did this study for 2022 was about $174.5bn,” he said.

Furthermore, Urama called for the redirection of focus in tackling the issue which spurs from working towards reducing the continuous accumulation of existing loss over gaining more. 

“What we are losing is three times more than what we are getting from the global market. So how do we engage with the global market? Are we not focusing on the wrong priorities? Because if you ask me if I’m losing almost $600bn, I will focus on how not to lose it instead of going to get more,” he added. 

The United Nations Conference on Trade and Development (UNCTAD) has estimated Africa to lose substantial resources through illicit financial flows. According to the agency, these flows originate from several sources like revenues from illegal activities, tax avoidance, abusive profit-shifting, trade mis-invoicing, corruption, and others.

Meanwhile, the IMF has been making significant efforts to combat these opaque and often destabilizing transfers globally. Its aim also has longstanding concerns with flows that are not strictly illegal but are associated with tax avoidance.

Combating illicit financial operations in Africa

While stating ways to combat the flow of illicit financial operations, Urama expressed that it all boils down to various stakeholders understanding the implications of every decision they make. The quality, and accountability systems of institutions, regulations, policies, and, technologies will then be harnessed to track down and tackle the problem.

He then pointed out that as part of its own commitment to bringing solutions, the African Development Bank has established a Public Service Delivery Index for Africa project which monitors the public service delivery across every sector. 

“And that is why in the African Development Bank, we not only are developing these issues on debt but we’ve also now developed what we call a Public Service Delivery Index for Africa which measures the quantum of public services delivered in all key sectors of development but also the perceptions of the citizens on how that public service is. You may say you have provided electricity to me because you put a pole and wires passed behind my house, but maybe I have not been able to connect,” he said.

For Nigeria, illicit financial flows have affected the country in being on the greylist (weak financial system) of the Financial Action Task Force since February 2023. The Nigerian Financial Intelligence Unit and the Central Bank of Nigeria’s (CBN) Deputy Governor, Philip Ikeazor reinforced the commitment to exiting the grey list. 

“Practically sending money home is impossible and if we are talking about driving remittances and FDI, then we need to get out of the Grey List,” he said. 

The CBN Governor, Yemi Cardoso also stated that collaboration with international money transfer operators and Nigeria’s diaspora is key to strengthening Nigeria’s financial system.

Recall that CBN’s whistleblowing website is set to go live on January 1, 2025, which underscores the bank’s strategy for a transparent and credible operational framework across the Nigerian financial system.

In a bid to maintain its set standards toward creating a safe environment for all, the bank stated that the platform was designed for individuals to engage in all forms of misconduct without fear or intimidation.

Read More: CBN launches whistleblowing website, to go live on January 1, 2025.