Nexus between illicit financial flows and poverty in Africa

Tuesday, 28 January 2014 00:00
Written by Bola Olajuwon
Nigerian Guardian

TO many developmental experts and members of civil societies keen on arresting the devastating outflows of much-needed capital that is essential to achieving economic development and poverty alleviation goals in Nigeria and other African countries, the scheduled Seventh Joint African Union (AU) and Economic Commission for Africa (ECA) Conference of African Ministers of Finance, Planning and Economic Development coming up on March 27 to April 1, 2014 in Abuja will be pivotal. Ostensibly, the joint meeting with the theme, “Industrialisation for Sustainable and Inclusive Development in Africa,” aims basically to provide a platform for policy-makers to articulate concrete proposals to catalyse implementation of the Accelerated Industrial Development of Africa (AIDA) and increase commitment and actions to advance Africa’s industrial development agenda.

The conference is being organised by the ECA and the African Union Commission (AUC) in collaboration with the Nigerian government and will bring together African ministers responsible for finance, economy and economic development as well as governors of Central Banks and key leaders from the private sector.

Laudable as the aims of the forthcoming industrialisation parley sound, developmental experts and members of civil societies are more interested in the submission of a report by former President Thabo Mbeki of South Africa’s High Level Panel (HLP) on Illicit Financial Flows (IFF) from Africa initially estimated at $50 billion yearly.

The Mbeki panel, which includes nine other members, was established by the Joint AU and ECA Conference of Ministers of Finance, Planning and Economic Development and inaugurated in February 2012 in Johannesburg, South Africa with the aim of determining the nature and patterns of illicit financial outflows; establishing the level of such outflows from the continent; assessing the complex and long-term implications of IFF, consulting and sensitising African governments and other stakeholders, including development partners, on the scale of the issue and finally, proposing policies and mobilising support for practices that would reverse these outflows. The panel’s inauguration was further strengthened on a report from Global Financial Integrity (GFI), a Washington D.C.-based research and advocacy organisation, that Africa lost about $854 billion in illicit financial outflows from 1970 through 2008.

Aside the GFI report claiming that $854 billion was pilfered away, it also claims that total illicit outflows may be as high as $1.8 trillion. Of this, sub-Saharan African countries experienced the bulk of illicit financial outflows with the West and Central African region posting the largest outflow number. Nigeria tops four other countries with $89.5 billion as the highest outflow, follows by Egypt ($70.5 billion), Algeria ($25.7 billion), Morocco ($25 billion), and South Africa ($24.9 billion). The GFI report also asserted that such outflows from the entire region outpaced official development assistance going into the region at a ratio of at least 2 to 1; and growing at an average rate of 11.9 per cent per year.

GFI director, Raymond Baker, emphasised the import of the statistics, saying: “The amount of money that has been drained out of Africa - hundreds of billions decade after decade - is far in excess of the official development assistance going into African countries… Staunching this devastating outflow of much-needed capital is essential to achieving economic development and poverty alleviation goals in these countries.” Continuing, Baker added: “As long as these countries are losing massive amounts of money to illicit financial outflows, economic development and prosperity will remain elusive.”

Technically, IFF is money illegally earned, transferred or used. At origin or during movement or use, the flow of money has broken laws and is thus considered illicit. It is different from capital flight, which is understood as the movement of funds abroad to secure better returns, often as a response to an unfavourable business climate in the country of origin. IFF comprises three major components and these are: Theft, bribery and other forms of corruption by government officials; criminal activities including drug trafficking and funds money laundering, racketeering and counterfeiting as well as international commercial transactions, including tax evasion, trade mis-pricing, over-invoicing, involving mostly multinational corporations. But it excludes smuggling.

However, at the conclusion of its continental-wide consultation with stakeholders which ended with participants from West and Central African countries in Ghana recently, Mbeki himself joined others in seeking concerted and broad-based actions through continental-wide political will, participation of every citizen, global partnership and cooperation among others in fighting the menace of IFF.

Mbeki, while addressing delegates from the two regional groups at the end of a two-day consultative forum, asserted that curtailing the illicit financial flows would allow the continent to address its developmental challenges and retain such funds that illegally evade the continent each year to the developed and developing countries. “Being able to stem illicit financial flows would for instance help Africa bridge the infrastructure gap and address its huge development challenges,” he said.

According to him, the financial loss has had detrimental effects on African countries, a situation that has made them to be unable to garner the domestic resources needed to address their developmental needs. He reasoned that illicit financial flow is an African problem with a global solution and therefore, “solutions need to be found at the origin and destinations of funds.”

The assertion by the former president is not far from the truth, according to members of the civil societies at the consultation. They contended that while African countries, which are “origins of IFF”, must come up with interventions to stop the menace, western economies, which are the “destinations and beneficiaries of funnelling funds through back-doors that are deliberately opened to attract those funds,” must stop paying lip service. They reasoned that international commercial transactions, including tax evasion, trade mis-pricing, over-invoicing, involve mostly multinational corporations from western countries take the largest percentage of IFFs from Africa. In actual fact, multinational companies are responsible for 60 per cent of the IFFs and they are from western countries lampooning the state of underdevelopment in Africa. Essentially, United States (U.S.), Europe, Canada, Japan, Korea, China and India are said to be major destinations of IFFs.

In an interview with The Guardian, a participant put the culpability of western countries in perspective. He said: “Look at the issue of loots by General Sani Abacha from Nigeria. The illegal funds entered accounts in Switzerland, Britain, United States, Germany and other western countries while financial regulators looked the other way. Money stolen by corrupt officeholders in Nigeria ended up in British banks. Abacha alone reportedly laundered more than $4 billion looted from Nigeria and traced to London offices of 15 banks. About £1.5 billion looted from the Nigeria is allegedly currently sitting in British banks. More are still being looted everyday and going into real estates among others in those countries.”

Also commenting on the IFF, Acting Director, International Cooperation Department of Nigerian Institute of International Affairs (NIIA), Alex Ekeanyanwu, submitted that it was very unfortunate that Nigeria is afflicted by this cankerworm.

According to him, “a major consequence of the above scenario is that funds that should have been used to create wealth, develop infrastructure, provide social amenities, develop human capital and create employment are lost. Rather the beneficiaries are the already developed countries where this illicit money is domiciled.

“A number of reasons can be identified as to why Nigeria suffers from illicit financial flows. One is weak regulatory financial framework. Even though the Central Bank of Nigeria keeps improving on its responsibilities in this regard, it appears that those involved are some of the time a step ahead with insider connivance. The number of bank officials reportedly involved in financial crimes on a yearly basis has reached a disturbing proportion. The CBN should work in concert with the management of banks to check such abuses. Another reason is the Human Factor.There have been reported cases of seizures of large sums of money in hard currency from some intending travellers attempting to carry out Nigeria hard currencies through the international gateways. These are cases where the officials on duty at the international airports have integrity. But an observant frequent traveller through the airports will realise that some of the officers can be easily compromised.”

Ekeanyanwu advised that the judicial system should be reformed and the laws with respect to illicit financial flows reviewed periodically to meet the challenges innovations in financial crimes have brought about.

Meanwhile, the participants at the Accra consultative meeting were concerned about what becomes of the report of Mbeki panel after the submission of its report to the Seventh Joint AU and ECA Conference of African Ministers of Finance, Planning and Economic Development, in view of the slow pace and bureaucracy through which AU takes its decisions. It is reasoned that after the submission of the report, the joint meeting will deliberate on it and pass its decision to AU secretariat. And for African leaders to deliberate on it, it must first pass through the continent’s Permanent Representatives Council and the Executive Council. They reasoned that time is against African governments and people to end the menace.

However, the South Africa’s ex-president noted that political will at the level of AU was important and that his members would ensure interventions by African heads of states through protocols, conventions among others. He said it is also necessary to mobilise the youths, civil societies, women to ensure mass ownership of the reports and implementation of the final decisions.

But with yet lack of proper policies in place to reverse the IFF, delegates from the 17 African countries that attended the IFFs consultation in Accra asserted that the levels of inequality and poverty have continued to rise while Africa’s vibrant economic growth continues to benefit very few people. They observed that Africa’s transformation calls for accountable and transparent leadership, and that the time has come for the continent to act together, to fight IFFs.