The African Development Bank (AfDB) has disclosed that illegal financial flows and profit shifting by multinational corporations operating in Africa cost the continent almost $1.6 billion every day.
AfDB Chief Economist Kevin Urama revealed this in a conversation with reporters.
According to the International Monetary Fund, illicit financial flows are cross-border financial movements that have an illegal origin (such as smuggling or corruption), transfer (such as tax evasion), or use (such as financing terrorism).
For many years, the IMF has been a major player in global initiatives to stop these ambiguous and frequently destabilising transfers. Moreover, it has long been concerned about flows that are linked to tax evasion but are not necessarily unlawful.
According to Urama, Africa was losing more foreign direct investment than it was gaining, and stakeholders should concentrate on preventing the outflow rather than pursuing inflows.
“There are a lot of things that happen on the continent that make corruption a big problem,” he remarked.
“According to some estimates, corruption costs Africa over $248 billion annually. When you combine profit shifting with illegal financial transfers totalling more than $90 billion, you will see corporations operating in Africa that may have headquarters elsewhere and use creative accounting techniques to avoid paying taxes. We are losing over $275 billion in Africa.
“When you add up all of these, which you can do through banks, you discover that Africa loses almost $587 billion annually.
“That amounts to almost $1.61 billion daily. However, we devote all of our attention to pursuing FDI, remittances, portfolio flows, government development assistance, and foreign direct investment. Together, these amounted to almost $174.5 billion in 2022, the year we conducted this study.
“We are losing three times as much as we are gaining from the global market; therefore, that is less than three times. How do we interact with the international market, then? Do we not have the incorrect priorities in mind? Because if you ask me if I’m losing over $600 billion, I’ll concentrate on preventing it rather than trying to get more. What we’re doing is tackling it.
“It all comes down to the quality of institutions, the accountability systems for institutions, and the capacity of individuals in government and public service to first understand the implications of decisions they make but also to have the tools, the regulations, the policies, the principles, and the technologies to be able to track it down and stem it,” Urama said, highlighting some strategies to stop the outflow.
“For this reason, in addition to creating these debt-related issues, the African Development Bank has created what we refer to as a Public Service Delivery Index for Africa, which gauges the quality of public services provided across all important development sectors as well as the opinions of the populace regarding those services. You may claim to have given me electricity since you installed a pole and ran cables behind my property, but it’s possible that I haven’t been able to connect.”
Nigeria has been on the Money Action Task Force’s graylist since February 2023, in part because of illicit money flows.
However, the Nigerian Financial Intelligence Unit said in October that at its most recent plenary meeting, FAFT had accepted the nation’s fourth progress report.
“Practically sending money home is impossible, and if we are talking about driving remittances and FDI’s, then we need to get out of the Grey List,” Philip Ikeazor, the deputy governor of the Central Bank of Nigeria, reaffirmed the commitment to leaving the Grey List while speaking on the sidelines of the most recent IMF annual meetings in Washington.
Outlining steps to achieve this goal, CBN Governor Yemi Cardoso stated that cooperation with Nigeria’s diaspora and international money transfer companies, as well as more stringent oversight, were essential.
