Africa Business Communities

[Column] Bob Koigi: The private sector must take lead role in taming Africa’s illicit financial flows

In the last 50 years, Africa has lost more than $1 trillion dollars of its wealth to illegal financial activities that extends beyond its borders, orchestrated by multinationals, private sector, government officials and organized criminal groups with the practice now evolving into a sophisticated and serious one.

This, even as the continent grapples with raising resources to address some of the most pressing needs across infrastructure development, affordable housing for its people, quality education for all, mitigating the impacts of climate change and spurring economic growth.

To put it into context, over $80 billion is siphoned out of Africa every year, compared to the estimated $30 billion that the continent receives in development aid from Western countries.

Yet this loss is capable of paying out the continent’s entire foreign debt and still leave enough to cover the social economic developmental interventions Africa badly needs.

The United Nations has aptly captured this, declaring that illicit financial flows are a key impediment to development financing and as such a stumbling block to the realization of the Sustainable Development Goals.

And although the practice is not unique to Africa, the continent has felt the greatest impact owing to the small size of its economies and the weak structure of its financial systems.

Again tax revenues that most countries in Africa rely on for their daily operations are dismally low, standing at an approximated 17 per cent compared to over 35 per cent in developed nations.

But even as the public sector takes the blame, with corruption robbing the continent some $148 billion dollars each year according to the Africa Development Bank, and the complacency of public servants to look the other way while the practice continues unabated, the private sector is increasingly taking an active role in robbing Africa.

Practices like transfer pricing, tax repatriation, evasion and manipulation of trade transactions are increasingly becoming commonplace.

In the last ten years, data show that Africa has lost up to $407 billion to trade misinvoicing alone representing 60 per cent of all illicit flows followed by criminal activities at 35 per cent. This, a clear pointer of the lead role commercial activities play in haemorrhaging Africa.

Transfer pricing, featured prominently in the infamous Panama Papers, further pointing to an elaborate and sophisticated network that is always a step ahead of authorities.

But that should be no excuse for governments and regional institutions to rest on their laurels. Political will must guide the war and crackdown on capital flight if Africa still holds the dream of self-sufficiency.

Tax authorities must be empowered with resources that match this complex illegal global phenomenon, while embracing modern information sharing and gathering mechanisms.

Multinationals and other private sector players must be made to disclose details of their dealings in every country they operate to allow for taxation of profits from all these countries.

Architects and conduits of capital flight like banks should be thoroughly investigated and harsher penalties, including withdrawal of operating licenses instituted. It is encouraging to see bodies like the United Nations Economic Commission for Africa’s High Level Panel on Illicit Financial Flows, led by former South Africa President Thabo Mbeki, and the Africa Progress Panel, chaired by former UN general secretary Kofi Annan actively push for a more regional and robust approach to tackle a vice they say if left to continue will bring Africa to its knees.

The policies and recommendations the institutions advance have been pivotal in shaping the conversation while attracting international players in a collaborative attempt at fostering financial transparency in the continent.

Indeed it was a huge milestone when the African Union picked the fight against corruption as the anchor theme in the just concluded AU Summit. Illicit financial flows featured greatly in the deliberations and landmark decisions were made that will now also enlist the support of the private sector in the war on illegal financial flows. Now is the time to walk the talk.

Multiple award winning Kenyan journalist  Bob Koigi  is the Chief Editor of East Africa at Africa Business Communities


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