African economies suffer on illicit cash flows and corruption
The amount of money going out of the African continent, whether legally or illegally, is equal to Africa’s current total gross domestic product (GDP). (Image: Tax Justice Africa)
A whopping $1.4 trillion in cash has been lost over the last 30 years in African countries on illicit cash flows and corruption, estimates by African Development Bank researchers suggest.
Even more shockingly, the amount of money going out of the African continent, whether legally or illegally, is equal to Africa’s current total gross domestic product (GDP), according to estimates by Ibrahim Aidara, economic governance program manager, Open Society Initiative of West Africa (OSIWA).
A worrying trend, in the past three decades, the amount of illicit cash flowing out of Africa has nearly doubled.
Between 1980 and 2009, $494 billion of illicit cash flows have been lost in West and Central Africa from where the greatest amount of money is lost, according to experts from African Development Bank (ADB) and Global Financial Integrity (GFI).
Ibrahim Aidara said the cash flowing out of the continent is more than all the foreign direct investment received into it; it is also four times more than African debt, and more than all of Africa’s official aid received from other countries.
Corruption practices – trade mispricing, money laundering and tax evasion, among others – are the major contributors to those losses. Nigeria and Angola, major oil producing countries, and Zimbabwe, a big diamond producer, are the countries which are more vulnerable to such losses.
Tom Cardamone, managing director, GFI, said that such practices have a negative impact on the African economies as certain important economic activities like investment in plant equipment, job creation and tax revenue do not happen.
He added that, due to this issue, no money is available to invest in social programs like health, education, and clean water programs.
The way out is for a report to be prepared by multi-national corporations to show all the profits earned in each country.
This report must contain all the taxes paid when they are supposed to, in the amount they are supposed to be, and where they are supposed to be paid, because, companies not paying their tax fairly are also putting individual tax payers in trouble.
The solution is to put in place a global system comprising public registries to track tax information, company ownership and double tax avoidance agreements to give African countries the information they need to identity erring companies.
However, great effort will be needed for putting such a system in place, as well as much time and cooperation must be expended to stop cash leakage from the African continent.