An estimated $88.8 billion, which is equivalent to 3.7 per cent of Africa’s Gross Domestic Product (GDP), leaves the continent yearly as illicit capital flight.
This revelation was made by the United Nations Conference on Trade and Development (UNCTAD) Economic Development in Africa Report 2020.
Illicit financial flows (IFFs) are movements of money and assets across borders which are illegal in source, transfer or use.
According to the report entitled Tackling illicit financial flows for sustainable development in Africa, these outflows are nearly as much as the combined total annual inflows of official development assistance, valued at $48 billion, and yearly foreign direct investment, pegged at $54 billion, received by African countries – the average for 2013 to 2015.
These outflows include illicit capital flight, tax and commercial practices like mis-invoicing of trade shipments and criminal activities such as illegal markets, corruption or theft.
IFFs related to the export of extractive commodities ($40 billion in 2015) are the largest component of illicit capital flight from Africa. Although estimates of IFFs are large, they likely understate the problem and its impact.
The report noted that IFFs represent a major drain on capital and revenues on the continent, undermining productive capacity and Africa’s prospects for achieving the Sustainable Development Goals (SDGs).
For example, the report discovered that in African countries with high IFFs, governments spend 25 per cent less than countries with low IFFs on health and 58 per cent less on education. Since women and girls often have less access to health and education, they suffer most from the negative fiscal effects of IFFs.
It observed that Africa will not be able to bridge the large financing gap to achieve the SDGs, estimated at $200 billion per year, with existing government revenues and development assistance.
The report pointed out that tackling capital flight and IFFs represents a large potential source of capital to finance much-needed investments in, for example, infrastructure, education, health, and productive capacity.
Giving an example, in Sierra Leone, which has one of the highest under-five mortality rates on the continent (105 per 1,000 live births in 2018), curbing capital flight and investing a constant share of revenues in public health could save an additional 2,322 of the 258,000 children born in the country annually.
In Africa, IFFs originate mainly from extractive industries and are therefore associated with poor environmental outcomes.
The report showed that curbing illicit capital flight could generate enough capital by 2030 to finance almost 50 per cent of the $2.4 trillion needed by sub-Saharan African countries for climate change adaptation and mitigation.
