By Lakshi De Vass Gunawardena
UNITED NATIONS, Aug 20 2019 (IPS)

The Southern African Development Community (SADC), which comprise 16 member states, loses about 8.8 billion dollars in trade-related illicit outflows and about 21.1 billion dollars in external government debt payments annually, according to a new report released here.

Michael Buraimoh, Director, Action for Southern Africa (ACTSA), told IPS there are several reasons for this, including the lack of capacity to combat trade mis invoicing and managing debt; nature of politics and institutions in Southern Africa leading to corruption and mismanagement; and the unjust nature of the global economy.

The report, titled The Money Drain: How Trade Misinvoicing and Unjust Debt Undermine Economic and Social Rights in Southern Africa, was launched ahead of a summit meeting of SADC leaders in Tanzania August 17-18.  

Sunit Bagree, ACTSA’s Senior Campaigns Officer and author of the report, said: “It’s a scandal that rich countries barely seem to care that Southern Africa is haemorrhaging money.”

“A broken international economic system is, fundamentally, why trade misinvoicing and unjust debt are depriving SADC governments of massive funds that they could use to realise economic and social rights for the many people living in poverty in the region,” he noted.

Bagree said SADC governments can certainly do more, for example by employing innovative tools to detect potential misinvoicing of trade transactions and organising comprehensive public debt audits.

“But they must also call out powerful international countries for failing to live up to their responsibilities and turning their collective backs on vulnerable people in Southern Africa,” he declared.

The 16 member countries of SADC are: Angola, Botswana, Comoros, Democratic Republic of Congo, Eswatini, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, United Republic of Tanzania, Zambia and  Zimbabwe.

The report revealed that in Southern Africa, the youth unemployment rate is 31 percent, 5.4 million people are currently undernourished, at least 617,400 new HIV infections emerge a year, and more than 40 percent of the population in 12 countries lack access to basic sanitation services.

Trade invoicing causes the SADC region to lose at least 8.8 billion dollars a year, and the report estimated that South Africa alone suffers of a loss of at least 5.9 billion dollars per year due to illicit trade flows.

On top of this, the region is bearing even more losses due to debt. The report cites that Angola alone is emptied of 21.1 billion dollars a year as a result of principal and interest payments on debt.

To add to this, the parts of Africa that were devastated by cyclones earlier this year has mass debts to pay back to wealthier countries.

Several institutions have attempted to raise concerns about trade mis invoicing and debts, but progress has been fragmented and slow, and nothing fruitful has emerged.

Asked what role ACTSA will take going forward, Buraimoh said: “We are promoting our report to the media in the U.K. and USA, as well as in Southern Africa and in continental Europe.”

He also revealed they are aiming to meet with and directly influence, the U.K. and U.S. governments, International Monetary Fund (IMF), World Bank, the United Nations, the Commonwealth and African Union (AU) in relation to the report’s findings and recommendations.

This is expected to lay the basis for future advocacy work on debt and trade-related illicit flows with civil society partners such as Jubilee Debt Campaign, Zimbabwe Coalition on Debt and Development (ZIMCODD), Global Financial Integrity and the Southern Africa Trust.

He added that they aim to add value to the work of these partners and join up regional and global work on these two crucial issues, and that this will be a vital contribution to efforts that considers development from a rights-based perspective and as a concept that relates to issues beyond aid.

“By evaluating success of all the above we can measure progress as relates to the report’s recommendations.

As what role the U.N. should play, Buraimoh said the U.N. Human Rights Council has done some good work on these issues.

“We want to see this continue. The U.N. General Assembly should do more, and some U.N. agencies e.g. Economic Commission for Africa also have engaged, while others can do more.”

He said that all need to work together to ensure International Financial Institutions take more progressive approaches.

“You can really help us by getting the report circulated as widely as possible. The more people are energised about this the better it would be for us to make it an international priority. It is a problem plaguing the entire Global South, not only Southern Africa”, he declared.

Curbing illicit financial flows will free finances for development projects like the provision of safe drinking water. A man collecting water at a government-funded borehole in Southern Zimbabwe. Credit: Busani Bafana/IPS

By Busani Bafana
BULAWAYO, Zimbabwe, Jan 26 2017 (IPS)

Thanks to growing investor interest, increasing respect for democratic reforms, and its vast food production potential, the Africa Rising narrative is only getting better.

But Africa’s development success story will only be complete when the continent plugs the hemorrhaging of its financial resources badly needed for its own development. Africa is losing an estimated 50 billion dollars annually through illicit financial flows (IFFs) — half of all global losses and the equivalent of Morocco’s Gross Domestic Product (GDP)."[Illicit Financial Flows] are only a tip of the iceberg. Within the paradigm of Africa's natural capital losses, part of which is in the form of IFFs, the losses are mind-boggling.” --UNEP's Richard Munang

According to the World Bank, IFFs refer to the deliberate loss of financial resources through under-invoicing, which researchers say is a blot on the ‘Africa Rising’ narrative. Worst, IFFs are depriving Africans of needed resources to access better food, education and health care. Despite a decline in the prevalence of undernourishment in Sub-Saharan Africa, the World Food Programme says the region still has the highest percentage of population going hungry, with one in four persons undernourished.

As cancerous as corruption, illicit financial flows are costing Africa big time. This is despite a continental initiative to curb them at a time Africa is making some progress on good governance, according to the seminal Mo Ibrahim Index of African Governance 2016.

Can the wings of capital flight be clipped?

A 2015 report by the High-level Panel on Illicit Financial Flows from Africa established by the African Union and United Nations Economic Commission for Africa (ECA) puts the average financial losses at between 50 billion and 148 billion dollars a year through trade mispricing. South Africa, the Democratic Republic of Congo, Nigeria, Mozambique and Liberia are some of the countries that have suffered most due to trade mispricing.

“IFFs significantly hamper Africa’s development and progress towards achieving the Sustainable Development Goals (SDGs) considering the astronomical investments the region needs to mobilize and the declining international sources,” climate change expert and the United Nations Environment Programme’s Regional Climate Change Programme Coordinator, Richard Munang, told IPS.

Cumulatively, IFFs range from natural resources plundering and environmental crimes like illegal logging, illegal trade in wildlife, and unaccounted for and unregulated fishing (IUU) to illegal mining practices, food imports, and degraded ecosystems. Munang estimates that Africa loses up to 195 billion dollars annually of its natural capital — an amount exceeding the total annual cost Africa needs to invest in infrastructure, healthcare, education and adapting to climate change under a 2°C warming scenario.

“Reversing IFFs and other natural capital losses is an urgent imperative if the region is going to develop and achieve the SDGs,” said Munang, adding that in terms of climate resilience, for instance, it is projected that to meet adaptation costs by the 2020s, funds disbursed annually to Africa need to grow at an average rate of 10-20 percent annually from 2011 levels.

“So far, this has not been achieved. And no clear pathway exists from international sources,” Munang said. “But IFFs are only a tip of the iceberg. Within the paradigm of Africa’s natural capital losses, part of which is in the form of IFFs, the losses are mind-boggling.”

A recent study called “Financing Africa’s Post-2015 Development Agenda” shows that from 1970 to 2008, Africa lost between 854 billion and 1.8 trillion dollars in illicit financial flows — good money in bad hands.

UNECA says illicit financial flows are unrecorded capital flows derived from the proceeds of theft, bribery and other forms of corruption by government officials and criminal activities, including drug trading, racketeering, counterfeiting, contraband and terrorist financing.

In addition, proceeds of tax evasion and laundered commercial transactions are counted under IFFs. Africa is also losing much-needed money to drug trafficking, tax dodging, wildlife poaching, human trafficking and theft of minerals and oil.

Tax Inspectors without Borders (TIWB), a project launched by the Organisation for Economic Cooperation and Development (OECD) and the United Nations Development Programme (UNDP) in 2015, has helped collect more than 260 million dollars in additional tax revenues in eight pilot countries, indicating the potential of tightening tax audits.

Head of the TIWB Secretariat James Karanja noted that capacity-building can help companies pay their taxes, stop tax dodging and help raise domestic resources to fund government services.

According to the McKinsey Global Institute, GDP growth has averaged five percent in Africa in the last decade, consistently outperforming global economic trends. This growth has been boosted by among other factors, rapid urbanization, expanding regional markets, sound macroeconomic management and improved governance.

The Panel chaired by former South African President Thabo Mbeki also fingered large commercial corporations as culprits in IFFs, which have been fueled by corruption and weak governance. The solution, the panel said was to boost transparency in mining sector transactions and stop money laundering via banks, actions which rested on coordinated action between government, private sector and civil society.

“Illicit financial flows are a challenge to us as Africans, but clearly the solution is global. We couldn’t resolve this thing by just acting on our own as Africans,” Mbeki told the UN’s Africa Renewal magazine in a 2016 interview in New York.

For instance, Zimbabwe is currently in a financial crisis, having lost close to 2 billion dollars to illicit financial flows in 2015, according to the Reserve Bank. The figure is four times the money Zimbabwe attracted in Foreign Direct Investment in 2015 and more than half the 2016 national budget. The Global Financial Integrity Report estimates that over the last 30 years, Zimbabwe has lost a cumulative 12 billion dollars to IFFs.

“It is a grave concern. I looked at the statistics and found out that it’s a cancer that we are brewing,” Central Bank Governor John Mangudya conceded.

Is transparency the tool for slaying development’s demon?

The World Bank says curbing IFFs requires strong international cooperation and concerted action by developed and developing countries in partnership with the private sector and civil society.

IFFs pose a huge challenge to political and economic security around the world, particularly to developing countries. Corruption, organized crime, illegal exploitation of natural resources, fraud in international trade and tax evasion are as harmful as the diversion of money from public priorities, says the World Bank.

Advice on how to make tax policies more transparent — such as requiring all tax holidays to be publicly disclosed, along with names of officials involved in granting the holiday — would likely increase tax revenues collected by governments while reducing the risk of corruption and the potential for firms to abuse tax holiday provisions.

Global initiatives to limit tax evasion and stop proceeds of crime such as the the OECD/Global Forum on Taxation and the UN Conventions against Drugs, Trans-national Organized Crime and Corruption (UNODC) are yielding results. The World Bank’s Stolen Asset Recovery (StAR) programme found that of nearly 1.4 billion dollars in frozen corrupt assets in OECD countries between 2010 and 2012, less than 150 million has been recovered.

Proceeds of illicit financial flows are difficult to recover despite some high-profile cases like that of Teodorin Nguema Obiang, the son of Africa’s longest serving leader, Teodoro Obiang Nguema Mbasogo of Equatorial Guinea. In 2014, a U.S. court ordered Teodorin to sell 30 million dollars’ worth of property believed to have been the proceeds of corruption. In 2013, 700 million in assets stolen and stashed in Switzerland by the Sani Abacha regime was returned to Nigeria.

A 2016 report by the Africa Growth Initiative at the Brookings Institution, “Foresight Africa: Top Priorities for the Continent 2017”, says good governance significantly impacts the mobilization of domestic resources such as tax revenues, as well as external financial flows such as FDI, ODA, remittances, and illicit financial flows.

The report said lowest levels of corruption and highest levels of political stability correlated with the highest tax-to-GDP ratio while “conversely, countries with low political stability scores have a relatively high ODA-to-GDP ratio. In addition, though the differences are subtle, the charts hint that more corrupt countries have higher FDI-to-GDP ratios.”

There is a broad spectrum of potential avenues for the illegal skimming from or shifting of profits in developing countries, carried out by criminal entities, corrupt officials and dishonest corporations. Credit: epSos .de/cc by 2.0

By Carey L. Biron
WASHINGTON, Dec 16 2014 (IPS)

Developing countries are losing money through illicit channels at twice the rate at which their economies are growing, according to new estimates released Tuesday. Further, the total volume of these lost funds appears to be rapidly expanding.

Findings from Global Financial Integrity (GFI), a watchdog group based here, re-confirm previous estimates that developing countries are losing almost a trillion dollars a year through tax evasion, corruption and other financial crimes. Yet in a new report covering the decade through 2012, GFI’s researchers show that the rate at which these illicit outflows are taking place has risen significantly.“If we take [these] findings seriously, we can address extreme poverty in our lifetimes.” -- Eric LeCompte

In 2003, for instance, cumulative illicit capital leaving developing countries was pegged at around 297 billion dollars. That’s significant, of course, but relatively little compared to the more than 991 billion now estimated for 2012 – a record figure, thus far.

In less than a decade, then, these illicit outflows more than tripled in size, totalling at least 6.6 billion dollars. GFI reports that this works out to an adjusted average growth of some 9.4 percent per year, or twice the average global growth in gross domestic product (GDP).

One of the most common mechanisms for moving this money has been the falsification of trade invoices.

“After turning down following the financial crisis, global trade is going up again and so it’s increasingly easy to engage in misinvoicing – a lot more people are coming to understand how to do this and are willing to indulge,” Raymond Baker, GFI’s president, told IPS.

“These rates are not only growing faster than global GDP but also faster than the rate of growth of global trade.”

Further, these estimates are likely conservative, and don’t cover a broad spectrum of data that is not officially reported – cash-based criminal activities, for instance, or unofficial “hawala” transactions.

Baker emphasises that these capital losses are a problem affecting the entire developing world. Yet given that illicit outflows run in tandem with a country’s broader interaction with global trade, these rates are particularly strong in the world’s emerging economies, led by China, Russia, Mexico and India.

There are also significant differentials between regions, both is size and the rate at which they’re increasing. In the Middle East and North Africa, for instance, illicit financial flows are growing far higher than the global average, at more than 24 percent per year.

Even in sub-Saharan Africa, home to some of the world’s poorest communities, these rates are growing at more than 13 percent per year. Such figures eclipse both foreign assistance and foreign investment – indeed, the 2012 figure was more than 11 times the total development assistance offered on a global basis.

“If we take [these] findings seriously, we can address extreme poverty in our lifetimes,” Eric LeCompte, an expert to U.N. groups that focus on these issues, said Monday. “Countries need resources and if we curb these illicit practices, we can get the money where it’s needed most.”

Lucrative misinvoicing

There is a broad spectrum of potential avenues for the illegal skimming from or shifting of profits in developing countries, carried out by criminal entities, corrupt officials and dishonest corporations. And for the first time, certain of these key issues are receiving new and concerted international attention.

Multiple nascent multinational actions are now unfolding aimed at cracking down particularly on tax evasion by transnational companies. New transparency mechanisms are in the process of being rolled by several multilateral groups, including the Group of 20 (G20) industrialized nations and the Organisation for Economic Cooperation and Development (OECD), a Paris-based grouping of rich countries.

Such initiatives are receiving keen attention from civil society groups, and would likely constrict these illicit flows. Yet in fact, GFI’s research suggests that the overwhelming method by which capital is illegally leaving developing countries is far more mundane and, potentially, complex to tackle.

This has to do with simple trade misinvoicing, in which companies purposefully use incorrect pricing of imports or exports to justify the transfer of funds out of or into a country, thus laundering ill-gotten finances or helping companies to hide profits. Over the past decade, the new GFI report estimates, more than three-quarters of illicit financial flows were facilitated by trade misinvoicing.

And this includes only misinvoicing for goods, not services. Likely the real figure is far higher.

Experts say that stopping misinvoicing completely will be impossible, but note that there are multiple ways to curtail the problem. First would be to ensure greater transparency in the global financial system, to eliminate tax havens and “shell corporations” and to require the automatic exchange of tax information across borders.

Efforts are currently underway to accomplish each of these, to varying degrees. Last month, leaders of the G20 countries agreed to begin automatically sharing tax information by the end of next year, and also committed to assist developing countries to engage in such sharing in the future.

GFI’s Baker says that developing countries need to bolster their customs systems, but notes that other tools are already readily available to push back against trade misinvoicing.

“There is a growing volume of online pricing data available that can be accessed in real time,” he says. “This gives developing countries the ability to look at transactions coming in and going out and to get an immediate idea as to whether the pricing accords with international norms. And if not, they can quickly question the transaction.”

Development goal

There is today broad recognition of the monumental impact that illicit financial flows have on poor countries’ ability to fund their own development. Given the centrality of trade misinvoicing in this problem, there are also increasing calls for multilateral action to take direct aim at the issue.

In particular, some development scholars and anti-poverty campaigners are urging that a related goal be included in the new Sustainable Development Goals (SDGs), currently under negotiation at the United Nations and planned to be unveiled in mid-2015.

Under this framework, GFI is calling for the international community to agree to halve trade-related illicit flows within a decade and a half. The OECD is hosting a two-day conference this week to discuss the issue.

“We’re not talking about an aspirational goal but rather a very measurable goal. That’s doable, but it will take political will,” Baker says.

“We think the SDGs should incorporate very specific, targetable goals that can have huge impact on development and helping developing countries keep their own money. In our view, that’s the most important objective.”

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org

A woman poses at the front of a shack settlement in Epworth, outside Zimbabwe’s capital, Harare. Sixteen percent of the country’s 12.5 million people are deemed extremely poor. Credit: Ephraim Nsingo/IPS

By Tonderayi Mukeredzi
HARARE, Oct 27 2014 (IPS)

Zimbabwe has lost 12 billion dollars in illicit financial flows over the last three decades and experts say this illegal practice is perpetuating social inequalities and poverty in this southern African nation.

A September report by the Zimbabwe Vulnerability Assessment Committee (ZIMVAC) estimates that 63 percent of Zimbabweans are poor, with 16 percent of the country’s 12.5 million people deemed extremely poor.

While the number of extremely poor households in the country has reduced from 42.3 percent in 2001, Sydney Mhishi, a principal director in the Ministry of Labour and Social Welfare, told IPS that there is an overwhelming demand for cash transfers because of rising poverty and inequalities, mostly in rural areas.

• Inequalities are more widespread in rural areas — occurring in 76 percent of rural households compared to 38 percent of households in the urban areas.
• A majority of Zimbabwe’s people, some 7.7 million, live in rural areas.
• Nearly 200,000 to 250,000 households in Zimbabwe are classified as ultra poor.

In 2013, about 55,000 households received up to 25 dollars in cash handouts every month from the government under the Harmonised Social Cash Transfer Programme.

The government is supporting 20 percent of vulnerable and labour constrained households through the programme.

“The demand for the cash transfers is more in depth in urban areas. In urban areas we have also started a mix of cash [transfers] as well as electronic transfers in poor suburbs like Epworth,” Mhishi said.

A study conducted by the Institute of Development of Studies in 2013 and released last month, shows that poverty was increasingly taking on an urban face with levels higher than expected. Zimbabwe’s economy is in a fragile state subjugated by a liquidity crunch, funding constraints, and corruption, which has made the government struggle to raise revenue.

And even though Zimbabwe has vast natural resources, the blessings of its natural wealth has not benefitted its people.

The nation has of some of the largest diamond and platinum reserves in Africa and the world, and has over 40 exploitable minerals. All of this could potentially transform the lives of Zimbabwe’s citizens.

But the valuation of the country’s mineral deposits, experts say, remains unknown because of the shadowy arrangements under which most Zimbabwean mines are being exploited.

The Zimbabwe Environmental Law Association (ZELA) points to a dearth of transparency and accountability in the management of the Marange diamond mines.

Minister of Finance Patrick Chinamasa said in December 2013, during his presentation of the 2014 national budget, that the government did not receive any diamond dividends in that year.

According to ZELA, of the seven companies operating in the Marange diamond fields, only one has shown some modicum of transparency and accountability by publicly disclosing its diamond revenue.

Janet Zhou, a programmes director with the Zimbabwe Coalition on Debt and Development, told IPS that her organisation has been campaigning for a tax justice system, which exhorts big companies in the extractive sector to pay their dues to the government to enhance revenue collection.

“Illicit financial inflows cause inequalities because the government loses revenue that should in turn be redistributed to the poor through the trickle-down effect. The rich should pay taxes and subsidise the underprivileged so that they get access to social services,” Zhou said.

Zimbabwe has been affected by illicit financial flows, as money is illegally transferred or utilised elsewhere usually through criminal activities, corruption, tax evasion, bribes and cross-border smuggling.

Research conducted in August by the African Forum and Network on Debt and Development (Afrodad) and the Zimbabwe Economic Policy Analysis and Research Unit approximates that between 2009 and 2013, cash-strapped Zimbabwe lost 2,85 billion dollars through illicit financial flows in mining, fisheries, forestry and illegal safari activities.

The illicit financial flows occurred mostly through under-invoicing by multinational companies and weak legal and institutional frameworks. Afrodad policy advisor Momodou Touray says illicit financial flows deprive governments of revenue that should be ploughed into public sector investment and poverty-reduction programmes.

Zhou added that when the government failed to tap revenue from the rich, usually ordinary people become soft targets. Tafadzwa Chikumbu, an economic governance policy officer with Afrodad, agreed.

“Illicit financial flows perpetuate inequality because they are fuelled by rich multinational corporations and rich individuals who have the capacity to do tax planning resulting in transfer mis-pricing and trade mis-invoicing.

“So if the government fails to harness resources from them, it transfers the burden to weaker economic agents, who are the ordinary citizens,” he told IPS.

Chikumbu said this was demonstrated in the country’s August mid-term fiscal statement, which introduced a raft of tax measures targeted at raising revenue principally from ordinary tax payers.

Edited by: Nalisha Adams