The African Development Bank Chief Economist, Kevin Urama, has disclosed that Africa loses approximately $1.6 billion daily due to illicit financial flows and profit shifting by multinational corporations operating on the continent.
This significant financial leakage undermines economic growth and development in African nations.
Urama made this revelation during an interview, according to The Punch.
Illicit financial flows, as defined by the International Monetary Fund, involve cross-border movements of money that are illegal in their source (e.g., corruption, smuggling), transfer (e.g., tax evasion), or use (e.g., terrorist financing).
The IMF has been central in combating these destabilizing financial activities for decades, addressing both strictly illegal flows and those tied to tax avoidance practices.
Urama emphasized that Africa is losing more wealth through financial outflows than it gains from Foreign Direct Investment.
He urged stakeholders to prioritize strategies to block these outflows, such as addressing illicit financial flows, profit repatriation, and capital flight, rather than solely focusing on attracting FDI inflows.
He said, “There are so many things that happen on the continent that actually make corruption a big issue. And some estimations show that Africa loses about 248 billion US dollars every year due to corruption. If you add illicit financial flows of over $90bn and add profit shifting; corporates operating in Africa but then maybe have headquarters somewhere else and they find clever accounting ways of legally not paying taxes. In Africa, we are losing about $275bn. When you sum all these up, these are things you can trace through banks, then you find that Africa is losing about $587bn every year.
“That’s about $1.61bn every day. Yet we spend all our time chasing FDI, foreign direct investment, official development assistance, portfolio flows and remittances. All these together during the year we did this study for 2022 was about $174.5bn. That’s less than three times, I mean what we are losing is three times more than what we are getting from the global market. So how do we engage with the global market? Are we not focusing on the wrong priorities? Because if you ask me if I’m losing almost $600bn, I will focus on how not to lose it instead of going to get more. Tackling it, is what we are doing.”
Highlighting some of the ways to shut the door on the outflow, Urama said, “It all comes down to the quality of institutions, the accountability systems for institutions, the capacity of individuals in government, in public service to first understand the implications of decisions they make but also to have the tools, the regulations, the policies and principles and technologies to be able to track it down and stem it.
“And that is why in the African Development Bank, we not only are developing these issues on debt but we’ve also now developed what we call a Public Service Delivery Index for Africa which measures the quantum of public services delivered in all key sectors of development but also the perceptions of the citizens on how that public service is. You may say you have provided electricity to me because you put a pole and wires passed behind my house, but maybe I have not been able to connect.”
Nigeria has been on the Financial Action Task Force greylist since February 2023 due to issues like illicit financial flows.
However, in October 2023, the Nigerian Financial Intelligence Unit announced that FATF approved Nigeria’s fourth progress report during its plenary meeting, signaling steps toward compliance with FATF recommendations.
