Africa foots the bill for illicit financial transfers

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Nigeria, Egypt, Algeria, Morocco and South Africa lead the list of African countries that made the most illegal financial transfers between 1970 and 2008. According to a study by the Global Financial Integrity (GFI), published last Friday, more than 854 billion dollars have been fraudulently transferred from Africa. It is twice the amount of public investment allocated to development aid.

A study released Friday reveals that five African countries share the top spot in what concerns illicit financial transfers. They are Nigeria (89.5 billion), Egypt ($ 70.5 billion), Algeria (25.7 million), Morocco (25 billion dollars), and South Africa (24.9 billion dollars). The study, conducted by the International Global Financial Integrity (GFI), was based on the World Bank Residual model and the Trade Misinvoicing model based on the IMF’s Direction of Trade Statistics to estimate the illicit flows.

Stating that “it is not unreasonable to estimate total illicit outflows from the continent across the 39 years at some $1.8 trillion”, the document estimates that such flows –transferred fraudulently from Africa– have totaled at least 854 billion dollars since 1970, half of which was recorded between 2000 and 2008. Criminal proceeds generated by racketeering, counterfeiting and drug trafficking account for 30 to 35% of these transfers while tax evasion take the lion’s share with between 60 and 65%. “While this is a staggering volume of illicit outflows, it is likely to be still higher if we were to include flows due to other illegal activities”, states the report.

This scourge sees developing countries losing the equivalent of one billion dollars per annum. An amount that is two times bigger than public investment allocated to development aid.

“The amount of money that has been drained out of Africa — hundreds of billions decade after decade — is far in excess of the official development assistance going into African countries… Staunching this devastating outflow of much-needed capital is essential to achieving economic development and poverty alleviation goals in these countries,” said Raymond Baker, director of GFI, whose report was presented at the 3rd Annual Conference of African finance ministers in Malawi.

Focus on Nigeria and Algeria

This report is likely to embarrass Nigeria, which ranks first in illicit financial transfers. The former Nigerian dictator, General Sani Abacha, who came to power in a coup in 1993, greatly contributed to the flight of such capital. He allegedly stole some $ 3 billion, out of which 450 million is still nowhere to be found, as suggested by The Guardian. Last November, Abacha’s son, Abba Abacha, was accused by a Swiss judge as being part of an organized crime unit, and had 350 million dollars of his personal account frozen.

Despite very little information available with respect to the origin of Egypt’s (Ranked 2nd) illicit financial flows, the story is quite different in neighboring Algeria. Early January, Customs officials revealed several cases of increase in the value of products imported from the Arab Free Trade Area (AFTA). Between 2006 and 2007, the Customs Services seized a currency transfer that amounted to about 15 billion dinars (nearly $ 210 million).

Quoting Le Financier, an Algerian newspaper, Biladi, another news site reveals that other cases of financial infringements have been reported involving bogus investors who enjoy tax benefits under the provisions of the Investment Development Agency.

The loss of capital is one of the major obstacles to African development. A devastating phenomenon which, in Raymond Baker’s opinion, “must be at the top of the agenda… when the G20 meets in Canada this June”

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