World Economy

Africa Most at Risk to Illicit Capital Flows

Africa Most at Risk to Illicit Capital Flows
Africa Most at Risk to Illicit Capital Flows

Illicit capital flows into and out of developing economies ranged from $2 trillion to $3.5 trillion in 2014, with Africa the region most vulnerable to the flight of capital needed for investment and other purposes, according to a new study.

Released on Monday by Washington-based think-tank Global Financial Integrity, the report comes before the World Economic Forum on Africa in Durban this week, where the region’s development and financial challenges will be in the spotlight, Reuters reported.

It shows that combined, illicit outflows and inflows amounted to 14.1 to 24% of total developing country trade from 2005 to 2014, the last year for which comprehensive data are available.

“The massive flows of illicit capital shown in this study represent diversions of resources from their most efficient social uses in developing economies and are likely to adversely impact domestic economic growth,” the report said.

The GFI report looked at both illicit outflows, which rob poor countries of capital that could be taxed or invested, and illicit inflows, which could point to cash being funneled to tax havens or to be laundered.

In 2014, illicit outflows were estimated to have drained $620 billion to $970 billion from developing economies. Illicit inflows were put at $1.4 trillion to $2.5 trillion.

Over the decade to 2014, GFI found that sub-Saharan Africa led all regions for illicit outflows, estimated at 7.5 to 11.6% of its total trade. Some development economists have argued that sub-Saharan Africa is actually a net exporter of capital to the rest of the world, because of these trends.

Developing Europe–mostly comprising Eastern European and former Soviet republics–was the leader for illicit inflows, estimated at 12.4 to 21% of the region’s total trade.

Illicit capital is mostly channeled through the mis-invoicing of trade–exports and imports are booked at different values to avoid taxes or to hide large transfers of money.

This week, African leaders from all spheres will meet in Durban at the World Economic Forum’s annual Africa meeting—WEF Africa 2017. They will be joined by global business leaders, non-governmental organizations and many others who want to observe and help shape the continent’s future.

This year’s theme, “Achieving Inclusive Growth through Responsive and Responsible Leadership”, is a fitting follow-on to the meeting held last year in Kigali, capital of Rwanda.

The WEF will launch its Africa Competitiveness Report during this year’s meeting which should enable governments and leaders to focus on areas that need improving in their countries and regions. Fittingly, many sessions at this year’s forum will focus on industrialization and unlocking the industrial corridors across the continent.

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