Corruption: Africa loses R1.6trn a year from illicit financial deals

Africa loses an estimated $89 billion (about R1.6 trillion) annually due to illicit financial flows (IFFs) – amounting to double of the entire aid the continent receives from western donor countries, according to experts.

Addressing the SA Federation of Trade Unions’ political school, IFF analysts Isaac Agyiri and Jaco Olofsen on Tuesday painted a grim picture of how the phenomenon has gripped the mineral-rich continent – impacting adversely on economic development, social services delivery, welfare and people’s rights.

Tax and legal expert Agyiri said about 60% of Africa’s IFFs-related woes were due to individuals and companies having employed tactics to evade tax collection in several countries on the continent, including South Africa.

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Perpetuating Africa’s bad name

IFFs practices included money laundering, human and drugs trafficking, further driven by corruption and bribery – “all the things that earn Africa a bad reputation globally”.

“Because of privatisation of state-owned assets and lack of manufacturing, the key source of income for African governments has been domestic revenue through tax collection,” said Agyiri.

“From [former president Thabo] Mbeki report on IFFs, we noted some 65% of the $89 billion that we lose is usually revenue that should have accrued to African governments through taxes.

“Tax evasion has made it impossible for Africa to collect enough tax,” said Agyiri.

In 2015, Mbeki, who headed the African Union’s 10-member High Level Panel on IFFs, released a report highlighting the impact of the phenomenon on the continent’s economic development.

The report found that:

• Commercial activities by the private sector were by far the largest contributor to IFFs, followed by organised crime and the public sector, with corrupt practices playing a key role in facilitating outflows;

• Multinational corporations shifted profits to subsidiaries in low-tax or secrecy jurisdictions, where in many cases, subsidiaries only existed on paper;

• Illicit financial flows from Africa, were large and increasing;

• Ending IFFs was a political issue;

• Commercial routes of IFFs needed closer monitoring; and

• The dependence of African countries on natural resources extraction, made them vulnerable to IFFs.

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The tax justice programme officer at Alternative Information and Development Centre, Olofsen, cited profit-shifting by multinational enterprises (MNEs) as “directly affecting not only public sector workers, but also those working for the MNEs”.

“While unions are at the coalface of MNE activities, we need workers who are willing to critically engage with company financials and fight for information,” said Olofsen.

He said lack of oversight over cross-border capital flows “as seen in the case of Nedbank in Samancor, presented a problem”.

“Lack of transparency is a hindrance. “Things only became clear in the Samancor case, due to extraordinary evidence provided by an ex-director.

“A culture of corruption, entrenched in parts of corporate world and no mechanism of protection for whistle-blowers, has compounded the situation,” said Olofsen.