NAIROBI, Kenya, Sept 15- The African Continent is losing over 50 billion US dollars annually due to Illegal Financial Flows (IFFs), according to the United Nations Economic Commission for Africa, adversely impacting on the economy of the continent.
The Commission Chairperson, former South African President Thabo Mbeki, says two thirds of the amount comes from multi-national firms operating in Africa.
Addressing journalists after a regional meeting on the menace, he said about 30 percent of the fund is siphoned from the continent through criminal activities like human and drug trafficking.
“IFFs are driven by a number of ‘push’ and ‘pull’ factors. The most obvious push factor driving IFFs is the desire to hide illicit wealth,” reads a section of the report adopted in January in African Union headquarters in Addis Ababa.
Among the contributing factors highlighted include poor governance, weak regulatory structures and some double taxation agreements.
For example, the January report indicates that double taxation agreements can stifle the economic activity of a country and deter foreign direct investment.
“However, the benefit of such agreements depends on their provisions. A well negotiated and balanced DTA will not deter foreign direct investment, and it should not contain provisions that encourage IFFs.”
Without IFFS, Africa’s capital stock would have expanded by more than 60 percent if funds leaving Africa illicitly had remained on the continent, while GDP per capita would be upto 15 percent more in 2012 according to the report.
During the forum, Mbeki lamented that the continued Illegal Financial Flows continues to have adverse effects on the African countries which includes draining resources and tax revenues, stifling growth and socio-economic development and weakening governance.
“The development consequences of IFFs are quite severe. When money is illicitly transferred out of the African countries, their economies do not benefit from the multiplier effects of the domestic use of such resources,” he pointed out.
Among the measures recommended during the forum include strengthening of government institutions, legal procedures and transparency in ownership and control of companies among a set of other measures.
“African States should establish or strengthen the independent institutions and agencies of government responsible of preventing IFFs,” he said.
Such institutions include the financial intelligence units, anti-fraud agencies and financial crime agencies. “Such agencies should render regular reports on their activities and findings to national legislatures.”
Banks and financial institutions have a major role in preventing and eliminating the menace but Mbeki says robust measures should be out in place for the supervision of the institutions.
This will include mandatory reporting of transactions that maybe tainted with illicit activities.
Also highlighted as a loophole encouraging the menace is non-transparent government procurement and supply chains.
African governments were challenged to adopt best practices in open contracting to reduce illegal financial flows through government processes.
In Kenya, the Government has since adopted e-procurement as a way to curb embezzlement of public funds.
Mbeki however noted that only through a global approach will Africa be able to get rid of the menace that continues to cripple the already weak economy of the continent.