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Illicit financial flows: Why Africa needs to ‘Track It, Stop It and Get It’

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Illicit financial flows: Why Africa needs to ‘Track It, Stop It and Get It’

Illicit financial flows: Why Africa needs to ‘Track It, Stop It and Get It’
Photo credit: EWN

Financing development in Africa has proved to be difficult in the past, compelling the continent to rely on external sources including overseas development assistance. This type of assistance is often unevenly distributed, unsustainable and, in some cases, damaging to national economies in the long run. Lessons learned from Africa’s development trajectory over the past three decades have prompted a fresh wave of thinking towards a post- 2015 development agenda and Agenda 2063 transformative developmental framework designed to ensure self-reliance for Africa. In the light of the recent global economic and financial crises and the approaching deadline for achieving the Millennium Development Goals, a structural transformation agenda will require an adequate, predictable, sustainable and integrated financing mechanism geared towards financing development goals. The continent must embark on reforms to capture currently unexplored or poorly managed resources. This includes curtailing illicit financial flows and transforming those funds into a powerful tool for enhancing domestic resource mobilization, as a way of furthering the continent’s development.

In response to the challenges set out above, the High-level Panel on Illicit Financial Flows was established in 2012 by the Economic Commission for Africa (ECA) and the African Union Commission (AUC), at the request of participants at the Fourth Joint Annual Meetings of the ECA Conference of African Ministers of Finance, Planning and Economic Development and AUC Conference of Ministers of Economy and Finance, which was held in March 2011. The Panel will present its final report in January 2015 at the twenty-fourth ordinary session of the Assembly of the African Union. The report is based on rigorous research, country case studies and regional consultations within and outside Africa.

The Panel has adopted a clear and specific definition of illicit financial flows. Such flows are defined as money that is illegally earned, transferred or utilized. This represents a major break from the dominant work on capital flight, which emphasizes macroeconomic instability, including the business environment, as the main driver of capital outflows and therefore places the burden of resolving the problem on developing countries rather than promoting shared responsibility. It also focuses attention on the structural and governance limitations that fuel such flows from Africa. The Panel’s focus on hidden resources and their potential impact on development places the issue of illicit financial flows firmly in the broader realm of international political economy and emphasizes the role of governance at both the origin and the destination.

These cross-border transfers of illicit money have a considerable detrimental impact on Africa’s development and governance, especially in the transnational context. Among other things, illicit financial flows stifle Africa’s socioeconomic progress by draining scarce foreign exchange resources, reducing government tax revenues, deepening corruption, aggravating foreign debt problems and impeding private sector development. The extractive sector is often particularly affected by these phenomena. This in turn reduces the resources that Africa has for development. The governance challenges of illicit financial flows include weakened public institutions and ultimately a reduced capacity of the State to provide public resources and welfare for the people.


Cumulative IFFs by sector UNECA

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