Report of the High Level Panel on Illicit Financial Flows from Africa
The 4th Joint African Union Commission/United Nations Economic Commission for Africa Conference of African Ministers of Finance, Planning and Economic Development was held in 2011. This Conference mandated ECA to establish the High Level Panel on Illicit Financial Flows from Africa.
Underlying this decision was the determination to ensure Africa’s accelerated and sustained development, relying as much as possible on its own resources.
The decision was immediately informed by concern that many of our countries would fail to meet the Millennium Development Goals during the target period ending in 2015. There was also concern that our continent had to take all possible measures to ensure respect for the development priorities it had set itself, as reflected for instance in the New Partnership for Africa’s Development. Progress on this agenda could not be guaranteed if Africa remained overdependent on resources supplied by development partners.
In the light of this analysis, it became clear that Africa was a net creditor to the rest of the world, even though, despite the inflow of official development assistance, the continent had suffered and was continuing to suffer from a crisis of insufficient resources for development.
Very correctly, these considerations led to the decision to focus on the matter of illicit financial outflows from Africa, and specifically on the steps that must be taken to radically reduce these outflows to ensure that these development resources remain within the continent. The importance of this decision is emphasized by the fact that our continent is annually losing more than $50 billion through illicit financial outflows.
This Report reflects the work that the High Level Panel on Illicit Financial Flows has carried out since it was established in February 2012, particularly to:
Develop a realistic and accurate assessment of the volumes and sources of these outflows;
Gain concrete understanding of how these outflows occur in Africa, based on case studies of a sample of African countries and;
Ensure that we make specific recommendations of practical, realistic, short- to medium-term actions that should be taken both by Africa and by the rest of the world to effectively confront what is in fact a global challenge.
Estimating illicit financial flows from Africa
Estimates of IFFs can differ considerably because of the use of different methods, assumptions and data, even when using the same basic methodology.
The difficulties in estimation arise from the very nature of IFFs, which by definition are mostly hidden and therefore difficult to track. As a result, data are not usually available nor can the accuracy of existing data be easily verified due to additional and well-known difficulties of generating good statistics on the continent. We nonetheless felt that there was enough scope to track IFFs based on existing work and on discrepancies in economic transactions recorded between Africa and the rest of the world.
The study undertaken by ECA looked at gross outflows focusing on trade mispricing. This was informed mainly by reasons of availability of data and the fact that United Nations Comtrade data enable the use of detailed trade data and accordingly for a more nuanced approach. The results of the study undertaken by ECA show that in 2001-2010 African countries lost up to $407 billion from trade mispricing alone.
We compared the results of our study with other existing research, particularly the work of Kar and Cartwright-Smith under the auspices of Global Financial Integrity and that of Ndikumana and Boyce.
The implications of all these studies are that IFFs from Africa range from at least $30 billion to $60 billion a year. These lower-end figures indicated to us that in reality Africa is a net creditor to the world rather than a net debtor, as is often assumed. We also observed that the increasing trend of illicit financial outflows coincided with a period of relative high economic growth in Africa, and that IFFs are therefore negating the expected positive impact of increased growth on the continent.
Cumulative IFFs in Africa for 1970-2008 were unequally distributed. Two-thirds of IFFs were attributed to only two regions: West Africa (38 per cent) and North Africa (28 per cent). Each of the other three regions (Southern, Eastern and Central Africa) registered about 10 per cent of Africa’s total IFFs. But the particularly low shares of IFFs from the latter three regions could also be attributed to the lack of data or their poor quality.
In addition, the data show the great significance of IFFs from oil-exporting countries dominated by the North African and West African regions. Nigeria accounts for the largest share of IFFs for West Africa (79 per cent of the West African total), whereas Egypt and Algeria account for 66 per cent of the IFFs from North Africa. Non-oil-exporting countries such as South Africa, Morocco, Côte d’Ivoire and Ethiopia also register significant levels of IFFs for 1970-2008. Interestingly, IFFs are extremely concentrated in a few countries: the top 10 for 1970-2008 accounted for 79 per cent of total IFFs from Africa.
IFFs from the continent are highest in the extractive industries, including mining. More than half (56.2 per cent) of the IFFs from the African continent over the period come from oil, precious metals and minerals, ores, iron and steel, and copper. Moreover, these are highly concentrated in very few countries. Nearly three-fourths of the total IFFs in oil from Africa during 2000-2010 are from Nigeria (34.5 per cent), Algeria (20.1 per cent) and Sudan (12.0 per cent). In precious metals and minerals, iron and steel, and ores, the greatest shares in total IFFs from Africa are from the Southern African Customs Union (SACU), with 97.6 per cent, 59.7 per cent and 51.8 per cent, respectively. Zambia accounts for 65 per cent of the continent’s IFFs in copper.