This working paper investigates illicit financial flows (IFF) in Africa, which have been estimated to have averaged 25% of developing country trade in the decade 2006-2015. These flows deprive a capital-scarce continent of the very resource it requires to advance industrially. Improved governance, both at the regulatory level and the level of macroeconomic management, is required if Africa is to make progress in addressing IFFs.

The paper focuses on IFFs as a result of import and trade price misinvoicing (trade-based IFFs), which represent conservatively more than 50% of the total of IFFs impacting Africa. This misinvoicing (of goods at prices that are either above or below the fair market price) leads to capital transfers either out of (outflows) or into (inflows) a country.

By partitioning Africa according to the export specialisation categories of countries, meaningful insights can be gained as to the nature and drivers of IFF. Specifically, both common and unique factors are at play in fuelling the growth of IFF in two major categories of export specialisation: exporters of extractives (fuels, metals and minerals) versus the residual, which are the diversified and the agricultural specialist exporters.

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