Experts estimate that Africa is losing about $89 billion (around R1.6 trillion) each year to illicit financial flows (IFFs)—an amount twice the continent’s total aid from Western donors. At the SA Federation of Trade Unions’ political school, IFF analysts Isaac Agyiri and Jaco Olofsen painted a stark picture of the widespread damage caused by these illicit activities.
They revealed that these flows significantly hinder Africa’s economic growth, undermine social services, and violate human rights. Agyiri noted that roughly 60% of these financial losses are due to tax evasion by individuals and businesses across the continent, including in South Africa.
Reinforcing Africa’s Negative Image: Money Laundering, Trafficking, and Corruption Fuel Illicit Financial Flows
Illicit financial flows, including money laundering, human and drug trafficking, and driven by corruption and bribery, continue to tarnish Africa’s global reputation. Agyiri highlighted that with the privatization of state assets and limited manufacturing, African governments rely heavily on domestic tax revenue. According to the former president Thabo Mbeki’s report on IFFs, approximately 65% of the $89 billion lost annually could have been collected through taxes. Tax evasion has severely impeded Africa’s ability to gather sufficient tax revenue, as noted in Mbeki’s 2015 report on the economic impact of IFFs.
Report Insights: Major Sources and Challenges of Illicit Financial Flows
- The report reveals that the private sector is the largest contributor to illicit financial flows (IFFs), with organized crime and corrupt public sector practices also playing significant roles in these outflows.
- Multinational corporations were found to shift profits to low-tax or secretive jurisdictions, often using fictitious subsidiaries.
- Illicit financial flows from Africa are both substantial and increasing.
- Addressing these flows has become a crucial political issue.
- There is a need for tighter scrutiny of commercial routes used for IFFs.
- Africa’s heavy reliance on natural resource extraction makes it particularly vulnerable to these financial crimes.
Olofsen, a tax justice program officer at the Alternative Information and Development Centre, highlighted that profit-shifting by multinational enterprises (MNEs) impacts both public sector workers and employees of the companies involved. He emphasized the need for workers to actively engage with and challenge company financial practices. Olofsen also noted that insufficient oversight of cross-border capital flows, as demonstrated by the Nedbank-Samancor case, contributes to the problem. The lack of transparency and protective measures for whistleblowers further exacerbates the situation.
