Africa is the global hub for illicit capital flows, this according a recent report by Global Financial Integrity (GFI)
The report shows that sub-Saharan Africa led all regions for illicit outflows, estimated at 7.5 to 11.6 percent of its total trade, a key factor in the dwindling economy and high poverty levels in the continent.
The GFI report looked at both illicit outflows, which rob poor countries of capital that could be taxed or invested, and illicit inflows, which could point to cash being funneled to tax havens or to be laundered.
This means that most businesses evade taxes, denying capital to their respective countries.
The report comes at the time Kenya is struggling economically amid claims of rampant high level corruption that has seen the country lost billions of shillings. Is some of the money looted staked safe havens abroad?
Last year, a group of journalists unearthed mysterious financial dealings by senior government officials and companies in Africa in what is now refereed to as Panama Papers.
At least offshore companies connected to 44 of Africa’s 54 countries were implicated in the saga
The files contained at least 37 offshore companies with operations in Africa that have been named in legal proceedings or criticized by national or international agencies.
Illicit capital flows into and out of developing economies ranged from $2 trillion to $3.5 trillion in 2014, with Africa the region most vulnerable to the flight of capital needed for investment and other purposes, according to a new study.
“The massive flows of illicit capital shown in this study represent diversions of resources from their most efficient social uses in developing economies and are likely to adversely impact domestic … economic growth,” the report said.
In 2014, outflows were estimated to have drained $620 billion to $970 billion from developing economies. Illicit inflows were put at $1.4 trillion to $2.5 trillion.
Over the decade of 205 to 2014, GFI found, sub-Saharan Africa led all regions for illicit outflows, estimated at 7.5 to 11.6 percent of its total trade.
Some development economists have argued sub-Saharan Africa – widely regarded as relying on aid inflows and the charity of industrialized nations – is actually a net exporter of capital to the rest of the world because of these trends.
Developing Europe – mostly comprising Eastern European and former Soviet republics, including Russia – was the leader for illicit inflows, estimated at 12.4 percent to 21.0 percent of the region’s total trade.
Illicit capital is mostly channeled through mis-invoicing of trade – exports and imports are booked at different values to avoid taxes or to hide large transfers of money.