AfDB Reports $1.6 Billion Daily Loss For Africa Due to Illicit Financial Flows
The African Development Bank Group (AfDB) has revealed that Africa loses nearly $1.6 billion daily due to illicit financial flows and profit shifting by multinational organizations operating within the continent. These illicit activities contribute significantly to corruption, causing the region to forfeit approximately $587 billion annually.
The AfDB highlighted that Africa’s net losses from foreign direct investment (FDI) far outweigh its gains, emphasizing the need for stakeholders to focus on blocking financial outflows rather than chasing inflows.
Understanding Illicit Financial Flows
The International Monetary Fund (IMF) defines illicit financial flows as the cross-border movement of money that is illegal in its source, transfer, or use. These flows include corruption, smuggling, tax evasion, and terrorist financing. Kevin Urama, Chief Economist of AfDB, noted that corruption alone costs Africa around $248 billion annually, with illicit financial flows adding over $90 billion to the tally. Profit shifting by corporations operating in Africa, but headquartered elsewhere, further exacerbates the problem by enabling these entities to avoid paying taxes legally through complex accounting practices.
Urama also revealed that tax evasion—often traceable through banking channels—accounts for $275 billion in losses annually. Combined, these factors lead to a staggering yearly loss of $587 billion, equating to $1.61 billion per day.
Misplaced Priorities in Economic Strategies
Despite these significant losses, African nations continue to prioritize attracting FDI, official development assistance, portfolio flows, and remittances. In 2022, these combined inflows amounted to just $174.5 billion—a mere fraction of the continent’s annual losses due to illicit financial activities.
“What we are losing is three times more than what we are getting from the global market. So how do we engage with the global market? Are we not focusing on the wrong priorities?” Urama questioned. He urged African stakeholders to shift their focus toward reducing financial leakage rather than solely pursuing new investments.
Tackling the Sources of Financial Outflows
The United Nations Conference on Trade and Development (UNCTAD) has also underscored the substantial resources Africa loses through illicit financial flows. These losses originate from various sources, including revenues from illegal activities, tax avoidance, profit shifting, trade mis-invoicing, and corruption.
Meanwhile, the IMF has been working globally to combat these opaque and destabilizing financial transfers, with a particular focus on addressing flows linked to tax avoidance, even when not strictly illegal.
A Call for Strategic Redirection
Urama’s insights serve as a stark reminder of the need for a strategic redirection in addressing Africa’s economic challenges. By focusing on retaining the resources already generated within the continent, African nations could mitigate the adverse effects of these financial outflows and build a more resilient economic future.
“If I’m losing almost $600 billion, I will focus on how not to lose it instead of going to get more,” he concluded.
