Why is Africa sending money to help rich countries develop?

Every year Africa loses more than $88 billion due to illicit capital flight amounting to more than 3.7 percent of the continent's GDP of $2.6 trillion.

Between 2000 and 2015, illegal capital leaving Africa totalled $836 billion. When compared to Africa’s external debt of $770 billion in 2018, the report said this effectively made it a “net creditor to the world.”

The finding in a new UN report reveals the true scale of the challenge facing African countries in cracking down on illicit financial flows where money and assets that cross borders or are transferred through illegal means deprive the states of much-needed revenue.

Titled “Tackling illicit financial flows for sustainable development in Africa” the report notes the illegal outflows of money are almost equivalent to the money coming in from development aid, valued at $48 billion and foreign direct investment, valued at $54 billion.

“Illicit financial flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions,” said the report.

The way the illicit funds flow out is when companies under-invoice the product they are selling abroad by not stating the full price. The report found that commodities in particular such as gold and diamonds accounted for more than half of the under-invoicing practices.

Gold, in particular, accounted for more than 77 percent of the under-invoicing practices linked with commodities followed by diamonds at 12 percent.

A country, by country breakdown, of the illicit outflow of funds shows the magnitude of the problem and the sheer loss of money which has impacted the continent’s development.

Nigeria, Africa’s largest economy and a major oil-producing nation, between 2013-2014 alone, lost more than $48 billion. Whereas South Africa, the second-largest economy in the continent between 1970 and 2015 lost more than $198 billion dollars.

One study that looked into money that had left the continent between 1970-1996 found that it amounted to more than $285 billion.

While many African countries have tried to tackle the practice, the question remains, where does the money go?

Follow the money

The recently leaked documents of the Financial Crimes Enforcement Network (FinCEN), an arm of the US Treasury exposed major financial institutions in the West as facilitators of illegal financial flows amounting to $2 trillion over a 20-year period.

Reports suggest that millions of dollars in illicit money have been laundered through major banks in Europe and the US. 

The former South African President Thabo Mbeki has criticised developed nations for having lax rules which allow money to be laundered.

In a report looking at the illicit outflow of funds from Africa, he said, “It is somewhat contradictory for developed countries to continue to provide technical assistance and development aid (though at lower levels) to Africa while at the same time maintaining tax rules that enable the bleeding of the continent’s resources through illicit financial outflows.”

Researchers have noted that often the discourse around aid is that the West gives financial assistance to African countries because they don’t have enough of it.

This “benevolent goodwill” hides a dark reality. Developing countries, particularly in Africa, have seen trillions being sent to Europe and America over the last several decades. Aid is not meaningful if the amount of aid money being sent by Western countries is about equivalent to the illicit money they receive from Africa. 

A campaign, called Stop the Bleeding, has been formed in a bid to engage African civil society and ordinary people so that “the conversation on illicit financial flows” is broadened beyond political circles.