Africa Loses Over $300 Billion Annually to Illicit Financial Flows, Experts Call for Broader Definition to Combat the Drain

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Tax experts are raising the alarm over Africa’s growing economic losses due to illicit financial flows (IFFs), with estimates suggesting the continent is losing over $300 billion annually. These massive outflows are weakening Africa’s economic growth, draining resources crucial for development, and exacerbating poverty.

According to Chenai Mukumba, executive director of the Tax Justice Network Africa (TJNA), one of the primary reasons Africa continues to suffer from IFFs is the narrow definition of what constitutes such flows. She argues that the current global approach is too limited, focusing only on illegal activities, while a significant portion of financial transfers, although not strictly illegal, still deprives the continent of vital revenue.

“We need to expand the definition because many of the Global North countries right now only consider the illegal activities of the companies to fall under this particular topic,” Mukumba said. She emphasized the need to include activities like tax evasion, aggressive tax avoidance, and profits from transnational crimes. Broadening the definition could enhance international cooperation, allowing countries to address the full scope of financial abuses.

IFFs are typically associated with cross-border financial crimes such as money laundering, tax abuse, and terrorist financing. These activities undermine public trust, deplete resources meant for sustainable development, and create a breeding ground for inequality and corruption. While organizations like the G20, the World Bank, and the African Union Commission (AUC) have made efforts to tackle IFFs, their focus has been primarily on illegal actions, leaving out broader unethical financial practices that continue to harm Africa.Africa Loses Over $300 Billion Annually to Illicit Financial Flows, Experts Call for Broader Definition to Combat the Drain

Patrick Ndzana Olomo, acting head of economic policy at the AUC, noted that the continent’s losses to IFFs account for more than half of the $500 billion needed annually to finance Africa’s development. “Illicit financial flows are depriving the continent of approximately $390 billion a year, approximately 75% of the amount needed to finance development in Africa,” Olomo stated. The loss of such a vast amount of resources hinders investment in crucial sectors like agriculture, industry, and services, which are essential for inclusive growth and sustainable development.

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One of the leading figures in the fight against IFFs is former South African President Thabo Mbeki. He heads the African Union’s High-Level Panel on IFFs and has called attention to the scale of the problem. According to Mbeki’s panel, Africa loses at least $50 billion annually in illegal transactions alone, with some reports indicating that the continent may have lost up to $1 trillion over the past 50 years. The main culprits include multinational corporations engaged in illicit commercial practices, drug trafficking, smuggling, bribery, and embezzlement.Africa Loses Over $300 Billion Annually to Illicit Financial Flows, Experts Call for Broader Definition to Combat the Drain

The ongoing debate about IFFs has taken center stage, with experts calling for a more developmental approach. They argue that a broader definition of IFFs should include not only illegal activities but also ethically questionable ones like aggressive tax avoidance by multinational companies. Such a move, they believe, could help African nations better mobilize domestic resources, reduce reliance on external aid, and channel investments into productive sectors that would foster long-term economic growth.

Africa’s fight against IFFs is not just about law enforcement; it’s a developmental issue that has far-reaching consequences for the continent’s future. With over 400 million Africans living on less than $1.25 a day and a GDP per capita that is just a fifth of the global average, stemming the tide of illicit financial flows could be a key driver in lifting millions out of poverty and setting the continent on a path toward prosperity.

As the push for more comprehensive policies and international cooperation gains momentum, it is clear that addressing illicit financial flows will be crucial for Africa’s economic stability and development.

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