A blow against impunity

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THE INSIDE VIEW

A report explaining how Africa has lost more than US$850 billion between 1970 and 2008 in illicit financial flows – mainly through corporate tax evasion, trade mispricing and overpriced supply contracts – suggests that long-standing debates over the merits of foreign aid are wrongly directed. Illicit outflows from Africa, orchestrated by international companies and corrupt officials, have run at well over double the levels of foreign aid sent to Africa from rich countries, according to the report from Washington-based Global Financial Integrity. The authors, including former IMF economist Dev Kar, suggest Africa’s illicit outflows from 1970 to 2008 could total as much as $1.8 trillion if transfer pricing schemes and mispricing of the trade in services with Africa are taken into account. Africa’s biggest economies were worst hit: Nigeria was reckoned to have lost $89.5 bn., Egypt $70 bn., Algeria $25.7 bn., Morocco $25 bn. and South Africa $24.9 bn. Private businesses organise most of the outflow but government agencies fail to staunch it. The proceeds of commercial tax evasion account for about 65% of the losses, drug trafficking and counterfeiting for about 30%, and bribery and theft involving state officials for about 3%. The report raises policy questions for the World Bank, which launched its own detailed study (financed by Norway) into capital flight. Only South Africa has made a serious effort to stop trade mispricing and corporate tax evasion.