Kigali- African economies, including Uganda, will continue to bleed unless governments plug loopholes that enables illicit financial flows (IFFs) to easily leave the continent, experts have warned.
Global Financial Integrity defines IFF as money that is illegally earned, transferred or utilised.
And the High Level Panel report defines it as money illegally earned, transferred or used.
Africa as a whole is estimated to be losing more than $50b in illicit financial flows every year, according to the High Level Panel on Illicit Financial Flows from Africa report.
Uganda alone is estimated to be losing in the excess of Shs2 trillion annually and it is feared that this could get worse once commercial production of oil and gas begins.
Magnitude of loss
The amount lost in illicit financial flows every year is nearly an equivalent of the budget allocated to the Ministry of Works and Transport, which accounts for the lion’s share of the national budget.
The same estimates is also nearly the amount of budget committed to paying off interest accrued on loans that the country has since borrowed.
As for the continent, the High Level Panel report, which was chaired by the former South African President, Thabo Mbeki, indicates that over the last 50 years, Africa is estimated to have lost in excess of $1 trillion in illicit financial flows.
This sum, according to the report is roughly equivalent to all of the official development assistance received by Africa during the same timeframe.
How money is lost
Mostly, IFFs are being perpetuated by the multinational companies in Africa, which through illegal and immoral actions, deny the continent its due share of revenue.
It is normally done through tax evasion, money laundering and false declaration.
Other illegal methods used include overpricing, transfer pricing, tax evasion, money laundering, corruption and false declarations, hampering economic growth and resulting in billions and in some cases trillions in lost tax revenue.
“Commercial activities are by far the largest contributors to IFFs, with more than 60 per cent,” policy, tax and investment expert at Tax Justice Network Africa, Mr Jared Maranga told participants attending the Regional Dialogue on Curbing Illicit Financial Flows from Africa in Kigali, Rwanda.
“This is followed by organised crime, then public sector activities,” he added.
It emerged in his presentation that IFF from Africa is growing at an alarming rate, which is an obstacle to internal revenue mobilisation and subsequently financing development in Africa.
Curbing illicite financial flows: Knowledge Management Expert, at the African Capacity Building Foundation, Mr Frejus Thoto in his presentation further emphasised that corrupt practices play a key role in facilitating illicit financial flows. As a way forward he cited strengthening of technical and human capacity, proper understanding of issues related to IFFs and dealing with financial crimes.
Lack of enough data, he said, and shortage of funding as well as lack of coherence between institutions are the other challenges bedeviling the fight against IFF.
He suggested that capacity to address the drivers of IFFs (poor governance, corruption, weak regulatory structures) be instituted by governments.
The capacity to determine and verify the amount and nature of transactions of revenue officials must also be enhanced.