Economy: Foreign firms loot hard currencies worth USD1.5 trillion yearly from Africa

Foreign companies operating in Africa siphon US$ 1.5 trillion illicitly every year from Africa in the form of hard currency, leading to high inflation and deepening income gaps, a report by an African Union-backed think-tank said Friday. The report by the High-Level Panel on Illicit Financial flows from Africa, a group created by the African finance ministers in 2011, under the leadership of former South African President Thabo Mbeki, said the funds were wired back to rich states, draining hard currency reserves in Africa. The report examined the role of multinational corporations in what some call Africa’s greatest economic sabotage, because it “perpetuates Africa’s economic dependence on other regions. “The depletion of investments and stifling of competition caused by these illicit transfers actually undermine trade and worsen the socio-economic fabric of poor communities in Africa,” the report, titled Illicit Financial Flows from Africa: Scale and Developmental Challenges, said. It linked the illicit transfers to shorter life expectancy due to limited spending in providing social services such as health care, the UN Economic Commission for Africa (UNECA) said. The Mbeki panel is charged with recommending appropriate policies to counter the phenomenon and seek repatriation of the stolen moneys back to the continent. Since the early 1960s when multinationals entered Africa, “foreign direct investment by the multinationals could have been as high as US$ 1.5 trillion a year, although most is directed towards the developed world.” “In addition to local businesses, the most significant perpetrators of trade mispricing are multinational corporations” because of their “strong global presence and influence, which facilitate the illicit transfer of funds,” it noted. The World Trade Organisation (WTO) estimates that corporations control about 60% of the world trade, which amounts to about US$ 40 trillion. Africa lost about US$ 854 billion in illicit financial flows over a 39-year period (1970-2008); corresponding to a yearly average of about US$ 22 billion, compared to both the external debt of the continent and the official development aid (ODA) received over the same period. “Indeed, it is equivalent to nearly all the ODA received by Africa during that timeframe - a record level of US$ 46 billion in 2010,” ECA, quoted the report as stating. A third of the loss associated with illicit financial flows would have been enough to fully cover the continent’s external debt that reached US$ 279 billion in 2008. The trend has been increasing over time and especially in the last decade, with an annual average illicit financial flow of US$ 50 billion between 2000 and 2008 against a yearly average of only US$ 9 billion for the period 1970-1999. More than 60 percent of the outflows was attributed to only two regions, namely West Africa and North Africa, with 38% and 28%, respectively. Southern, Eastern and Central Africa registered about 10% of total Africa’s illicit financial flows because of the lack of data and due to the poor quality of available data. Source Pana 28/07/2012