JOHANNESBURG – Illicit capital flows into and out of developing economies ranged from $2 trillion to $3.5 trillion in 2014, with Africa the region most vulnerable to the flight of capital needed for investment and other purposes, according to a new study.
Released on Monday by Washington-based think-tank Global Financial Integrity (GFI), the report comes before the World Economic Forum on Africa in Durban this week, where the region’s development and financial challenges will be in the spotlight.
It shows that combined, illicit outflows and inflows amounted to 14.1 to 24 percent of total developing country trade from 2005 to 2014, the last year for which comprehensive data are available.
“The massive flows of illicit capital shown in this study represent diversions of resources from their most efficient social uses in developing economies and are likely to adversely impact domestic … economic growth,” the report said.
The GFI report looked at both illicit outflows, which rob poor countries of capital that could be taxed or invested, and illicit inflows, which could point to cash being funnelled to tax havens or to be laundered.
In 2014, illicit outflows were estimated to have drained $620 billion to $970 billion from developing economies. Illicit inflows were put at $1.4 trillion to $2.5 trillion.
Over the decade of 205 to 2014, GFI found, sub-Saharan Africa led all regions for illicit outflows, estimated at 7.5 to 11.6 percent of its total trade.
Some development economists have argued sub-Saharan Africa – widely regarded as relying on aid inflows and the charity of industrialised nations – is actually a net exporter of capital to the rest of the world because of these trends.
Developing Europe – mostly comprising Eastern European and former Soviet republics, including Russia – was the leader for illicit inflows, estimated at 12.4 percent to 21.0 percent of the region’s total trade.
Illicit capital is mostly channelled through mis-invoicing of trade – exports and imports are booked at different values to avoid taxes or to hide large transfers of money.
Source -Reuters
