A decade after former president Thabo Mbeki’s high-level panel warned that Africa was bleeding $50bn a year in illicit money flows, not much has changed — except the losses may have doubled.
And, instead of leading the fight, SA seems to be part of the problem.
The AU’s High-Level Panel on Illicit Financial Flows (AU HLP) released a follow-up report on Wednesday assessing the continent’s progress since its landmark 2015 intervention.
Dubbed the Mbeki II report, the review painted a stark picture of stalling momentum, fragmented initiatives and growing political apathy in the face of a worsening crisis.
“Africa is still divided in its action against Illicit Financial Flows (IFFs). We do not yet have a responsive, inclusive, and politically supported co-ordination mechanism,” Getachew Alemu, a senior official with the AU HLP secretariat, said during the report’s launch.
IFFs refer to the illegal or illicit movement of money across borders, and include funds generated from corruption, tax evasion, contraband trade and criminal activities.
According to the Mbeki II report, enforcement is still weak, and too much attention is being given to money-laundering and terror financing — largely because of donor influence. Meanwhile, the much bigger problem of commercial outflows is mostly ignored.
“When anti-corruption agencies lead, the focus is mostly on corrupt and criminal IFFs”, but the largest chunk — the commercial component, which accounted for 65%-70%, including trade mis-invoicing and transfer pricing manipulation — remained untouched, Alemu said.
These practices enable multinational firms to shift profits out of Africa to low-tax jurisdictions, thereby depriving countries of critical revenues.
According to a 2020 UN Conference on Trade and Development report, Africa loses about $89bn/year to IFFs — equivalent to 3.7% of its total GDP. This is nearly double the losses recorded a decade ago, and about twice the amount the continent receives in foreign aid.
The Mbeki II report references the Tax Justice Network’s Financial Secrecy Index, which found SA is one of only four African countries that significantly regressed in financial secrecy regulations between 2020 and 2022.
That backslide came to a head in February 2023, when the Financial Action Task Force (FATF) greylisted SA for failing to meet compliance standards on anti-money laundering and terrorism financing. The FATF move dented investor confidence, complicated cross-border transactions and raised concerns about regulatory enforcement.
Research by the Institute of Security Studies published on August 1, said that Nigeria, Egypt and SA were the top three countries in absolute IFF losses. SA lost about $7.4bn (R131bn) a year to IFFs between 2010 and 2014.
According to Alemu, commitment is often tied to individual leaders. When they left, institutional momentum died, he said.
By contrast, he praised Nigeria’s performance: “Nigeria has a very good, functional inter-agency committee. That effectiveness seems to be high-level political buy-in and commitment from responsible institutions, [and] ownership of the overall national cause on how important IFF is.”
Alemu also noted Mbeki II showed nonbank financial institutions were poorly regulated, citing a “high degree of informality” and weak compliance.
Non-bank financial institutions are companies that offer financial services like lending, insurance or money transfers, but are not licensed as traditional banks.
But regulation is only part of the problem. Beyond weak oversight, some experts argue that Africa’s entire approach to financing development needs to be rethought.
Redge Nkosi, economist, executive director and head of research at Firstsource Money, challenged the approach that relied solely on taxes to finance development and address Africa’s fiscal challenges.
“This view of domestic resource mobilisation has been rejected thoroughly.... Even if they continue to insist that our focus for domestic resource mobilisation should be around taxation, we argue here in this report that this conventional approach ... perpetuates colonial patterns of underdevelopment and dependence.”
Nkosi said that Africa’s fiscal responses were shaped (and limited) by the global financial architecture, which remained rigged against developing countries.
“The current global financial architecture forces us largely to adopt the ways which limit us to only the aspects so captured in the current domestic resource mobilisation,” he said.
“Yet the very global financial architecture has been described by the secretary-general of the UN as outdated, dysfunctional and unfair.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.