Capital movement through trade misinvoicing: the case of Africa (original) (raw)

The annual GFI reports provide country-level estimates of the illicit flows of money into and out of 148 developing and emerging market nations as a result of their trade in goods with advanced economies, as classified by the IMF. The massive flows of illicit capital represent diversions of resources from their most efficient social uses in developing economies and are likely to adversely impact domestic resource mobilisation and hamper sustainable economic growth. Whatever the source of the illicit flows, it is necessary to consider their role in any discussion of the development equation. It is important to examine not only the volume of resources legally flowing into and out of developing countries but also the illicit flows associated with leakages of capital from the balance of payments and from trade misinvoicing. Governments and international organisations must strengthen policy and increase cooperation to combat this scourge. Governments should sign on to the Ad-dis Tax Initiative to further support efforts to curb IFFs as a key component of the development agenda. This GFI study underscores the point that trade-related IFFs ap-pear to be both significant and persistent features of developing country trade with advanced economies - a type of resource curse in that their origin is unknown, inflows are invisible to governments, they are not taxed, and they often times fuel illegal activities such as drug trafficking). As such, trade misinvoicing remains an obstacle to achieving sustainable and equitable growth in the developing world. Highlights of research for the year 2015 using the DOTS dataset from the IMF show that: the top quintile of countries, ranked by dollar value of illicit outflows, in-cludes resource-rich countries such as South Africa ($10.2 billion) and Nigeria ($8.3). The top quintile of countries, ranked by illicit outflows as a percentage of total trade with advanced economies, produces coun-tries including Mozambique (48.1%), Malawi (44.1%), Zambia (43%), and Namibia (38.7%). The list of top 30 countries ranked by the dollar value of illicit inflows includes a regionally diverse group including Morocco ($3.9 billion). Highlights of research for 2015 using the Comtrade dataset from the UN show that the top quintile of countries, ranked by dollar value of illicit outflows, includes African nations in-clude South Africa ($5.9 billion), Algeria ($4.1 billion), and Tunisia ($1.8 billion). The top quintile (30) of countries, ranked by illicit out-flows as a percentage of total trade with advanced economies, produces a different set of countries including Uganda (14.7%), Rwanda (13.7%), and Namibia (13.6%). The list of top countries ranked by dollar value of illicit inflows include Morocco ($2.7 billion), and Tunisia $2.3 bil-lion). Further, the study finds that over the period between 2006 and 2015, IFFs accounted for over 20 per cent of developing country trade, on average, with a nearly even split between outflows and inflows (GFI, 2019). Keywords: trade misinvoicing, Illicit Financial Flows (IFF), corruption, IMF Direction of Trade Statistics (DOTS), United Nations Comtrade database