Trade Misinvoicing and Illicit Financial Flows in Sub-Saharan Africa

Trade Misinvoicing and Illicit Financial Flows

in Sub-Saharan Africa

Last year, Global Financial Integrity (GFI) and the African Development Bank published a report indicating that from 1980–2009 unrecorded illicit financial outflows from Africa represent US $1.22-1.35 trillion^(1). The World Bank estimates the total GDP of Sub-Saharan Africa at US $2,249.95 billion in 2013. In a new report published on May 12, 2014 GFI⁽²⁾ put light on illicit financial outflows created by trade misinvoicing in Sub-Saharan Africa. The report shows that between 2002 and 2011, illicit financial flows has moved US $60.8 billion out of Ghana, Kenya, Mozambique, Tanzania, and Uganda. Global Financial Integrity defines under-invoicing of exports as the primary method for shifting money illicitly out of the country and under-invoicing of imports illegally smuggled capital into the country. Trade misinvoicing lowers government revenues and consequently handicaps economic growth.

It represents important tax losses. During the period of 2002 and 2011, the yearly tax losses of Ghana could be estimated at $368 million (11% of total government revenue); Kenya $435 million; Mozambique $187 million; Tanzania $248 million; and Uganda $243 million. The report indicated that the total cumulative trade misinvoicing (export under-invoicing, import under-invoicing, export over-invoicing, and import over-invoicing) could be estimated at $14.39 billion in Ghana (7th−largest economy in Africa-GDP growth 7.9% in 2012); $13.58 billion in Kenya (world leader in mobile money system-GDP growth 4.6% in 2012); $5.27 billion in Mozambique (4^th largest gas reserves in the world-GDP growth 7.4% in 2012); $18.73 billion in Tanzania (Soon to be world leading LNG exporter - GDP growth 6.9% in 2012); and $8.84 billion in Uganda (2.5 billion barrels of oil-GDP growth 3.4% in 2012). All 5 of these African States are natural resource rich countries. Ghana is the world’s 2nd largest producer of cacao, after Ivory Coast. Cacao export generates about US $1.6 billion in foreign exchange for Ghana. This country has the 5^th largest oil reserve in Africa, with an oil reserve that could reach 5 billion barrels in 2015. Ghana, Mozambique, and Tanzania are compliant countries with the Extractives Industry Transparency Initiative (EITI), but Kenya and Uganda are not members of this organization. Transparency International corruption perceptions index ranked Ghana number 63/177; Tanzania 111/177; Mozambique 119/177; Kenya 136/177; and Uganda 140/177. Trade misinvoicing is more prevalent in resources-rich countries.

With these two reports, we can conclude that the African continent should not experience a high level of debt and poverty. As stated by Global Financial Integrity, Africa is a net creditor to the world.

1-http://www.afdb.org)

2-Global Financial Integrity: Hiding in Plain Sight

Trade Misinvoicing and the Impact of Revenue Loss

in Ghana, Kenya, Mozambique, Tanzania, and Uganda: 2002-2011, by Raymond Baker, Christine Clough, Dev Kar, Brian LeBlanc, Joshua Simmons – Funded by Ministry of Foreign Affairs of Denmark - May 2014