•Kenya is losing close to half its it's domestic revenue to IFFs
• Mining, wildlife and technology are among sectors where the continent loses its resources Africa losing close to Kenya's GDP to illicit financial flows
Africa will not be dependent on donors and expensive external loans if proceeds from its mineral, wildlife, and other resources are well utilized.
The latest report on the impact of illicit financial flows in the region by a host of global bodies including the United Nations and Oxfam shows the continent losses close to four per cent of its GDP in illicit financial flows.
According to the Economic Development in Africa Report 2021 prepared by the UN Conference on Trade and Development (UNCTAD), Africa loses about $88.6 billion (Sh10 trillion) 3.7 per cent of its gross domestic product (GDP), annually in illicit financial flows.
The report shows that more wealth leaves the continent every year than enters it- at least by more than $40 billion (Sh4.5 trillion).
According to the report, the rest of the world is profiting more than most African citizens from the continent’s wealth.
For instance, it claims that African countries received around $200 billion in 2020, mainly in loans, aid and personal remittances.
Even so, close to $250 billion was taken from the continent either directly through multinationals repatriating profits and illegally moving money into tax havens, or by costs imposed by the rest of the world through climate change adaptation and mitigation.
This leads to an annual financial deficit of close $50 billion (Sh5.7 trillion) from the 50 African countries where many people remain trapped in poverty.
According to the report, illicit financial flows, defined as the illegal movement of cash between countries, account for $68 billion (Sh7.7 trillion) a year, three times as much as the $19 billion (Sh2.15 trillion) Africa receives in aid.
The key factors contributing to this inequality include unjust debt payments and multinational companies hiding proceeds through tax avoidance and corruption.
''The continent is also losing a substantial amount in profit shifting especially mining, wildlife and technology sectors,'' the report reads in part.
It adds that the prevailing narrative, where rich country governments say their foreign aid is helping Africa, is a distraction and misleading.
The debt of low- and middle-income countries in sub-Saharan Africa increased to a record $702 billion in 2020, according to a new World Bank report released in October last year.
This is the region's highest debt burden in a decade mostly due to Covid-19 related grants.
In 2010, sub-Saharan Africa's debt stood at around $305 billion.
According to the report, African governments receives an average of close to $35 billion in loans every year but pay more than half of that – $18 billion – in debt interest.
The High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI Panel) report released in February last year cautions that IFFs — from trade misinvoicing, tax abuse, cross-border corruption, and transnational financial crime — drain resources from sustainable development, as well as worsen inequalities, fuel instability, undermine governance, and damage public trust.
According to the report, Africa still faces a multitude of challenges in repatriating stolen assets, with a wide gap between the levels of frozen or confiscated assets and those returned.
Although the report has no country by country analysis, most recent studies shows Kenya loses a significant share of its resources to illicit financial flows.
Reports by Africa Tax Justice Network, Oxfam and Global Financial Integrity (GFI) show the country could be losing close to Sh500 billion every year, almost half its annual domestic revenue.
Kenya Revenue Authority (KRA) estimates the country loses more than Sh125 billion every year in taxes to shrewd traders who falsify the value of goods and services.
According to the revenue body, fraudulent schemes by domestic firms and multinationals could be depriving Kenya as much as 8.3 per cent of government revenue, which amounted to nearly Sh1.51 trillion for the fiscal year ended June 2020.
“It is estimated that Kenya’s tax loss from trade misinvoicing by multinational corporations and other parties could be as high as 8.3 per cent of government revenue.
“This clearly hampers economic growth and results in huge loss in tax revenue,'' KRA said in a statement.
Generally, the global economy loses at least $1.6 trillion, more than 10 times the size of Kenya's Gross Domestic Product every year through trade misinvoicing.
According to the latest report by Global Financial Integrity (GFI) an estimated $1.6 trillion in potential trade misinvoicing among 134 developing countries, of which $835 billion occurred between developing countries and 36 advanced economies, in 2018.