Former South African President Thabo Mbeki is the bearer of latest bad news out of Africa. The panel he heads -- High Level Panel on Illicit Financial Flows from Africa -- has issued a new report which shows that Africa loses up to USD60 billion a year in illicit money flows. The report further indicates that Nigeria is the most affected. Between 1970-2008, Nigeria cumulatively lost USD218 billion, or USD5.7 billion a year. Egypt and South Africa are the next biggest losers. The former's cumulative illicit financial flows in the 38-year period was USD105 billion against the later's USD81 billion.
The main arguments of the report are that illicit financial flows (IFFs) deny Africa significant source of domestic revenue for socioeconomic development. As stated by the panel, "IFFs from Africa range from at least $30 billion to $60 billion a year...We also observed that the increasing trend of illicit financial outflows coincided with a period of relative high economic growth in Africa, and that IFFs are therefore negating the expected positive impact of increased growth on the continent."
The report is obviously useful in illustrating the scale of IFFs. Comparatively, we may cite the fact that the USD60 billion illicit outflows per year dwarfs bilateral aid to Africa which was USD29 in 2012. In other words, the amount of money stolen from Africa is more than double the aid it receIves. Meanwhile foreign direct investment (FDI) to Africa was less than illicit outflows at USD50 billion in 2012. Obviously if USD60 billion were not stolen but instead added to USD50 billion of FDI, Africa would have had at its disposal USD110 billion of productive investments.
The flaw in the Mbeki report is its complete exoneration of African governments from causing the USD60 billion annual loss. The exclusive culprits are large companies and banks: "it is the large companies that engage in IFFs through abusive transfer pricing, trade misinvoicing, misinvoicing of services and intangibles and use of unequal contracts. They exploit the lack of information and capacity limitations of government agencies to engage in base erosion and profit-shifting activities. Given their scale, IFFs will at some point pass through banks and the financial system. The international banks sometimes facilitate IFFs even when they know that the money is tainted..."
In another part of the report, we read the following: "We believe that most African governments have a strong interest in stemming IFFs, including through obtaining the cooperation, compliance and commitment of other actors. They seek to stop IFFs in order to maximize tax revenues, keep investible resources within their countries, prevent state capture and impede criminal and corrupting activities."
This becomes "bad foreigners" versus "good but weak" Africans. And this is by no means a defense for international companies and banks. Rather, this is a critique of Mbeki's panel for playing the African victim. The idea that it is large companies and international banks robbing Africa blind by taking advantage of weak African governments is apologia for bad governance. At the very least, doesn't it take two to tango? And why would African states remain weak economic managers and regulators for such a long period as 1970-2008 -- that is 38 years.
Take the case of Nigeria, the worst victim of illicit financial flows. Mbeki and his panel conveniently forgot the disappearance of USD20 billion in 2014 and how the whistle-blower, former central governor Malam Sanusi, was expelled by President Goodluck Jonathan for revealing the deed. The Nigerian National Petroleum Company, which was identified as fraudster did not face any consequences.
The Mbeki team would have also been aware of the 2013 Chatham House Report, "Nigeria's Criminal Crude: International Options to Combat the Export of Stolen Oil" that stated: "Nigerian crude oil is being stolen on an industrial scale. Nigeria lost at least 100,000 barrels of oil per day, around 5% of total output, in the first quarter of 2013 to theft..Proceeds are laundered through world financial centres and used to buy assets in and outside Nigeria, polluting markets and financial institutions overseas, and creating reputational, political and legal hazards...Nigeria's dynamic, overcrowded political economy drives competition for looted resources. Poor governance has encouraged violent opportunism around oil and opened doors for organized crime."
Mbeki and company seem to have forgotten that governments in Africa, as elsewhere, are responsible for accountability and have powers to sanction the offending party or remedy the contravening behavior. That USD60 billion lost under their watch annually without sanction or remedy raises tougher questions. With regards to the country that tops the list -- Nigeria -- far from being a victim of international conspiracy, we see a fairly extensive criminalisation of the state itself. In such environment, it becomes difficult to determine who is leading whom in causing the loss.