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Illicit Financial Flows from Africa: Signs of a Poor Integration into the Global Economy


Touray, M.E. 2014. Illicit financial flows from Africa: Signs of a poor integration into the global economy. GREAT insights Magazine, Volume 3, Issue 8. September 2014.

Whether one looks at the figures in absolute or relative terms, the outflow of illicit financial flows (IFFs) from Africa is staggering. Ever since the landmark study by the African Development Bank(1) and Global Financial Integrity(2) described Africa as a net creditor to the world of some US$1.4 trillion between 1980-2009, studies have proliferated on the subject. The significance of these figures is that they demonstrate the extent to which international trade, indeed, integration into the global economy, is not proving to be a viable development option for the continent.

Illicit financial flows are monies illegally transferred off-shore (even if they result from legal transactions) in contravention of the laws of the country of origin. They range from simple private individual transfer of funds to private accounts abroad, to highly complex schemes involving sometimes criminal networks that set up multi-layered, multi-jurisdictional structures to hide ownership. Whilst criminal activities are often the most cited, it must be borne in mind that a staggering 52% of IFFs results from cross-border tax evasion. For instance, a study by AFRODAD(3) on IFFs in Zimbabwe showed that the country lost US$239 million in export under-invoicing, 44% of which resulted from its trade with Japan.

Re-assessing trade relations

At the dawn of the new era of a Global Partnership for Effective Development Cooperation (GPEDC),(4) the question is being asked as to how, under these circumstances, Africa can finance its development aspirations without a comprehensive re-assessment of its relations with the rest of the world. Central to the post-2015 agenda, is a reduction in inequalities within and between nations. The Intergovernmental Committee of Experts on Sustainable Development Financing (IGCESDF), in its final draft of the 8th of August 2014,(5) concedes “the stock of global financial assets – a placement for only a small portion of annual global savings – is estimated to be around US$218 trillion. Even a small shift in the way resources are allocated would have an enormous impact”.

The challenge for the global community, under the new GPEDC and the post-2015 Agenda is to make this shift happen. Paragraph 40 of the IGCESDF is even more explicit: “In many countries, tax evasion and avoidance hinder domestic resource mobilization. In addition, illicit financial outflows, including tax evasion across borders, have undermined tax collection. Estimates of illicit financial flows, by nature clandestine, vary widely, but point to substantial numbers”.

This then is the extent of the challenge that IFFs present to Africa: loss of opportunities for development investments and a clear sign of a “not-so-beneficial” integration into the world economy. African governments, in general, are indeed concerned about the losses through IFFs, witness the AU’s commissioning of a report on the subject. However, action by even the African Union as a body (not to mention at individual country levels), will fail to make any breakthroughs in resource mobilisation for a number of reasons.

Obstacles to resource mobilisation

The first reason is that national level legislations are inadequate to arrest predatory behaviour of companies that have long ago created supra-national networks. The practice of base erosion and profit shifting (BEPS) by highly integrated multinational cooporations (MNCs) makes it extremely difficult, if not impossible, for any single government (or governments for that matter) to address unfair transfer pricing and internalised transactions of MNCs operating as global networks. Yet the integration of African economies into global trade and investment markets is massively through these MNCs, following years of structural adjustments and divestiture programs launched by the International Monetary Fund and the World Bank. Across the continent, there has been a significant shift in economic power from central and local governments to impersonal trusts and anonymous company owners.

A second reason lies in competition among African countries for foreign direct investment (FDI) flows to the continent. The practice of enticing investors with fiscal and financial incentives makes it difficult for any government to drive hard bargains with prospective investors. Recently, the systematic use of double-taxation agreements as part of the packages discussed with investors has raised alarm about fiscal benefits of foreign investments. The weak bargaining power of respective governments is exacerbated by information asymmetry with regards to resource reserves, international market prices and internal cost structures of licence holders.

Global economy integration an illusion?

A seminal study titled “The Revenue Costs and Benefits of FDI in the Extractive Industry in Malawi; The case of the Kayelekera Uranium Mine’’(6) uncovered that weak legislation and institutions fail to hold MNCs accountable for their tax obligations and remittances to government. “Taxation laws fail to adequately address issues of capital flight, tax avoidance or evasion, which the study findings have revealed are being perpetrated by MNCs”.

With limited strategic options to improve returns from its trade with the rest of the world, the continent is only left with global platforms at which it can make a case for fairer returns from commercialisation of its resources. These platforms have been, at best, disappointing. From the WTO Trade Conference in Bali to the OECD exclusion of developing countries from BEPS discussions, the call by some European countries to block the proposal to establish a UN Tax Committee and a Debt Workout Mechanism to the discussions on Financing for Development, the likelihood of a global concerted effort to redress Africa’s poor integration into the world economy and to improve its share of trade proceeds remains an illusion. Illicit financial flows are only one of the symptoms of the non-benefitting trade relationship with the rest of the world. 

momodou-touray_author_GREAT_Sept_2014Momodou E. Touray is the Executive Director a.i. and Policy Advisor on Economic Governance and Development Aid at the African Forum and Network on Debt and Development (AFRODAD), Zimbabwe.




[3] “An Assessment of the Extent, Main Drivers, Processes and Impacts of Illicit Financial flows in Zimbabwe”, AFRODAD August 2014.

[6] AFRODAD. 2013. The Revenue Costs and Benefits of FDI in the Extractive Industry in Malawi The case of the Kayelekera Uranium Mine.


This article was published in GREAT insights Volume 3, Issue 8 (September 2014).

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Economic Transformation and TradeDevelopment Finance and TaxationDevelopment FinanceAfrica

External authors

Momodou E. Touray