SADC plagued by illicit financial flows

By Timo Shihepo

WINDHOEK – NAMIBIA has called on other SADC member states to join hands in combating illicit financial flows in the region. Earlier in June, Mojanku Gumbi, advisor to Thabo Mbeki – the former South African president and chairperson of the High Level Panel on Illicit Financial Flows from Africa, revealed that Africa loses about US$90 billion annually in illicit financial flows.

Ahead of the 31st plenary session of the African, Caribbean and Pacific (ACP) and European Union (EU) Joint Parliamentary Assembly that met in Windhoek, Gumbi said illegal capital outflows manifest in the form of tax evasion, crime and corruption, among other activities.

The High Level Panel on Illicit Financial Flows from Africa was established in 2012 by the Economic Commission for Africa and the African Union to address the problem of illicit financial flight from Africa.

The Global Financial Integrity (GFI) in its report, “Illicit Financial Flows from Developing Countries: 2004-2013” that was released in December 2015, indicated that illicit outflows of capital have cracked the US$1 trillion plateau. After a slowdown during the global financial crisis, illicit outflows have been rising, topping US$1 trillion since 2011 and reaching a new peak of US$1.1 trillion in 2013.

According to the GFI report, Namibia lost R17 million in 2012, which has since increased to around R30 million in the last financial year, according information obtained by The Southern Times.

The GFI ranked Namibia 56th out of 151 countries and Botswana, which lost US$1.92 million, at 46th.

In the same year, South Africa – which was ranked among the top 10 – lost US$29 million while Zambia lost US$4,2 million with Lesotho ranked 76th with outflows US$506 000 while the Democratic Republic of the Congo is 98th with outflows amounting to US$148 000.

Namibia’s Minister of Finance Calle Schlettwein told The Southern Times that in many countries and certainly in the Namibian context, the amount of money lost through illicit financial flows is much higher compared to aid the country receives from donors.

“The money which is supposed to enhance our economies is no longer in circulation but somewhere else. There’s a need to address this problem to stop the money leaving our institutions illegally, not just in Namibia or SADC but the whole of Africa,” said Schlettwein.

“SADC and Africa is losing money that otherwise could have been used to develop its markets. There’s a necessity for the continent to develop its markets to attract investments to prevent people from going through the back door.”

He said most of these are lost through tax evasion as well as phoney payments for goods and services in foreign capitals.

Last year, it was announced that Namibia and Zimbabwe are the only two African countries to be removed from the international targeted review process of countries with shortcomings in their National Anti-Money Laundering and Combatting the Financing of Terrorism regulatory environment.

This came up as a result of the Financial Action Task Force (FATF) Plenary meeting on February 26, 2015, in Paris, France, which, upon recommendation by its International Cooperation Review Group, unanimously agreed that Namibia and Zimbabwe have effectively and efficiently executed all the agreed actions.

Schlettwein said despite this international recognition, the country is busy doing its own self-assessment. He said although Namibia’s legal framework concerning the illicit financial flows is sound, they are busy updating the policy to tighten the loopholes but warned that the criminal world is a vast, sophisticated web which requires modern and enormous resources to combat it.

A report commissioned by the Economic Commission for Africa and the African Union Conference of Ministers of Finance, Planning and Economic Development, titled: Illicit Financial Flows – Track It Stop It Get It, states that illicit financial flows have the capacity to hurt any nation severely.

Among others, the study has identified weakened governance, negative developmental consequences, discouraging transformation and transparency and straining Africa’s capacities as some of the negative impacts of illicit financial flows.

Namibia’s central bank, the Bank of Namibia, also told this newspaper that illicit financial flows (IFFs) can also lead to a squeeze on growth, slowdown of investment, and factories operating at far less than full capacity, all of which may be accompanied by retrenchment and job losses.

“Furthermore, IFFs lead to reduced tax earnings resulting from hiding taxable funds; and this has a direct effect on the provision of public services such as schools, clinics, sanitation, security, water and social protection,” said Emma Haiyambo, the Deputy Director of Financial Sector Development at the Bank of Namibia.

Haiyambo said available evidence shows that many large companies, including multinational ones, devote considerable efforts to activities that seek to increase their profitability through tax evasion and avoidance rather than through making their operations more efficient.

“IFFs thus reduce the efficiency of resource allocation through the focus on activities with the highest pre-tax returns to those with best after-tax returns.

This focus tends to reduce value creation, which is very important for, especially when a country wants to shift its production structures from primary to secondary activities,” she said.

August 2016
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