IFFs Shed Light on Africa’s Economic Woes
The African Union Advisory Board on Corruption focused on illicit financial flows at the African Union Convention on Preventing and Combatting Corruption in Kigali, Rwanda. (African Union)
By Mitchell Simoes
Africa’s struggling economy has been at the forefront of conversation and scholarly intrigue for quite some time now. Economists have reviewed policy after policy, new economic plans, and forms of aid in hopes of assisting the continent in its development efforts. There are countless programs devoted to building Africa up to its full potential, centered around volunteerism, financial aids, and foreign investment. But unfortunately, much of this is of no avail. As to why that is, economic researchers have described many complications in Africa’s governmental and social infrastructure that one could point to – but until recently, a much more insidious issue has been ignored: illicit financial flows (IFFs).
Researchers describe how poor health conditions and inadequate healthcare systems deplete the continent of healthy labor to push forward economic progress. According to the World Health Organization, 19 out of the 20 countries with the highest maternal mortality ratios are in Africa. Without the proper healthcare infrastructure in place to deal with such high rates of health conditions, not much can be done to combat health crises when they arise.
Another set of problems that economists point to are the civil wars and terrorism which, most importantly, lead to loss of life. On top of that, they discourage foreign investment, disrupt businesses, and sever communication networks. One report indicates that the Democratic Republic of Congo has had 4 million casualties as a result of a war that also cost them an estimated 29% of its GDP. The consequences of civil unrest in Africa are too much for these developing countries to bear.
But most of all, the rampant corruption that plagues them, and Africa’s leniency toward the matter, are what makes them ineffective at providing the resources necessary for sustainable development. An article notes how, very often, those convicted of corruption are given light sentences of about three years with the option to pay a fine – doing very little in the way of punishing and discouraging the crime. This also has an adverse effect on the policies which these countries pass, because they can so often stem from corrupt agendas. What this allows for is shady business dealings and illegal practices that result in a loss of money, or illicit financial flows – an overlooked factor in Africa’s stagnant development.
IFFs are illegal movements of money and assets across borders, including for the purposes of tax evasion and the concealment of corruption. Since the early 2000s, Africa has been dealing with IFFs in increased volumes, heavily contributing to their economic woes. Due to Africa’s high capital flight from 2000 to 2015, at $836 billion, it is estimated that the continent is a net creditor to the world, meaning that there is more money flowing out of Africa than in. Taking capital away from the economies of African countries, IFFs have been devastating for their development efforts. This high outflow of capital, approximately 3.7% of Africa’s GDP, takes away from the resources available for the development of infrastructure and poverty-reducing programs, slowing the progress of a developing continent.
While Africa is often portrayed in America as a poor, helpless continent, it’s actually quite a rich continent which is the victim of capitalist exploitation from foreign and even domestic businesses. The constant stream of wealth out of the country, paired with the exploitative business practices it faces have proven to be debilitating. Much of this issue is the result of Africa’s many corrupt governments, weak regulations, and poor policies so the remedy to IFFs start and end with government. IFFs even lead to lower investment in the health and education sectors, which, referring back to earlier in this article, shows that the effects of IFFs are two-fold. So, while the common perception of Africa is that it is resource-rich but cash-poor, the truth is a bit more nuanced. The growing rates of IFFs in African countries shows that the continent has the capability to produce at high levels but is being held back from its potential. The constant outflow of capital from criminal and exploitative practices is the main issue, but which instead expresses itself in many other ways. It seems that what plagues the continent are its civil wars, the health crises, and its substandard infrastructure. But really these are, at least in part, just the byproducts of a much more pressing issue – illicit financial flows.
Improvements in how African countries deal with IFFs can be the key to improving many of Africa’s other problems, having an umbrella effect on the rest of its economy. Recent research by the WHO and UN has shed a new light on the issues affecting the development of African countries. Hopefully this, and future initiatives, can help mitigate some of the continent’s economic woes going forward.
