Africa loses $150b yearly to illicit trade

A staggering financial drain is threatening to derail Africa’s development as new data revealed that the continent is losing over a hundred billion dollars every year through fraudulent trade practices.

A comprehensive report released by Global Financial Integrity (GFI) titled Trade-Related Illicit Financial Flows in Africa, 2013-2022 detailed a systematic “hemorrhage” of capital that has left the continent as a net creditor to the rest of the world.

The findings suggested that the scale of these illicit financial flows (IFFs) is now so vast that it rivals the total amount of foreign aid and investment entering the continent combined.

According to it, the crisis reached a new peak in 2022, when the total trade “value gap”—the discrepancy between what African countries report as exports and imports compared to what their global partners record—surged to an all-time high of $152.9 billion.

The figure, it noted, represented a sharp escalation from previous years and highlights a structural failure in the global trade system.

According to the report, “no country in the region appears to have made much progress in limiting trade value gaps during the period,” indicating that the problem is becoming more entrenched despite international promises to curb corruption.

At the heart of the financial drain, it explained, is “trade misinvoicing,” a practice where companies and individuals deliberately under- or over-state the value of goods on invoices to move money across borders illegally. This tactic is used to evade taxes, launder money, or bypass capital controls. The report noted that high-value commodities such as oil, gold, and diamonds are particularly vulnerable because of “the opacity in pricing and power imbalances between African exporters and the multinational buyers”.

The $88.6 billion estimated to leave the continent annually is roughly equivalent to Africa’s entire collective health budget. The report argued that “tackling IFFs is a matter of survival for Africa’s development” because every dollar siphoned out of the economy is a dollar that cannot be used for public services.

Data from UNCTAD cited in the study showed that African nations plagued by high illicit flows spend, on average, 25 per cent less on health and a shocking 58 per cent  less on education than their peers.