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Africa is losing approximately $1.6 billion daily due to illicit financial flows (IFFs) and profit shifting by multinational corporations operating on the continent, according to the African Development Bank (AfDB). This revelation was made by Kevin Urama, AfDB’s Chief Economist, in an exclusive interview.
The International Monetary Fund (IMF) defines illicit financial flows as the cross-border movement of money stemming from illegal activities such as corruption and smuggling, as well as legal activities involving tax evasion or avoidance, and their potentially destabilizing impacts. The IMF has long played a central role in efforts to curb these opaque financial practices while addressing tax avoidance, which, though legal, undermines revenue generation.
Urama emphasized that Africa’s financial outflows significantly outweigh its inflows from foreign direct investment (FDI), underscoring the need to prioritize halting these losses. He noted, “Africa loses approximately $248 billion annually to corruption alone. When combined with illicit financial flows of over $90 billion and profit shifting by multinational corporations, the total annual loss amounts to $275 billion. These losses, traceable through banking systems, aggregate to roughly $587 billion annually, or $1.61 billion daily.”
This far exceeds Africa’s annual inflows from FDI, official development assistance, portfolio investments, and remittances, which totaled just $174.5 billion in 2022. “What we are losing is three times what we gain. If you ask me, the focus should be on preventing these outflows instead of solely pursuing inflows,” Urama argued.
To stem these losses, Urama highlighted the importance of robust institutional frameworks and accountability systems. He called for building capacity among public servants to comprehend the consequences of their decisions and equipping them with the tools, regulations, policies, and technologies necessary to track and curtail financial outflows. “At the African Development Bank, we’ve launched a Public Service Delivery Index for Africa to measure the effectiveness and perception of public services across key development sectors. This initiative aims to improve accountability and service delivery,” he added.
Nigeria’s struggle with illicit financial flows is one reason the country has been on the Financial Action Task Force (FATF) greylist since February 2023. In October, the Nigerian Financial Intelligence Unit reported that FATF approved the country’s fourth progress report during its plenary meeting, signaling potential improvements.
On the sidelines of the recent IMF annual meetings in Washington, Philip Ikeazor, Deputy Governor of the Central Bank of Nigeria (CBN), reiterated Nigeria’s commitment to exiting the greylist. He noted that enhancing remittance and FDI inflows depends on achieving this milestone. Meanwhile, CBN Governor Yemi Cardoso outlined measures to achieve compliance, including stronger oversight and collaboration with international money transfer operators and the Nigerian diaspora.
Addressing illicit financial flows remains a critical step for Africa to retain its wealth and foster sustainable development. The efforts of institutions like AfDB and country-specific initiatives are vital to this goal.
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