Illicit Financial Flows: Multinationals bleeding Africa

Lazarus Sauti

Africa is a resource-endowed continent but sadly the continent is reeling in poverty. With its vast resources that are finite in nature mostly in the mining sector, the continent is trailing other continents in terms of socio-economic development and as a result Africans are poor.

Professor Mthuli Ncube, chief economist and vice-president of the African Development Bank, agrees: “The African continent is resource-rich. With good resource husbandry, Africa could be in a position to finance much of its own development.”

The question that haunts every caring and concerned African is, “With all our vast resources, why are we poor?”

The answer is simple, the rape of the continent of Africa is happening faster, more violently and with less resistance today than at any time in its history. An economist in Zimbabwe believes Africa is desperate for investment and this is leading to some problems affecting her.

Furthermore, resources are being lost and squandered by the failure of African governments to manage them competently and the greed of ruthless and predatory multinational companies that exploit this weakness.

President Robert Mugabe is always on record saying several natural resources in Africa have been exploited by foreign elements while Africans benefitted merely as labourers – a very sad scenario.

“Africa is well-endowed with natural resources that are of a finite nature. These natural resources have over the years been exploited, largely for the benefit of multinational corporations and other foreign business entities. Foreigners are getting huge profit turnovers from minerals, forests, tourist facilities and wildlife while the indigenous people (Africans) are benefitting nothing at all. This must stop,” President Mugabe says.

Because of this, multinational companies are undermining development and exacerbating inequality and poverty not only in the African continent but in other developing states. They disadvantage smaller domestic firms and transfer money that could be put towards poverty eradication into the hands of the rich.

Immediate past President of South Africa Thabo Mbeki recently said multinational companies operating in Africa account for about 60 percent of the illicit financial outflows which drain the continent’s domestic reserves and depriving it of crucial investment funds.

According to the United Nations, Global Financial Integrity, the World Bank and others, illicit financial flows are monies that are illegally earned, transferred, or utilised. Somewhere at its origin, the movement or use of these monies broke laws and hence they are considered illicit.

Speaking at a high-level event, “Tackling Illicit Financial Flows and Inequality in Africa,” on the sidelines of the World Economic Forum on Africa in Abuja, Nigeria, Mbeki said that the continent was losing needed funds and something needs to be done about it.

“In terms of the work we have done, it is clear that the principal source of this illicit outflow, are in fact the multinational companies. The estimate that we have is something like 60 percent of the outflows originate from the activities of large commercial companies that operate from Africa,” disclosed Mbeki, who is also the chairman of the panel on illicit financial outflows set up by ministers of finance in Africa.

It is estimated that Africa has lost over US$1.4trillion in illicit financial outflows in the last three decades, which is about US$50billion to US$80billion yearly.

It is against this background that Mbeki’s disclosure challenges traditional thinking that corrupt practices such as bribery and embezzlement by African politicians are the major sources of illicit financial outflows.

Supporting Mbeki, Anne Versi, writing for the African Business Magazine, an AIC Publication, said: “... While the outside world has always been very quick to pin the corruption label on Africa, we have always argued that it takes two to make this deadly dance work. Now it is obvious that powerful multinationals are as complicit, in fact more so, in sucking Africa’s lifeblood as the worst local despot.”

Sadly, the value of the illicit flows surpasses the amount of Official Development Assistance entering developing countries by an order of magnitude.

“Illicit financial flows siphon revenue out of poor countries, robbing them of much-needed assets and forestalling economic development,” said Global Financial Integrity director Raymond Baker.

According to estimates by Global Financial Integrity, a United States-based research and advocacy organisation, corrupt activities such as bribery and embezzlement make up only about 3 percent of illicit outflows; criminal activities such as drug trafficking and smuggling make up 30 to 35 percent and commercial transactions by multinational companies make up a whopping 60 to 65 percent.

Mbeki, therefore, said multinational companies have become the new actors as regards the causative agents of internal displacement in Africa through land grabs.

He also said there are “a whole number of ways” these multinationals cause illicit flows of funds which include trade mispricing, transfer pricing, mis-invoicing and others.

Sharing same sentiments, President Mugabe said multinational companies have a tendency of implementing corporate social responsibility programmes which promote the dependency syndrome among African communities.

“The corporate responsibility programmes, which have been implemented by some businesses, have tended to reinforce the dependency syndrome and generally speaking, the major weakness of the corporate social responsibility programmes has been the failure to consult the local communities and their authorities,” he said.

Consequently, Mbeki and President Mugabe called for strong and purposeful political leadership among African nations to cause policy realignment in reversing illicit financial flows by multinational corporations.

Unfortunately, African governments do not have competencies equal to the companies that have huge legal resources to draw up agreements. Action at the local, national, regional and continental level could, therefore, be key for the continent of Africa to effectively curb illicit financial flows.

More so, collective action would increase Africa’s bargaining power.

African media should also play a leading role in fighting the bleeding of Africa through illicit financial flows. It should fill the void created by Western media in its reportage about Africa and also expose the West’s clear form of hypocrisy and modern colonisation.

The Western media has kept silent and has not raised a middle finger against what its governments, intelligence services, corporations and businessmen are doing to Africans.

Furthermore, Africa must demand transparency since it is not only in politics where transparency is wanted but in business too. Thus, clearness is required because Africa and her citizenry are owners of natural resources, and that position should be respected in the economic and political terms.