IFFs crippling Zim banking sector

Lazarus Sauti

Zimbabweans are grappling with cash shortages and citizens are in need of a huge cash injection to escape current liquidity conditions.

At this juncture, when the country desperately needs cash, the country is sadly losing US$2 billion through Illicit Financial Flows (IFFs) – illegal movements of money or capital from one country to another – annually, revealed the Reserve Bank of Zimbabwe (RBZ) recently.

To further complicate the lives of citizens, the amount of money leaving Zimbabwe is half the country’s 2016 National Budget which is under US$5 billion.

“Depositors are failing to access their cash from banks and this problem is stimulated by IFFs and other related corruption in the country.

“Because of leaks through tax evasion, bribery, corruption, lack of transparency and porousness at the country’s borders, funds that should be used to fund poverty-reducing programmes and infrastructure are leaving Zimbabwe without circulating in the country,” said Happison Zvenyika, an economist.

He added that IFFs are crippling the banking sector simply by reducing the country’s tax collections, cancelling out investment inflows in addition to worsening poverty.

“By bleeding the economy of Zimbabwe and other nations in southern Africa, illicit financial flows increase the gap between the rich and poor as corporations and some individuals are getting richer at the expense of the society,” Zvenyika added.

Economist Tinashe Sibanda also said that the money realised through leaks escapes the formal system and the government, as a result, cannot tax it and there is thus loss of potential tax revenue for government.

He added: “IFFs not only distort accuracy of reported statistics on revenue, production and trade, but affect budgeting and development planning as the moneys made are unknown and are unavailable.”

In his monetary policy statement presented recently, RBZ Governor, Dr. John Mangudya shared the same sentiments.

“Funds are leaving Zimbabwe without circulating in the economy. We are exporting liquidity; therefore, the country need a national ‘plugging the leakages approach’ to transform the economy,” he said.

Last year, Dr Mangudya blamed some companies for taking advantage of the opening up of the exchange controls to drain money out of the country.

“That shows lack of confidence. How can you be confident that you love to live in Zimbabwe without your money? So you send your money to Mauritius, China or Pakistan or other parts of the world but your business is in Zimbabwe,” he said.

IFFs are not only ravaging Zimbabwe, but other countries in the Southern African Development Community (SADC).

The World Bank study of IFFs in Malawi and Namibia titled “Ill-gotten money and the economy: experiences from Malawi and Namibia”, for instance, estimated that revenue lost to corruption and tax evasion accounts for between 5 percent and 10 percent of the GDP.

However, to improve confidence in the banking sector and protect citizens, policy decision makers should make all necessary efforts to plug gaps and loopholes that promote illicit money outflows.

“We need to improve on foreign exchange management systems; we need compliance. Systems are there, but those people who are given the task of implementing our policies must walk the talk,” Dr. Mangudya equipped.

The United Nations Economic Commission for Africa (UNECA) – the UN body established to promote the economic and social development of its 54 member States, foster intra-regional integration, and promote international cooperation for Africa’s development, added that one of the keys to achieving success is the adoption of laws, regulations and policies that encourage transparent financial transactions.

Policy expert Tafadzwa Chikumbu also said there is need for institutional co-ordination and information exchange to reduce the loopholes that are exploited by cross-border crime syndicates to curb IFFs.

“At country level, countering IFFs would require strengthening of the legal and institutional frameworks that are fit for a purpose, credible, enforceable and adaptable to the dynamic and complex illicit activities that facilitate IFFs,” he added.

The country, noted researcher Charles Goredema, in a paper titled “Combating illicit financial flows and related corruption in Africa: Towards a more integrated and effective approach”, should effectively deal with corruption – a catalyst of illicit financial flows.

“The relationship between anti-money laundering and anti-corruption strategies is a key issue for developing countries.

“Corruption and money laundering cannot be effectively addressed solely by the specialised agencies mandated to deal with them,” he said, urging governments and donors in developing countries to work together to build the capacity of the financial intelligence units and strengthen their collaboration with anti-corruption agencies and with complementary institutions and partners at home and abroad.

Goredema also said curbing IFFs requires concerted action by developed and developing countries in partnership with private sector and civil society, and with strong international cooperation.

“Both developing as well as developed nations need to work toward a common goal to tackle IFFs, which will require collaborating on management and regulation of finances, governance and transparency, natural resources, trade, and proactive international cooperation on proceeds of crime and tax,” he said.

Significantly, civil society organisations have a role to play as advocates to increase transparency around revenues and expenditures, as well as to monitor behavior of public and private officials whilst the international community needs to address countries and firms seeking to profit from illegal behaviors that undercut national efforts to implement effective and transparent tax and trade policies.

According to the UNECA, illicit financial flows out of Africa have become a matter of major concern because of the scale and negative impact of such flows on Africa’s development and governance agenda. By some estimates, illicit flows from Africa could be as much as $50 billion per annum.