Illicit outflows strangle SA economy
South Africa is among the top 10 countries in the world that suffer high illicit outflows. It loses $12.2-billion a year on average, according to data released by Global Financial Integrity.
The nonprofit organisation’s report, Illicit Financial Flows from Developing Countries: 2003-2012, found that the country had jumped from 13th spot to 10th, having lost more than $122-billion over 10 years.
At an average of R140-billion a year, it is more than enough to plug the R50-billion gap in the South African fiscus over the next three years.
The estimated illicit outflows have grown from $2.5-billion in 2004 to a little more than $29-billion in 2012.
This report, the latest in a series of annual reports by Global Financial Integrity, provides estimates of the illicit flows of money out of the developing world from 2003 to 2012, the most recent 10-year data available.
Illicit financial flows are at the forefront of the international agenda, Global Financial Integrity noted, and “one reason that illicit financial flows have garnered so much attention is due to the fact that they are a large and growing problem”.
It is estimated that, over this 10-year period, the developing world lost $6.6-trillion in illicit outflows. In real terms, these flows increased by 9.4% each year.
Asia dominates the list with five of its countries appearing in the top 10. The region remains the largest contributor to gross illicit outflows, comprising 40.3% of the developing world total.
The cumulative outflow from sub-Saharan Africa over this period was an estimated $528.9-billion – a small part of the $6.6-trillion total, but, comparatively, it represents a larger chunk of the region’s average gross domestic product, at 5.5%, than the 3.7% of Asia’s gross domestic product.
“During the period of this study, in which illicit financial outlows from the developing world grew by 9.4%, official development assistance (ODA) to these countries grew by just 0.3% and net foreign direct investment (FDI) into them grew by 12.1% a year,” the organisation said in the report.
“The disparity in volume between illicit outflows and ODA is particularly vast. While the volume of FDI surpassed the volume of illicit outflows from 2006 to 2008, it has since fallen below it.”
The data used is drawn from International Monetary Fund (IMF) balance of payments and trade statistics. There are two primary detectable routes that illicit capital takes as it moves out of a country, the report said: the deliberate misinvoicing of external trade transactions and leakages from the balance of payments.
These estimates of illicit outflow are conservative, the organisation pointed out. The IMF trade statistics are based on merchandise trade, the report said. “Services and intangibles, a favourite area for trade misinvoicing, are not included, although they comprise about 20% of world trade. Furthermore, our data do not include what we call ‘same invoice faking’.”
The IMF data reveals only transactions that have been reinvoiced, where the misinvoicing occurs within the same invoice as agreed between exporters and importers, but this does not show up.
“And our data does not reveal cash movements primarily from criminal activities, such as drug trading, human traf?cking, counterfeiting, etc. Our estimates are very conservative,” the report noted.