Africa loses $854b in illicit financial flows – UNCTAD

Africa lost an estimated amount of $854 billion in illicit financial flows from 1970 to 2008, a report by the United Nations Conference on Trade and Development (UNCTAD) has revealed.

The report said the amount was nearly equivalent to all official development assistance received by the continent during that time and only one third would have been sufficient to cover its external debt.

The report, christened: “Economic Development in Africa 2016,” which focuses on debt dynamics and development finance in Africa, was presented and launched in Accra by Mr Philip Cobbina, an Economist.

The report analyses major aspects of Africa’s development problems and policy issues of interest to African countries.

It revealed that Africa faces major challenges in meeting its development finance needs through public budgetary resources and that at least $600 billion is needed each year to achieve the Sustainable Development Goals.

The report indicated that external debt in Africa is on the rise and mainly related to reduced export revenues, a widening current account deficit and slower economic growth.

The report explained that the external debt stock from 2011 to 2013 amounted on average to $443 billion compared with $303 billion in 2006 to 2009.

It said domestic debt was growing gradually and consisted of marketable debt, explaining that the stylized facts emerging from the data analysis of five case studies reveal the gradual increase in domestic debt from 11 per cent of Gross Domestic Product in 1995 to 17 per cent in 2014.

The report also revealed that remittances and Diaspora savings are an opportunity for financing infrastructure development and that the interest rate applied to Diaspora bonds should be attractive to foreign investors to compensate for the political risk.

The report recommended that African governments must raise adequate levels of financing for development from domestic and external sources to meet development goals and achieve structural transformation.

It called on African leaders to leverage domestic and external debt without compromising debt sustainability, saying a better balance must be reached between the benefits of new concessional and non-concessional borrowing from domestic and external sources.

“Africa needs to continue strengthening macroeconomic fundamentals and pursuing structural transformation to avoid a debt trap in the future, and this can be done by developing strategies to identify best financing options in terms of financial costs, maturity and payment structures to be matched with new projects,” it added.

The report urged governments to develop legal policy frameworks to optimise the use of public-private partnerships for their development while minimising the pitfalls of public-private partnerships.