The approach is far from ideal in that the continent’s debt position – external and domestic – is bordering on unsustainable. Stemming illicit financial flows, which are sometimes overstated, requires institutional capacity-building to enforce. Private-public partnerships are one approach that could bring sustainable development in the area of infrastructure development. However, it requires a different model to contribute to other sectors.
The extent to which curtailing illicit financial flows can contribute to creating an alternative source of development finance has been overemphasised. Between 1970 and 2008, it is estimated that the continent lost $850 billion. About 60% of this was through trade mis-invoicing and the use of tax havens. In addition, 35% was attributed to the proceeds of crime, with the balance of 5% apportioned to corruption.
Take Nigeria. Oil revenues per capita have increased tenfold in 35 years. However, Nigeria’s income per capita does not reflect this growth. The Global Finance report lists the country as the 62nd poorest country in the world.
Between 2004 and 2014, Zambia received just over $12 billion in foreign direct investment. These inflows mostly came into the country in the form of capital equipment. The general effect was the immediate loss of tax revenue in import taxes, which represents a minimum net loss of $5.4 billion. In addition, the externalisation of the investment amount and untaxed profits over the long term undermines the country’s capacity to have a solid foreign exchange reserve base. This represents an additional net loss of $4.2 billion.
See Also: Can Africa Achieve First World Status?