A new report on unrecorded capital flight, defined as the illegal movement of money across borders, shows that since the late 1990s, developing countries lost $16.3 trillion through broad leakages in the balance of payments, trade misinvoicing, and recorded financial transfers.
The study has been released by Washington based research and advocacy group, Global Financial Integrity (GFI) alongside the Centre for Applied Research at the Norwegian School of Economics and a team of global experts.
Titled “Financial Flows and Tax Havens: Combining to Limit the Lives of Billions of People,” the report demonstrates that developing countries have effectively served as net-creditors to the rest of the world with tax havens playing a major role in the flight of unrecorded capital.
The findings in the report indicate that as of 2011, $2.6 trillion of developing countries’ private wealth is held in tax havens, over half of the $4.4 trillion of total developing country assets in these same jurisdictions.
Sub-Saharan Africa’s assets held in tax havens grew at an annualized rate of over 20 percent from 2005 to 2011, a faster rate than that of any other region either developed or developing.
Poverty alleviation efforts have eluded most African countries although most have the capacity to primarily finance their own development agenda.
Results from a four year research by African Union- Economic Commission for Africa chaired by former South African President, Thabo Mbeki, revealed that Malawi is losing about 16 percent of its Gross Domestic Product to multinational companies through illicit financial flows every year.
Another report by ActionAid alleged that Malawi lost close to $43 million in taxes which were meant to be remitted by Paladin Africa for uranium mining activities at Kayerekera mine in Karonga.
ActionAid alleges that the money has been lost through a combination of harmful tax incentives from the Malawian government, and tax planning using treaty shopping by Paladin.
Paladin has since dismissed the allegations as containing factual errors and conclusions but in one year, this lost revenue could have paid for 431,000 HIV and Aids treatments or 17,000 nurses’ salaries or 8,500 doctor’s salaries or 39,000 teacher’s salaries.
Last year, the United Nations General Assembly officially adopted illicit financial flows as part of the sustainable development agenda, a move likely to help developing countries like Malawi where capital flight has greatly compromised the development agenda.
This marked the first time that illicit financial flows, defined as the illegal movement of money across borders, estimated at close to US$1 trillion per year, were considered a part of the development equation.
GFI has since listed Malawi among countries that would face challenges in implementing the newly adopted sustainable development goals due to the scourge of illicit capital flight.