Quantifying illicit financial flows from Africa through trade mis-pricing and assessing their incidence on African economies

Capital flights from developing countries have increased tremendously in the last decade and a large portion of these flows occurs via illicit means. Illicit financial flows (IFF) can usually be broken down into three main components: 1) Corruption, which is the proceeds from theft and bribery by government officials; 2) Proceeds from criminal activities, including drug trading, racketeering, counterfeiting, contraband, and terrorist financing; 3) Proceeds from commercial tax evasion mainly through trade mis-pricing and laundered commercial transactions by multinational corporations (MNCs) (UNECA, 2012). This paper presents a revisited methodology to estimate IFF through trade mis-pricing from Africa at the sector level. Detailed results from the application of the methodology are also provided and discussed. These are complemented by a Computable General Equilibrium analysis aiming at assessing the economic impacts on African economies from a possible return of IFF losses into Africa. Results indicate that the massive amount of financial resources illegally lost by Africa are in fact highly concentrated in a few countries and sectors –essentially extractive and mining industries– and benefit to a handful of countries. Moreover, losses associated to IFF seem hardly reversible suggesting the adopting of effective frameworks to prevent them in the first place.