Better global financial governance needed to achieve the MDGs
- Category: News Archive 2010
A new GFI report, Illicit financial flows from Africa, hidden resource for development, estimates that the volume of illicit capital flows from Africa since 1970 approaches US$1.8 trillion. The issue of illicit captial flows is a severe reminder that achieving global health goals requires policy and action addressing the political determinants of health within donor countries just a much as within aid recipient countries.
This study examines the 39-year period from 1970 through 2008. Utilizing accepted economic models, namely the World Bank Residual Method and IMF Direction of Trade Statistics, the authors estimate that illicit capital flows have totaled $854 billion. These illicit flows from Africa grew at an average rate of 11.9% per year in real terms over the 39 year period. However, they regard this estimate as conservative, since it addresses only one form of trade mispricing, does not include the mispricing of services, and does not encompass the proceeds of smuggling. Adjusting this figure, it is not unreasonable to estimate total illicit outflows from the continent across this period at $1.8 trillion.
Report claims this massive flow of illicit money out of Africa is facilitated by the current global governance which does not do enough to fight tax havens, secrecy jurisdictions, disguised corporations, anonymous trust accounts, fake foundations, trade mispricing, and transboundary money laundering. According to the authors "the impact of this structure and the funds it shifts out of Africa is staggering. It drains hard currency reserves, heightens inflation, reduces tax collection, cancels investment, and undermines free trade. It has its greatest impact on those at the bottom of income scales in their countries, removing resources that could otherwise be used for poverty alleviation and economic growth."
This study comes at a time when combined domestic public and private per capita investments in health in many African countries are woefully inadaqueate and time is running out to meet the 2010 health millennium development goals.
"Addressing this problem requires concerted effort by both African nations and by western countries. The outflow from Africa and the absorption into western economies deserve equal attention. Through greater transparency in the global financial system illicit outflows can be substantially curtailed, thereby enhancing growth in developing countries and at the same time stabilizing the economies of richer countries"GFI Director Raymond Baker said.
The authors recommend that "policy measures must be taken to address the factors underlying illicit outflows. In addition, African countries must impress upon the G-20 the need for better transparency and tighter oversight of international banks and offshore financial centers that absorb these flows".
Download the full report here