Africa would not have needed any financial assistance if illicit financial flows had remained on the continent, economic research firm Trade and Industrial Policy Strategies, or Tips, executive director Saul Levin said on Thursday.
Africa had lost about $854-billion to illicit financial flows from 1970 to 2008 – nearly the equivalent of all the official development assistance received during that period, he said, unpacking the contents of a new United Nations Conference on Trade and Development (Unctad) report at the Industrial Development Corporation, in Sandton.
According to the Economic Development in Africa Report 2016, just one-third of this would have been sufficient to cover the continent’s external debt, which reached $279-billion in 2008.
Over the period from 2002 to 2011, burgeoning illicit financial flow rates from Africa were recorded as the second highest globally, at 19.8% a year, and the highest as a share of gross domestic product (GDP) at 5.7%.
It is said that $50-billion a year is currently lost through illicit flows across the continent.
Levin argued that illicit flows threatened the development agenda, for which, at a minimum, $600-billion will be needed each year to meet the 2030 Sustainable Development Goals in Africa.
Official development aid and external debt are unlikely to cover these needs.
“Illicit financial flows can become a source of development finance provided efforts to tackle them at the national and international levels are sustained,” he added.
The curbing of illicit flows was thus revealed as one of the recommendations the Unctad report made to prevent rising debt distress in the pursuit of development.
Africa’s external debt stock increased 10.2% between 2011 and 2013, amounting to $443-billion, or 22% of gross national income, compared with 7.8% in the 2006 to 2009 period.
Increasingly, the external debt growth rate is surpassing GDP growth rates, moving even further from sustainable debt levels.
Nine of 39 countries in Africa are currently classified as in debt distress or at a high risk. Ten countries are low-risk, while 20 are listed as moderate risk, Levin pointed out.
“However, we see this [debt] increasing,” he said.
Remittances, public–private partnerships and diaspora bonds would also go a long way to averting the distress that will emerge from the unsustainable debt levels being seen in some countries.
“Africa’s external debt ratios appear manageable, but African governments must take action to prevent rapid debt growth from becoming a crisis.
“African [countries] need to broaden sources of sustainable finance to achieve development aspirations,” he concluded.