The extraction or mining sector is one of the most vulnerable to Illicit Financial Flows (IFF), because African authorities lack the expertise and the skills to seal loopholes, which in turn affects the economy and developmental growth of host countries and the continent.
“The dependence of African countries on natural resources extraction for exports and revenues makes us extremely vulnerable to illicit financial flows. These sectors are prone to IFFs, trade mispricing including abusive transfer pricing, secret and poorly negotiated contracts and overly generous tax incentives,” stressed Finance Deputy Minister Maureen Hinda-Mbuende.
She said this today when addressing a two-day IFF workshop in Windhoek, facilitated by the Bank of Namibia (BoN) and the African Union High Level Panel (AU-HLP) on Illicit Financial Flows Secretariat.
The purpose is to consult stakeholders on source, nature and prevalence of IFF and its negative impact on development in Namibia. The deliberations will further seek approaches on how Namibia can detect, prevent and combat IFF dealings.
Namibia joined the AU-HLP illicit financial flows secretariat in January 2017.
Citing the United Nations, Hinda-Mbuende said, IFFs contribute trillions of capital flight per year from Africa, therefore, reducing these outflows can increase the stock of capital available for business to build productive capacity and create jobs. “Reduction of IFFs will also ultimately increase tax revenue, which could provide governments with additional fiscal space to deal with socio-economic problems facing the continent,” she reiterated.
The African Peer Review Mechanism Chief Executive Officer, Eddy Maloka, concurred with the deputy minister, stating that over a period of 50 years, prior to 2015, it is estimated that Africa lost more than one trillion US dollars to IFF. “This is roughly equivalent to the amount of the official development assistance that the continent received during the same period. IFF was derived from proceeds of tax evasion and laundered commercial transactions; proceeds of criminal activities; and proceeds of theft of public resources, bribery, and other forms of corruption,” he emphasised.
On the other hand, the deputy minister, made reference to the Public Service Employee Medical Aid Scheme (PSEMAS) where millions of dollars were siphoned off through dubious dealing and mis-invoicing by some medical practices. About 84 medical doctors are linked to the case of having defrauded the Finance Ministry.
“I am tempted to classify the misnomer experienced in the Government medical aid scheme, PSEMAS expenditure to IFF, thus I request its inclusion in the test case-studies as it meets the above descriptions perfectly,” she highlighted.
Speaking at the same occasion, the deputy governor of BoN Leonie Dunn, said Namibia is not immune to IFF, hence, to mitigate this effect, its vital to develop realistic and accurate assessment of sources, values and volumes of IFF. “Also ensure deployment of practical and realistic, short to medium term actions to confront the global challenge effectively,” said Dunn.
She added: “Not only does it [IFF] have a crippling frustrating effect on economic development, but it robs the poorest of the poor their right of having basic human infrastructures in place, such as a home, school, hospitals and ability to generate income.”
A 2015 HLP report, called on African Governments to take steps to curtail these flows, through institutionalizing prudent legal and regulatory regimes, including fiscal policies that disallow financial secrecy. Also to fight corruption, strengthen African institutions, build African member states’ capacity for contract negotiation and tax administration, identify and return the resources lost through illicit financial flows to finance Africa’s development agenda.