Wednesday, May 25, 2022

Botswana loses P10 billion to illicit money transfers annually

Botswana could be losing billions of Pula annually as money leaves the country unlawfully, if the latest report by Global Financial Integrity (GFI) is anything to go by. The authors of the survey say the findings underscore the urgency with which policymakers should address illicit financial flows.

The report Titled “Illicit Financial Flows from Developing Countries: 2003-2012,” and released this week says the outflows facilitate crime, corruption, and tax evasion.

According to the report, Botswana loses US$856 million or close to P10 billion per year, which is made worse by the fact that the diamond rich economy has long abolished exchange controls.
The research tracks the amount of illegal capital flowing out of 151 different developing and emerging countries over the 10-year period from 2003 through 2012, and it ranks the countries by the volume of illicit outflows.

GFI President Raymond Baker said in the report, illicit financial flows are the most damaging economic problem plaguing the world’s developing and emerging economies. Botswana therefore is not an exception as it struggles with lack of funds to deal with problems of high unemployment, declining diamond revenues and Aids scourge.

“These outflowsÔÇöalready greater than the combined sum of all FDI and ODA (official development assistance) flowing into these countriesÔÇöare sapping roughly a trillion dollars per year from the world’s poor and middle-income economies,” said Baker.

The principal author of the study, GFI Chief Economist Dr Dev Kar who also served as a Senior Economist at the International Monetary Fund (IMF) before joining GFI in January 2008 said these outflows are growing fastest in and taking the largest tollÔÇöas a share of GDP.

“Over the past decade, illicit outflows from developing countries increased by 9.4 percent each year in real terms, significantly outpacing economic growth,” Kar said.

GFI Junior Economist Joseph Spanjers and co-author argued that without concrete action addressing illicit outflows, the drain on the developing world is only going to grow larger.

“Emerging and developing countries hemorrhaged a trillion dollars from their economies in 2012 that could have been invested in local businesses, healthcare, education, or infrastructure. This is a trillion dollars that could have contributed to inclusive economic growth, legitimate private-sector job creation, and sound public budgets.”

Totaling US$6.6 trillion over the entire decade, illicit financial flows averaged a staggering 3.9 percent of the developing world’s GDP. As a share of its economy, Sub-Saharan Africa suffered the largest illicit financial outflowsÔÇöaveraging 5.5 percent of its GDPÔÇöfollowed by developing Europe (4.4 percent), Asia (3.7 percent), MENA (3.7 percent), and the Western Hemisphere (3.3 percent).

According to the report, the fraudulent misinvoicing of trade transactions was revealed to be the largest component of illicit financial flows from developing countries, accounting for 77.8 percent of all illicit flowsÔÇöhighlighting that any effort to significantly curtail illicit financial flows must address trade misinvoicing.

From 151 countries cited in the report, Botswana sits at position 64, but better than large African economies of Nigeria (10) and South Africa (12), Egypt (23), Code d’Ivoire (37), Ethiopia (39) AND Togo (41).

The report has suggested that in order to address these outflows, the financial regulators should amongst others require that all banks in their country know the true beneficial owner(s) of any account opened in their financial institution.

GFI also calls for policymakers to draft laws that require multinational companies to publicly disclose their revenues, profits, losses, sales, taxes paid, subsidiaries, and staff levels on a country-by-country basis.

Equally, it said trade transactions involving tax haven jurisdictions should be treated with the highest level of scrutiny by customs, tax, and law enforcement officials.


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