Zimbabwe lost more than US$23 billion through illicit financial flows (IFFs) between 1980 and 2018, a new report compiled by the African Development Bank (AfDB) shows.
Other sources, however, said the figure was too conservative.
In its 2023 Southern Africa Economic Outlook Report, the regional financier said there is evidence of significant IFFs in southern African countries, with Zimbabwe among top countries experiencing the vice.
South Africa, which lost in excess of US$441,5 billion, tops the list. It is followed by Angola with US$45,1 billion, Botswana (US$31,5 billion), Zambia (US$27,5 billion, Namibia with US$24,05 billion.
Other countries which lost significant amounts include Mauritius, Mozambique, Malawi, Madagascar, Eswatini, Lesotho, and Sao Tome and Principe.
All these countries, including Zimbabwe, accounted for 73,4% of total IFFs in Africa from 1980 to 2018 .
“IFFs emanate from business activities through commercial tax evasion, trade mis-invoicing, and abusive transfer pricing,” the report reads in part.
“Other sources include criminal activities, including the drug trade, human trafficking, illegal arms dealing, and smuggling of contraband; and bribery and theft by corrupt government officials.”
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It added: “Direct proceeds of corruption, such as bribes and embezzlement of state funds constitute just 5% of illicit outflows.
“The various means by which IFFs take place in Africa include abusive transfer pricing, trade mispricing, mis-invoicing of services and intangibles and using unequal contracts," the report says.
“Abusive transfer pricing occurs when a multinational corporation takes advantage of its multiple structures to shift profit across different jurisdictions.”
AfDB said most African countries do not have an appropriate transfer pricing framework.
Trade mispricing is the falsification of the price, quality and quantity values of traded goods for a variety of purposes, while under-invoicing of exports are also quite common.
The report also noted that the extractive sector, which falls under high-level discretionary political control, is particularly prone to IFFs.
It said state companies in these sectors often use the public function to promote their personal interests.
There is also limited competition in extractive sectors, leading to fewer corporate checks and balances.
“Moreover, extractive sectors often require high degrees of technical expertise, which facilitate the falsification of reports. IFFs in the extractive sector occur in different phases,” the bank said.
“In the exploration, bribery and corruption prevail to obtain the necessary permits.”
The report said sometimes companies even declare losses to avoid paying tax and use other companies in the same group located in tax havens to set fictitious prices (transfer pricing).
Zimbabwe Coalition on Debt and Development (Zimcodd) communications and campaigns specialist Taurai Mafundikwa said Zimbabwe’s losses to IFFs remained a cause for concern considering the significance of the public resources lost and their potential to contribute to domestic resource mobilisation for economic development.
Mafundikwa said the US$23 billion figure seems conservative as other sources cite a US$32 billion loss between 2000 and 2020 alone.
In 2019, the Zimbabwe Anti-Corruption Commission quoted an annual US$3 billion loss to IFFs.
“This challenge continues to persist mainly due to weak institutions and corruption,” he told Standardbusiness.
“As Zimcodd, we are gravely concerned by these losses as the effects are felt primarily by citizens who are unable to access public services such as health, education, clean potable water or wider economic development as public resources continue to line the pockets of the political elite.
“There’s an urgent need to improve our transparency and accountability mechanisms, tightening of border controls, contract disclosure in public resources disposal contracts and critically, implementation of recommendations from the Auditor-General’s reports.”
Mineral revenue write-downs out of IFFs could be as high as US$15 billion annually, according to Farai Muguwu, executive director at the Mutare-based Centre for Natural Resource Governance.
In October 2020, Henrietta Rushwaya, the president of Zimbabwe Miners Federation, was arrested at Robert Gabriel Mugabe International Airport while allegedly trying to smuggle six kilogrammes of gold to Dubai in her handbag.
Rushwaya was also featured in Al Jazeera’s crack investigation, Gold Mafia, telling the Qatar-based news channel’s undercover reporters on a phone call that smuggling 100kg of gold each week would be no problem.
To curb IFFs, AfDB said there was an urgent need for institutional reforms in the management of natural capital and to prevent IFFs.
“In the short term, Southern Africa is expected to address crucial issues in the exploitation of natural capital. There is a need to strengthen legal and policy frameworks to promote financial transparency,” it said.
“Reforming taxation system and revenue transparency, establishing transfer pricing units, and improving tax compliance remain priorities.
“There is a need to increase monitoring and enforcement efforts, especially across national borders.”
The regional banking institution said countries should establish fully-fledged digitalised technologies with state-of-the-art ICT equipment for monitoring and surveillance.
They should also establish a regional, continental and global framework to combat illegal trade and IFFs.
