Nigeria’s rising illicit financial outflow at $26.7 billion raises concern

The rising trend of illicit financial outflow in Nigeria, which is up by 1491.37 percent to  $26.735 billion within nine years, has been a concern to regulators including African leaders, as they seek measures to curb the menace, BusinessDay findings show.

Currently, illicit financial outflows in African countries stand at $50 billion and it is projected to increase to $100 billion in the next few years.

The illicit financial flows (IFFs) which are illegal movements of money or capital from one country to another, rose to $26.735 billion in 2013 from $1.680 billion in 2004, according to the latest report by Global Financial Integrity.

Illicit financial outflows have increased in every region of developing countries as they lost US$5.86 trillion  between 2001 and 2010.

According to the report, every dollar that leaves one country must end up in another. Very often, this means that illicit financial outflows from developing countries ultimately end up in banks in developed countries like the United States and United Kingdom, as well as in tax havens like Switzerland, the British Virgin Islands, or Singapore.

GFI research suggests that about 45 percent of illicit flows end up in offshore financial centres, and 55 percent in developed countries.

However, analysts say foreign exchange reforms specifically; liberalisation of the inter-bank market will serve to discourage capital flight.

Razia Khan, managing director, Chief Economist, Africa Global Research, Standard Chartered Bank, London, noted that one concern of late is the rising importance of the parallel market, with more transactions being pushed to this market. 

“Some liberalisation of the interbank market to make it workable again would do a lot to draw FX transactions back into the monitored and regulated official sector.

It might also serve to discourage capital flight,” she said in an emailed response.

According to her, while many economies in Africa have been impacted negatively by illicit capital outflows, the study pioneered by former president Thabo Mbeki of South Africa revealed that Nigeria was especially hard hit.   “Given Nigeria’s vast infrastructure deficit, capital outflows might have been used to enhance the economy’s productive potential instead.

The cost, in terms of investment and growth forgone, has been high”, she added.

Delegates at the just concluded African Development Week were concerned about the challenges posed by illicit financial flows and have called for measures to end the menace.

Specifically, delegates from Zimbabwe said there is need for Africa to invest in financial intelligence to mitigate capital flight. They saw the need for political commitment in mitigating the problem.

“Africa will continue to lag behind and face loss of revenue if it does not take political means to fight these loses,” the delegates said, adding that Africa should minimise its dependence on international support.   The Central Bank of Nigeria (CBN) will continue to support the Federal Government’s fight against money laundering, corruption, and terrorism financing and will block any and every avenue that may be used for these purposes.

HOPE MOSES-ASHIKE