Financial crimes and weak corporate structures are undermining Africa’s economic development and structural transformation, experts have said.
Speaking at the opening of the third Afreximbank Due Diligence and Corporate Governance forum in Kigali, yesterday, the Minister for Finance and Economic Planning, Amb Claver Gatete, also said financial crimes remain one of the greatest threats to corporates and governments around the world.
“Money laundering, bribery, fraud, and tax evasion are some of the financial crimes that continue to exert a dampening effect on the global economic and financial space, undermining opportunities for sustainable economic development,” Gatete said.
He added that illicit financial flows have remained significantly high averaging around 40 per cent over the past two decades.
Gatete said this financial hemorrhage is a source of concern, especially for Africa where access to finance and capital has consistently been singled out as a key constraint to growth and economic development. For instance, over the last 50 years, Africa is estimated to have lost in excess of $1.7 trillion in illicit financial flows. This sum is roughly equivalent to all of the official development assistance received by Africa over the same period.
Currently, the African Union estimates that the continent is losing over $50 billion annually in illicit financial flows. However, these estimates fall short of reality because of lack of accurate data for all African countries, according to experts.
These illicit activities have significant implications for growth and economic development and financial soundness of banks and corporate firms.
“In an environment where there is a perception of economic and financial crime, legitimate economic activity is undercut, investment discouraged, it breeds suspicion and undermines government legitimacy.
“Therefore, we need to curtail illicit financial outflows and prevent financial crimes to boost investor confidence,” Gatete said at the two-day forum.
The meeting brought together over 200 experts, bankers and regulators to discuss current trends evolving in customer due diligence and corporate governance. It is being held under the theme, “Implementation of sustainable customer due diligence and corporate governance practices by leveraging on technology and collaboration”.
According to Dr George Elombi, the executive vice-president in charge of corporate governance and legal services at Afreximbank, the current macro-economic challenges on the continent, like withdrawal of global banks from the African trade finance space, acute shortage of foreign exchange reserves following the end of commodity super-cycle, and widening trade deficits, pose a serious challenge to Africa’s financial industry.
The forum called on African nations to leverage technologies, cross-border co-operation and collaboration among regulators, financial institutions and corporate firms to build robust customer due diligence and good governance systems.
Meanwhile, Eric Tenie Ouattara, the managing director of Malawi’s FDH Financial Bank, said some investors and fraudsters are using ICT to evade taxes and send money outside the continent undetected.
“Regulators and governments are not able to stop or mitigate it because of archaic laws and due to capability and knowledge gaps. However, the good news is that we are now aware and are working to reduce the vices,” he said.
He said strengthening corporate governance and surveillance are essential to enhance Africa’s attractiveness as an investment destination.
Although data shows that global financial crimes slowed to about 36 per cent in 2016 compared to 37 per cent in 2014, distribution across regions has been uneven over the years.
Statistics indicate that between 2014 and 2016 economic crimes increased from 35 per cent to 40 per cent in Western Europe; were up from 21 per cent to 25 per cent in the Middle-East; while in Africa they rose from 50 per cent and 57 per cent.