Thabo Mbeki was interviewed on the effects of Illicit Financial Flows to Africa.
Why do you think the issue of illicit financial flows (IFFs) has taken so long to attract mainstream attention?
Thabo Mbeki: Part of the reason has just been a matter of knowledge, then acquaintance with this subject, and recognition of the fact that there is a problem.
A challenge of this kind takes time. Our panel was set up by African finance ministers, because they saw and identified that there was a problem and a challenge. But they didn’t know enough about it to answer all the questions raised about what was to be done, so we decided to set up the panel. There was consensus with the Economic Commission for Africa to do so.
Our objective is for we ourselves, even ministers of finance, to get a better understanding of what this phenomenon is. So it has really been a problem of understanding and of education on the continent. But I think now we have got to the stage where people have recognised right across the continent that it is a challenge that has to be addressed.
I think, globally, what has helped in this regard is that the major Western countries found that this is their problem as well, because they discovered that many big multinational companies based in their own countries take a lot of the profit made in Africa into tax havens.
So you have billions of dollars that do not come back to the US or the UK or other places. Finally, Western governments now realise that it is in their own interests that this question must be dealt with, so there is a coincidence time-wise that you get this matter raised at the G8 and at the G20 meetings. Then it is vocalised that we must do something about these companies evading tax.
These matters also come up in the European Parliament – it’s decided that international companies must now report country by country.
They were addressing these challenges, which ultimately face their own economies. Be clear – they were not addressing these things to help us, but primarily to help themselves – but, as I said, time-wise the focus then coincided with these issues.
So by the time we, as an African panel, go to them and say ‘Here is a problem we are facing as Africans and we think this is what needs to be done’, you find people who have got their ears open to the issues. That’s because they are faced with the same challenge, so it becomes easier to internationalise the focus and respond to the issue.
There is no precise target for reducing IFFs – probably one reason being that there are no real metrics. Would you share the analysis that this is a key problem that needs to be addressed?
TB: Yes, I think it would be premature to say let us reduce illicit outflows by 50% by 2030, because even if you take the figure we have used of $50bn that Africa loses every year, that is actually a partial reflection of the loss, because that figure reflects misinvoicing. What it reflects is the amount of money that the continent loses as companies overinvoice what they import into a country, and then underinvoice what they export.
This is only one form that the illicit outflows take. There are other forms, transfer pricing, for instance, which is when one of these big companies trades within itself. For example, a mining company in South Africa sets up a service company in Bermuda. It buys services from what appears to be an independent company and, of course, it overcharges them. So when they export foreign capital from South Africa, in fact it’s their own subsidiary. But the $50bn does not cover that. The reason we went that route is because we wanted to be accurate in the figures we cite.
Both the IMF and the UN maintain particular sets of statistics about trade. The data is there to calculate this misinvoicing – the data isn’t there to calculate other forms, however. So if you said ‘Now let’s make sure that in the 15 years of the sustainable development goals that are to be agreed later this year, we will cut illicit outflows in Africa by 50%, which means we come down from $50bn to $25bn’, that won’t be truthful or even possible, simply because there are so many other forms that illicit outflows take which are not covered by this $50bn, because the way of calculating them is not precise. So we said ‘Let’s use figures that we can actually substantiate with real data’.