Research undertaken by the Budget Advocacy Network (BAN) between December 2015 and June 2017 has revealed that in Sierra Leone, the Illicit Financial Flows (IFFs) in cumulative terms amounted to $1.58 billion USD between 2003 and 2014 with an unweighted annual average of $558 million USD for the same period.
The figures, according to Kar and Spanjers computation (2015), indicates about 94% of trade mis-invoicing outflow between 2004 and 2014 was due to import over-invoicing. The share of hot money narrowed to IFFs is 4% and only 2% is accounted for by export under-invoicing.
BAN’s Coordinator, Abu Bakarr Kamara, noted that under-invoicing accounts for about 95% of total trade mis-invoicing inflows in Sierra Leone between 2004 whilst the remaining 5% is due to export over-invoicing.
Kamara went on to say that Sierra Leone’s IFF has been fluctuating as it decreased from $152 million USD in 2003 to $94 million USD in 2004, increased continuously to $309 million USD and $891 million USD in 2005 and 2006 respectively before dropping sharply again to $45 million USD in 2007.
“Sierra Leone recorded its highest ever IFF in 2009 and 2010 with an IFF of $1.915 billion USD and $1.791 billion USD slightly below ECOWAS average of $1.939 billion USD and $1.980 billion USD respectively.”
It was observed from the BAN study that for Sierra Leone there is a strong positive correlation between Foreign Direct Investment (FDI) and IFF with an estimated correlation coefficient of 0.68 (r=68) between 2004 and 2014.
“The correlation result shows that there is co-movement between FDI and IFF in Sierra Leone and this relationship is significant at 5% level of significance,” said Kamara.
A statement from the Ministerial meeting of the ECA Conference of African Ministers of Finance, Planning and Economic Development in March 2014 in Abuja stated, “Illicit capital flight amounts to stealing from already poor countries.”
“Illicit flows have a negative impact on the countries’ development efforts: the most serious consequences are the loss of investment capital and revenue that could have been used to finance development programmes, the undermining of State institutions and a weakening of the rule of law…” the statement adds.
Kamara explained further that both export under-invoicing and import over-invoicing lead to an understatement of corporate profits. Whilst the former undervalues export sales the latter raises import costs, lowering corporate profit whilst shifting a significant portion abroad.
The research identified an added incentive to over-invoice imports in Sierra Leone as import duty for most Multi-National Companies (MNCs) are exempt from both import duty and GST, and much lower for raw materials and other production input.
The United Nations adopted the Sustainable Development Goals (SDGs) in September 2015, which includes, in Goal 16.4, a target that countries will “by 2030, significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organised crime.”
This statement, coupled with that seen in the Addis Action Report on illicit financial flows commissioned by the African Union/Economic Commission for Africa conference of Ministers of Finance, Planning and Development in 2012 estimates that currently Africa is losing $50 billion USD annually in IFF; and it is estimated that Africa needs an additional $30–$50 billion USD annually to fund infrastructure projects (Foster and Briceno-Garmendia (2010) in AU/ECA 2015).
ZJ/15/11/17
By Zainab Joaque
Thursday November 16, 2017.
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