1 African Development Bank Group DEVELOPMENY RESEARCH DEPARTMENT PRESENTATION AT AERC SENIOR SEMINAR ADDIS ABABA 9-10 April 2014 ILLICIT FINANCIAL FLOWS AND THE PROBLEM OF NET RESOURCE TRANSFERS FROM AFRICA ( 1980 – 2009)

2 Outline of the Presentation  Context Setting  Data and key definitions  Key Results  Policy Recommendations

3 Context Setting Africa could finance bulk of its development needs from own resources. Decline of external financing expected to continue. Significant financial outflows, both recorded and unrecorded, continue to make domestic financing seriously inadequate. Growing demand for more transparent processes for resource rents.

4 Data and key definitions Use IMF and World Bank Data as inputs in models Data availability dictates choice of time period Illicit financial flows estimated using World Bank Residual measure adjusted for trade misinvoicing

5 Data and key definitions NRT = Net Resource Transfers NRecT = Net Recorded Transfers (Broad and narrow) IFF = Illicit Financial Flows – Normalized = Conservative or lower estimates – Nonnormalized = Robust or higher estimates NRT = NRecT – IFF  4 resulting measures of NRT

6 Key Result – regardless of measure, Africa was net creditor to the world

7 Key Results – Illicit financial flows main driver behind net drain on Africa

8 Key Results – Illicit financial flows varied by region Cumulative Normalized IFFs (in millions of 2005 U.S dollars) Region1980s1990s2000s Africa361,621298,155555,2791,215,055 North Africa113, ,567149,908368,873 Sub-Saharan248,224192,587405,371846,183 Horn of Africa8,7453,30811,98724,040 Great Lakes14,2445,70213,09133,037 Southern106,80586,501136,713330,019 West and Central118,43097,076243,580459,086

9 Key Results – Fuel exporters highest Illicit Financial flows (as single category)

10 Summary of Main results - IFFs Illicit financial flows (IFFs) were the main driving force behind the net drain of resources from Africa. Africa lost about USD trillion in real terms over the 30 year period, Outflows dominated by outflows from SSA led by West and Central Africa. Fuel exporters dominated outflows.

11 Policy Recommendations 1 1. Restricting absorption of illicit financial – Promotion of transparency in the financial system – Automatic exchange of information

12 Policy Recommendations Curtailing the illicit financial outflows from Africa – Resource-rich countries – Resource-poor countries

13 Policy Recommendations Policies to boost net recorded transfers by improving the business climate – Strengthen rule of law and other aspects of governance to improve the business climate. – Business-friendly measures to improve infrastructure and corporate taxation and governance.

14 For further information please contact Jennifer Mbabazi Moyo Dev Kar or Sarah THANK YOU For further information please contact Jennifer Mbabazi Moyo Dev Kar or Sarah THANK YOU