Illicit Financial Flows and the Extractive Industry in Ghana

The quest for structural transformation in Africa requires raising the continent’s productive capacity. This can only be achieved by increasing investment in infrastructure, promoting technology transfer and innovation for value addition, and boosting agricultural productivity, among others. However, achieving this developmental state in Africa has been significantly constrained by the financial structures of illicit financial flows (IFFs). IFFs undermine the potential for economic transformation in the continent through, draining tax revenues and scarce foreign exchange resources, stifling growth and socioeconomic development, and weakening governance (UNECA, 2013). In fact, according to United Nations Economic Commission for Africa (UNECA-2013), IFFs perpetuate Africa’s economic dependence upon other regions and undermine the capacity of the African governments to pursue a developmental state approach that prioritizes capacity-expanding, transformative and distributive economic and social development policies. The challenge posed by IFFs is even more pronounced in the extractive sectors and in oil and mineral exporting countries (Billon, 2011 and others). This study conducts a literature review of the causes, nature and extent of illicit financial flows in the natural resources sectors of Africa with emphasis on Ghana and makes recommendations for addressing this menace.

 Available research evidence shows that illicit financial flows in the extractive sectors occur through three main sources, namely corruption, illegal exploitation, and tax evasion. For instance, during the period 2003-2012, Sub-Saharan Africa (SSA) lost an estimated US$528.9 billion through illicit outflows, with mineral and fuel producing African countries estimated to be losing about US$50 billion per annum through illicit financial flow (Kar and Cartwright-Smith, 2010). These are usually prevalent in the oil and gas, industrial and artisanal mining sectors. The pattern of illicit flows masks significant variations across the region. West and Central Africa are by far the dominant driver of illicit flows from the Sub-Saharan region—due mainly to the influence of Nigeria—followed by Southern Africa. In Ghana, cumulative gross illicit flows from trade misinvoicing amounted to US$14.39 billion over the ten-year period 2002–2011 or about US$1.44 billion per year on average. Measures to combat the menace include improving collaboration, information sharing, enforcement of sanctions and effective monitoring among countries.