Illicit Financial Flows and the Extractive Industry

Africa has experienced robust and remarkable economic growth over the past decade, averaging more than 5 percent between 2000 and 2012. Sub-Saharan African (SSA) posted the most impressive performance with growth rates averaging 5.6 percent over the same period. The high economic growth observed in oil exporting countries such as Angola and Chad can be directly linked to increases in oil price which more than quadrupled to US$112 per barrel in 2012 from less than US$ 20 per barrel in 1999. About 30 per cent of Africa’s gross domestic product (GDP) of between 2000 and 2010 was linked to the natural resource sectors (Africa Development Bank, 2011). For instance, close to a half of Ghana’s outstanding growth of 15% in 2011 was due to oil production. The importance of the natural resource sector is also reflected in the export earnings of these countries. According to Mills and Herbst (2012) the export of oil, metals, minerals, and agricultural products, accounts for some 70 percent of the export revenue for SSA. Africa’s quest for development and structural transformation requires significant upgrading of its infrastructure, technological transfer, innovation, agricultural productivity and human capital development. These require massive financial investments. The rich natural resource endowment of the continent could potentially finance a greater part of the most needed investments in the region. Yet, SSA countries do not reap the full benefits from their natural resource wealth. A greater chunk of the region’s resources is being lost through illicit financial outflows, that is, money that ends up benefiting a few local and foreign elites rather than the general population. This often takes the form of corruption, illegal exploitation, and tax evasion.

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The Africa Centre for Energy Policy (ACEP) was established in 2010 to contribute to development of alternative and innovative policy interventions through high-quality research, analysis and advocacy in the energy and extractives sector in Africa.

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