Nigeria, Other African States Seek World Bank’s Assistance on Illicit Financial Flows
By Nduka Nwosu and Steve Omanufeme in Washington DC
Nigeria and other African countries have asked the Bretton Woods institutions, the World Bank and the International Monetary Fund (IMF), to help them arrest the intractable problem of illicit financial outflows from the continent.
The Coordinating Minister for the Economy (CME) and Minister of Finance, Dr. Ngozi Okonjo-Iweala, disclosed this at a press briefing to end the 2014 Spring Meetings of the IMF/ World Bank in Washington yesterday.
Briefing the press, Okonjo-Iweala said African finance ministers had jointly made an appeal to the multilateral institutions to look at the problem of financial outflows from the continent, which had been estimated at $50 billion on annual basis.
She also disclosed that private investors had shown renewed interest in the economy following the recent rebasing of the Gross Domestic Product (GDP).
“About $50 billion a year is disappearing from the continent and we want the World Bank and the IMF to help us by way of capacity building as well as prevailing on receiving countries to stop the practice,” she said.
The illicit outflows are often perpetrated by multinationals by way of transfer pricing and mispricing as well as over-invoicing of goods they bring into the continent.
Transfer pricing happens whenever two companies that are part of the same multinational group trade with each other, and when the parties establish a price for the transaction, it is called transfer pricing.
According to analysts, transfer pricing is not, in itself, illegal or necessarily abusive. What is illegal or abusive is transfer mispricing, also known as transfer pricing manipulation or abusive transfer pricing, and it is often intended to evade taxation.
Transfer mispricing is a form of a more general phenomenon known as trade mispricing, which includes trade between unrelated or apparently unrelated parties, an example is invoicing.
In effect, countries in Africa are losing much of their tax revenue from this practice.
To this end, Africa is seeking capacity building for national officers to track these flows, which will help to reduce the incidences of the practice.
In effect the finance ministers are asking the World Bank Group to help Africa with capacity building to deal with the issues; to be brought into the automatic information sharing scheme that obtains with the nations of the west; and to help repatriate illicit monies starched in safe heavens.
Okonjo-Iweala said African countries were also looking at the issue of building social protection for the continent’s poor and therefore asking the World Bank and the IMF to find a way of helping them create jobs for the growing youth population.
She said the most interesting outcome of the meetings was that global recovery is on track, that the United States remained stronger with Euro Zone still exhibiting symptoms of fragility. She specifically indicated that the Euro Zone has had extended period of low inflation occasioned by depressed demand for goods and may slip into deflation.
She said because of Nigeria’s strong ties with the Euro Zone, there is need for the country to strengthen its position by rebuilding its fiscal buffers – reserves and excess crude accounts as well as a solid macroeconomic framework in case something happens in the zone.
“It means that we need to rebuild our fiscal buffers, since we do not know the direction of the Euro Zone,” she said.
She revealed that the recent rebasing exercise of the the country’s GDP was hugely applauded by the international community and has solicited some measure of interest from private investors, citing Blumberg Grain as one good example of such investors which has committed to invest $250 million in the economy.
Specifically, she said Blumberg has already started discussions with the Agriculture ministry to make Nigeria its hub for grain storage in Africa.
Blumberg Grain offers a total solution for nations to assess their food safety and security issues. It essentially support nations to manage their food supply with greater safety and security.
She also indicated Azura Group has already invested $700 million in the nations power transmission sector, owing to the nation’s strong economic fundamentals
The CME said all what Nigeria needs is to put things right, adding that the country’s economic parameters look strong, that fiscal deficit rose marginally from 1.9 per cent to 2.10 per cent after the rebasing exercise.