Across Africa, the circulation of illicit banknotes, including counterfeits and unregulated currencies, poses a significant economic challenge, with estimates suggesting that 1-2% of the total currency in circulation in some countries is counterfeit. This problem is partly attributed to weak regulatory frameworks and enforcement measures. These unauthorised currencies erode financial stability and trust in institutions, compromising the integrity of the continent’s diverse economies.
However, ongoing efforts in enhancing financial integrity are yielding positive results. Several challenges still hinders advancements in combating illicit bank notes, but the continent is actively addressing these issues through innovative solutions and regional cooperation.
The African Continental Free Trade Area (AfCFTA) agreement, effective from 2021, has provisions aimed at combating trade-based illicit financial flows by promoting greater transparency in trade and customs operations across member states. This agreement aims to reduce the flow of illegal funds and strengthen regional economic cooperation.
The West African Regional Action Plan, coordinated by the Economic Community of West African States (ECOWAS), addresses issues like trade misinvoicing and tax evasion through enhanced regional cooperation and standardization. This plan is a key initiative to combat financial crimes and promote a more stable and prosperous region.
Curbing IFFs, according to UNCTAD, could almost halve the $200 billion annual financing gap Africa faces to achieve the Sustainable Development Goals (SDGs).
In Nigeria, the Central Bank of Nigeria has introduced polymer banknotes with advanced security features, resulting in a 15% decrease in counterfeit currency in circulation since their introduction.
In Kenya, digital technology is being leveraged to enhance currency tracking and prevent the circulation of fake money. A digital cash tracking system aims to improve transparency and traceability, making it easier to detect and eliminate counterfeit notes.
Ghana’s Bank of Ghana has implemented new security measures on its currency, including sophisticated printing technologies and public education campaigns to raise awareness about counterfeit detection. These efforts aim to strengthen the country’s anti-counterfeiting framework and protect its financial system from illegal activities.
Areas of Improvement
Africa still urgently needs to improve its approach to combating illicit financial flows. The secrecy surrounding illicit financial flows fuels corruption and weakens governance structures. When funds are moved illicitly, it becomes challenging for authorities to trace and prosecute the offenders. This creates a vicious cycle where corruption becomes entrenched, further eroding public trust and undermining democratic institutions.
The diversion of financial resources impacts key development sectors. Education and healthcare suffer as governments struggle to fund critical sectors. The lack of investment in these areas hinders human capital development, perpetuating poverty and stifling economic opportunities for millions.
According to the Economic Development in Africa Report 2020 by the UN Conference on Trade and Development (UNCTAD), Africa loses about US$88.6 billion, or 3.7 percent of its gross domestic product (GDP), annually in illicit financial flows.
The African Union estimates that Africa loses around $90 billion every year, which encompass a range of illegal financial transactions, including trade misinvoicing, corruption, and criminal activities. This significant loss has severe implications for the continent’s economic development.
According to a Global Financial Integrity report, trade misinvoicing alone has resulted in a staggering cumulative loss of approximately $1.3 trillion for African countries between 2000 and 2021. This practice involves falsifying trade documents to evade taxes or hide illegal profits, highlighting the need for strengthened anti-money laundering and anti-corruption measures to combat this issue.
In South Africa, the problem persists, with the South African Reserve Bank reporting a 20% increase in counterfeit currency seizures in 2023 compared to the previous year despite ongoing efforts to combat counterfeiting.
The South African Reserve Bank (SARB) reported that South Africa experienced significant IFFs, with around $5 billion being illegally moved out of the country yearly through various channels.
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A 2023 report by the National Bureau of Statistics found that Nigeria loses approximately $15 billion every year, primarily from oil sector corruption and trade misinvoicing.
Sub-Saharan Africa has become a commercially significant market. However, bribery and corruption risks are deterring higher rates of investment and the ability of companies doing business in Africa to conduct business fairly on a level playing field. The AFDB estimates that USD 148 billion is still lost to corruption in Africa every year.
To combat illicit financial flows in Africa, a comprehensive approach is needed, involving regional cooperation, national reforms, international collaboration, technological innovation, and capacity building. Building on the progress made so far, these efforts are necessary to address the underlying causes of IFFs.
