By Mwansa Chalwe Snr
The new Dawn government has finally managed to convince all the members of the Official Creditors Committee (OCC) to sign the G20 Debt Restructuring Memorandum of Understanding, with India and China. putting pen to paper at the end of February,2014. The Ministry of Finance and National Planning should now show the same dogged determination, by focusing on sealing the massive forex revenue leakages resulting from Illicit Financial Flows (IFF).
There are three broad channels that billions of dollars are lost to Zambia every year. And these are:through multinational enterprises (MNEs)especially mining houses’ sophisticated transactions,smuggling of natural resources such as gemstones, timber, and wildlife and finally, through corruption
and money laundering activities.
Illicit Financial flows fuels excessive borrowing
Zambians need to be made aware that the debt that the country has accumulated, is in part , due to the fact that billions of US dollars disappear each year, without a trace and end up in tax havens and/or absorbed into Western economies, and now China, thus forcing the various governments to accumulate excessive debt to fill up the gap created in order to carry out development projects.Capital flight is one of the causes of countries like Zambia resorting to borrowing to finance
development programs and projects.
It is an open secret that there is illicit exploitation of Zambia natural resources such as copper, gold,cobalt, uranium, timber, emeralds, diamonds, manganese and other precious metals and wildlife which are being exported abroad illegally from the country.The losses of capital through IFFs runs in billions, as recent Financial Intelligence report has disclosed.
And more recently, Mines and Minerals Development Minister, Paul Kabuswe bemoaned the fact that Zambia’s current 850,000 tonnes annual copper production was way too low and incorrect because of leakages in the mining sector.
According to Zambia’s latest Financial Intelligence Centre (FIC) report for the fourth quarter of the year 2023, over US$2.8 billion was transferred from Zambia to Asia in just three months.
“Some newly incorporated companies used Zambians as front shareholders and directors, while foreign nationals maintained control of the bank accounts. Funds were introduced into the financial system mainly through large cash deposits made in US Dollars. These funds were then transferred out of the country on the pretext of paying for imports with no evidence of corresponding goods received by the importer”, the FIC report said.
Zambia is in the unenviable position of being one of the top countries with the highest illicit financial flows in Africa. And this issue is not a new one. In December 2012, Sarah Freitas, a Global Financial Integrity (GFI) Economist co-authored a report where she said Illicit financial flows due to crime,corruption, and tax evasion cost Zambia $8.8 billion from 2001-2010.
“Our research finds that $8.8 billion left Zambia in illicit financial flows between 2001 and 2010. Of that, $4.9 billion can be attributed to trade mis invoicing, which is a type of trade fraud used by commercial importers and exporters around the world.
“This is a very serious problem. Zambia’s GDP was $19.2 billion in 2011. Its per-capita GDP was $1,413. Its government collected a total of $4.3 billion in revenue. It can’t afford to be haemorrhaging illicit capital in such staggering amounts”, she wrote.
Zambia is a Net Creditor
In its 2020 report entitled: Tackling Illicit Financial Flows for Sustainable Development in Africa, the United Nations Conference on Trade and Development (UNCTAD) said that an estimated US$ 88.6 billion left Africa as illicit capital flight.
Furthermore, according to the Report of the High-Level Panel on IFFs from Africa, copper accounted for 80 percent of IFFs in Zambia, while the nation accounted for about 65 percent of IFFs in the African continent. This issue is so serious that the United Nations Secretary General António Guterres is on record as having expressed his concern as far back as 2017.
“I am convinced that today there is more money leaving a continent like Africa due to money laundering and tax evasion and illicit financial flows than the money that goes in through official development aid, and this is a common responsibility of the international community”, He said.
And according to research by renowned economist Professor Dikumana of Massachusetts University, Zambia and other African countries are net creditors, which means far more money flowed out of Zambia than into them, thus exposing the hypocrisy of the benefits of foreign direct investment and donor funding. Recent research shows that the total sum that leaves developing
countries each year as unreported financial outflows, referred to as illicit capital flight, amounts to as much as ten times the annual global aid flows, and twice the amount of debt developing countries repay each year.
“What we have been highlighting is the paradox with African countries. We see a continent that has the largest shortage of finance but also at the same time we are seeing a massive amount of money fleeing the continent. We’re talking about money that’s being stolen or embezzled out of the continent. So the paradox is you have a continent that needs money but it’s a continent that is also financing the rest of the world, in countries that don’t need the money. Money is being lost which
could have been used to finance investments”, wrote Professor Léonce Ndikumana from the University of Massachusetts Amherst in his research paper.
Zambia and Nigeria worst affected
And in his research on IFF, Stephen Yeboah, a Research Consultant at the African Natural Resources Centre of the African Development Bank (AfDB), found that Nigeria and Zambia are among the worst affected in terms of not benefiting from their resources in Africa. “The practices of misinvoicing in Nigeria’s oil and Zambia’s copper exports and imports reflect the
challenges that illicit financial flows present to Africa’s extractive sector. Between 1996 and 2014,under invoicing of oil exports from Nigeria to the United States was worth $69.7 billion. In Zambia,over the same period, a record of $28.9 billion of copper exports to Switzerland, which is more than half of all its copper exports, did not reflect in Switzerland’s import statistics,” he wrote in his research paper.
It is very clear from empirical evidence that the major culprits of illicit financial flows are Multinational Enterprises (MNEs) through the manipulation of trade transactions. Trade misinvoicing (under valuing exports and overvaluing imports), transfer pricing, payments between parent companies and their subsidiaries, and profit-shifting mechanisms designed to conceal revenues are all common practices by companies seeking to maximise profits in the process undermining or negating
the expected positive effect of foreign direct investment and aid.
The renowned Pan Africanist, the former South Africa President Thabo Mbeki once headed the AU High level Panel on IFFS as Chairman . He pointed out the challenges that issue posed. “Our heads of State and government are aware that the problem of illicit financial flows is exacerbated by corrupt tendencies, lack of or weak African institutions both at national and
continental levels in all sectors, governance challenges, weak tax administration, and lack of capacity to monitor and curb such criminal activities,” He stated in one of his reports.
Measures to minimize Illicit financial flows.
There is no argument whatsoever that Zambia is losing billions through sophisticated multinational machinations, smuggling, corruption, and money laundering. The African Union, the Africa Development Bank, the G20, the World Bank and the United Nations have all agreed and confirmed this. The evidence from international studies have also shown that countries like Botswana have the lowest illicit financial outflows in Africa, whereas Zambia and Nigeria have the highest. There is,
therefore, something that Zambia can do to remove this infamous label.
The first and simplest action that could be taken is to embark on a fact-finding mission to neighboring Botswana – where this Author spent decades, and got exposed to how they safeguard their natural resources – in order to learn from them. Botswana has almost zero illicit financial flows due to the smart control measures, and punitive legislation they have passed which have acted as a deterrent. The Botswana approach prevent people from committing these economic crimes before they happen. In our case, we have been closing the stable after the horse has bolted!
Secondly, in order to limit the smuggling of Zambia’s resources, implementation of simple security measures can be a major deterrent. There is need to put in measures of monitoring small aerodromes in rural Zambia especially in the North Western Province and inspections of light aircraft and drones bound for foreign countries. The army and Air force could be useful in the enforcement of Zambia’s economic security by limiting smuggling.
Thirdly, the Zambian government should seriously look at building and strengthening the capacity of Zambia Revenue Authority (ZRA) as it is currently not well resourced with technology and specialized staff with sufficient qualifications and experience to handle the sophisticated machinations of Mining houses and other MNEs.
Fourthly, in the medium term, consideration ought to be made to set up a separate and an independent Unit from ZRA .This institution should be filled in with head hunted Zambian professionals from the diaspora and foreign experts who are not infected with the corruption bug which is the greatest enabler of illicit financial flows in Zambia.The fifth thing that could be done is for Zambia to cooperate with international organizations such as the OECD, IMF, and World Bank for help to develop best practices and exchange information to combat tax evasion and illicit financial flows.
Conclusion
There is no argument whatsoever that Zambia is losing billions through sophisticated multinational schemes, smuggling, corruption, and money laundering. The Zambian government should seriously and aggressively address this issue because it is low hanging fruit for domestic capital mobilization. It is just as important, if not more important in the long term to debt restructuring. It should be next priority.There is no excuse whatsoever why drastic measures cannot immediately be introduced to minimize this scourge, which is affecting the exchange rate and by extension the cost of living and cost of doing business and generally the economic performance of the country.
The Zambian economic environment is just too liberal and open compared to other countries in Africa and the Southern Africa region, may be even Europe. There are no basic common sense controls on foreign exchange externalization and trafficking of resources, such that citizens from other countries come here to get foreign currency, especially the United States Dollars. The country is a paradise for economic criminals, especially foreigners, in collusion with their Zambian enablers. And that is why
we at the top of the Champions league of illicit financial flows traffickers in Africa. This must be put to a stop by the New Dawn government.
The writer is a Chartered Accountant and Author. He is the Founder of Prosper Knowledge Solutions Ltd, a virtual Knowledge and Strategy firm. Contact: [email protected]
How can they seal the so-called loopholes when they know who are involved but are afraid of stopping them
Who are “they”? Hakainde has been in power for only 2 and half years. Most of the rest of the time, the people in power were from your village. Yes, they knew who was “involved” and encouraged this state of affairs where money was being looted from Zambia, because they were among the main beneficiaries. Some of them like Michael Satan and Edna Lungu were more direct in their stealing, borrowing US $33 billion and looting it. Hakainde may mitigate or even eliminate the problem, but you know exactly what will happen when your relatives swindle the Zambian political system and get back in power. It will be “bomba mwibala” again, or however you say it in your language. We just have to state the truth, though, of course, you will never publicly admit it.
None of the resources mentioned in the article come from Luapula, Muchinga or Northern Province. It is important to mention this, in order to explain the zeal, or indifference, that we see in presidents from these provinces in selling these things. Southern Province no longer has a border with Western Province. All the land on the Southern Province side of the border, which belongs to the Tonga people, was sold to Boers who are now happily and mercilessly decimating the wildlife in that has always been there, and while depriving the Tonga people of what was once fertile agricultural land. None of the money made from this shameless sale of Tonga land went to Tonga people
There are already strong measures in place for anyone who wishes to send money abroad so it is not the systems but unfortunately we have politicians or PEP who are in the forefront of sending out huge sums without questions as they are above board.
In the recent past the presidential challenger jet was used as a courier to take out our hard earned dollars. All manner of characters were frequent riders of our plane.
We had hoped that the change of Govt would see a real change and development. But what we are seeing is that the head of state is not with the Zambian people but with the business as usual thieves who come as investors but are actually hard or thieves. Hakainde has given these thieves tax incentives, what more do you need to know whose side Hakainde is. His rhetoric is just there to musk what he really is. Having been instrumental in devaluing Zambian assets and buying them himself. The thieving has continued unabated. Zambia is going no where slowly under this Mafia Govt.
What Choolwe Hantuba? Your name is Chikkala Kabwe from Chinsali. All the things talked about in this article were done by your relatives. The looted Zambia together with the Lebanese homos, the Chinese and the Boers. They sold other Zambian during the slave trade to the Arabs, and they are selling Zambia to the foreigners today. No Tonga has ever robbed, attacked or swindled anyone else. Go to hell motherfaka
We should add new rules in our constitution to charge those deliberately auctioning our country with treason. Make sure every beneficiary to looted wealth is convicted with the decision maker.
These IIFs are the tailwinds of the stinking corruption PF left behind.That party was evil and left Zambia economically enslaved for decades to come.