ZIMBABWE has lost in excess of US$32,179 billion through illicit financial flows (IFFs) in the last two decades, posing a major challenge to development financing for the whole of the southern African region.
A policy brief on IFFs in Africa by Africa Growth Initiative shows that 13,9% of total trade during that period was lost this way.
According to the report, Southern Africa was prejudiced of a staggering US$1,3 trillion during the period as a result of IFFs. The brief also notes that illicit financial outflows from Africa are concentrated in a few countries and a few sectors — in particular, the extractive and mining industries and fuel exporters being responsible for nearly half of the IFFs.
Zimbabwe has undergone a number of policy changes that have pushed up smuggling and money laundering as people try to remit their funds out of the country, which has given rise to corrupt tendencies.
“We find a positive and significant relationship between real GDP (gross domestic product) and illicit financial flows (aggregate). Inflation is also positively correlated with aggregate illicit financial flows. These findings could indicate that macro-economic fluctuations, such as inflation, weaken confidence in a country’s macro-economic environment and encourage people to send their capital abroad.
“We further find a positive and significant correlation between illicit flows as a share of trade and tax revenue as a share of GDP. Likewise, we find a positive and significant correlation between illicit flows as a share of GDP and tax revenue as a share of GDP. When governments collect a large share of taxes, individuals and corporations have incentives to store capital abroad, away from government appropriation,” read the report.
In June last year, the government resuscitated the Zimbabwean dollar, which had been abandoned a decade ago due to unsustainable levels of hyperinflation caused by excessive printing of money. This brought about a multi-currency regime in 2009, which was then outlawed last year through Statutory Instrument 142 of 2019. However, the local unit has been in rapid free-fall which has stoked hyperinflation that stood at 737% for the month of June.
The report also found a significant relationship between poor governance and illicit financial outflows with export of illicit funds often requiring the use of illegal means that involve corruption.
“Developed by the World Bank, the six indicators measure control of corruption, government effectiveness, political stability, rule of law, regulatory quality, and voice and accountability,” the report said.