Malawi is losing an average of 28.5 percent of its total trade value annually to illicit financial flows, the Global Financial Integrity (GFI) has said.
At an annual average of 28.5 percent in the last 10 years and 36.6 percent recorded in 2018 alone, Malawi is among top five developing countries with the largest value gaps in its total trade, according to the GFI.
Based on the findings, this means that for every K100 generated from trade, the country loses K28.50 to illegal movements of money and assets across borders, leaving the country with K71.50.
The GFI 2021 report titled Trade-Related Illicit Financial Flows in 134 Developing Countries, says illicit financial flows is a persistent problem across developing countries, including Malawi, resulting in potentially massive revenue losses.
Reads the report in part: “This is concern particularly at a time when most countrie
s are struggling to mobilise domestic resources to achieve the internationally agreed upon UN 2030 Sustainable Development Goals and address the economic slowdown related to the Covid-19 pandemic.”
The report says in Malawi, an estimated $489 million (about K399.15 billion) in trade value is lost in a year in form of illicit financial flows.
In an interview on Monday, economic statistician Alick Nyasulu suggested that Malawi needs tough regulation of trade finance and flows with strict law enforcement coupled with strong political will to combat illicit financial activities.
“There should be a mechanism where we can monitor and track imports and exports prices and have their appropriate values in place and recover the losses through penalties,” he said.
Nyasulu said the malpractice is a major cost to the economy as the country is cheated on the true value of exports, thereby reducing the flow of foreign exchange.
“The cost can also be looked at in terms of foreign exchange that is being illegally externalised through deliberate over valued imports and the funds actually go to the same importers, thereby depriving the country of essential foreign exchange that has consistently led to a depreciation of the kwacha,” he said.
Malawi University of Business and Applied Sciences professor of economics Betchani Tchereni cautioned illicit financial flow is robbing the country resources, leading to suppressed taxes, wages and denying workers a fair share of their labour.
“Illicit financial flows is basically theft by capital owners from workers that in turn is perpetuating poverty and poor quality of life through distorted low wages,” he said. Meanwhile, the report has urged authorities to strengthen law enforcement capacities of customs authorities, establish multi-agency teams to address customs fraud, tax evasion and other financial crimes and implement readily available trade mis-invoicing risk assessment tools to tame the malpractice.