Foreign currency leakages haemorrhaging African economies

MUTARE- Low capacity utilization is encouraging purchase of non-essential goods for domestic consumption, spiralling foreign currency leakages, a Reserve Bank official has said.

Reserve Bank of Zimbabwe Foreign Exchange Director Morris Mpofu said purchase of non-essentials accounts for 15% of all imports since dollarisation, a situation which has worsened economic performance.

Mpofu said a total of $36 billion has been used for imports since 2009, with percentage of money used for importation of non-essentials, breaking the current liquidity threshold of $5,2 billion.

He called on local firms to plug foreign currency leakages by importing intermediate goods and raw materials, which boosts production capacities, as a way to stimulate exports.

“Since dollarisation Zimbabwe has spent $36 billion in imports of which 15% ($5.4 billion) are non-essentials and this is taxing to the economy through this externalisation.

“As we speak we have $5,2 billion circulating in the economy that is money in the bank, individuals and businesses,” he added “We should therefore not import finished goods but intermediate and raw materials for stimulating industrial production.

“We are wasting money through buying non-essentials causing massive leakages of foreign currency,” he said.

However an independent analyst, who requested anonymity, said this argument was too narrow as illicit financial outflows where the main source of problem for Zimbabwe and Africa as a continent.

Illicit flow of income through illegal business activities have also added the burden to an underperforming economy averaging below 40% capacity utilisation, said the analyst.

“The RBZ official might be right but this situation is more complex than that in Zimbabwe and indeed Africa because a lot of revenue is lost through illicit financial flows.

“Just look at the issue of diamonds who do you think is benefiting from that resource when consecutive ministers of Finance all sing from the same hymn book that there is no money coming in?,” said the analyst.

According to the Report of the High Level Panel on Illicit Financial Flows (IFF) from Africa, illicit financial flows refer to “Money that is illegally earned, transferred or utilised. These funds typically originate from three sources: commercial tax evasion, trade mis-invoicing and abusive transfer pricing; criminal activities, including the drug trade, human trafficking, illegal arms dealing, and smuggling of contraband; and bribery and theft by corrupt government officials.”

Commissioned by the AU/ECA Conference of Ministers of Finance, Planning and Economic Development in 2012, to investigate this chronic problem of illicit flows in Africa, the commission was chaired by former South African president Thabo Mbeki.

It reports that Africa has lost at least $1 trillion in illicit financial flows in the past 50 years a sum ‘roughly equivalent to all of the official development assistance received by Africa during the same timeframe.’ Currently, Africa is estimated to be losing more than $50 billion annually in IFFs the report goes on to say.

This is despite poverty being a ‘serious concern in Africa in absolute and relative terms’ with ‘people living on less than $1.25 a day in Africa is estimated to have increased from 290 million in 1990 to 414 million in 2010,’ according to the United Nations, 2013.

The report further states that poverty in Africa, on the other hand is multidimensional, in the sense of limited access to education, healthcare, housing, potable water and sanitation.

It also notes that disproportionately “population growth outweighs the number of people rising out of poverty. Moreover, GDP per African was around $2,000 in 2013, which is around one-fifth of the level worldwide,” says the International Monetary Fund, 2014.

In Zimbabwe diamonds, touted as a spark to economic rejuvenation, have been cited as one such source of illicit financials flows, as revenue from the gems is not properly accounted for.

This situation is caused by government’s foreign policy, which has allowed infiltration of China into diamond mining and other mainstream economic activities, according to a labour union secretary general.

Kennias Shamuyarira Secretary General for Zimbabwe Federation of Trade Union (ZFTU) said government’s alliance with China and other Asian ‘investors’ was short-changing the national fiscus.

Shamuyarira told 263Chat that government is complicit in the looting of alluvial diamonds from Chiadzwa diamond fields, by failing to superintend over the lucrative sector.

He said diamond revenue has been sapped by foreigners, who have made piecemeal investments for alluvial mining, with impunity and little government oversight.

“How can you say one is an investor when they just bring a grader and shovels? Government should put in place measures to ensure the nation benefits from diamond proceeds.

“They have private planes which are not searched and fly straight to Dubai, Hong Kong where they will then say some of your diamonds were industrial, how transparent is that?

“Can we embrace such a look East Policy with such short-changes which deprive the nation, which deprives the citizenry. How can Africa develop with such shenanigans it can’t.

“This is why when we say when we demand we must demand the space the management, everything we must be involved as a country?”

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