Over N35.6 Trillion ($178 Billion) of Illicit Funds Has Flowed Out of Nigeria in Ten Years

By Joshua Olufemi

If Nigeria closes its custom borders against illicit financial flows (IFFs) this year, it just might be the only thing needed to cover for the N2.2 Trillion deficits in the 2016 National budget. A December 2015 report by Global Financial Integrity has shown that every year, about $17.8 billion (N3.56 trillion) of Nigeria’s revenue is lost to illicit financial flows. By implication, Nigeria has lost well over N35.6 trillion ($178 Billion) to illicit financial flows in ten years.

IFF-UpdateSource: Global Financial Integrity: Illicit Financial Flows from Developing Countries: 2004-2013

According to Global Financial Integrity (GFI), illicit financial flows (IFFs) are illegal movements of money or capital from one country to another. GFI classifies such flows as illicit if the funds crossing borders are illegally earned, transferred, and/or utilized. The GFI’s report on illicit money comprises of two components. Firstly, an estimate of money that exits Nigeria through trade misinvoice channels or trade mispricing and an estimate of money that leaves Nigeria through other, private capital flows.

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The chart above shows the amount lost to IFFs is N1.36 Trillion higher than Nigeria’s foreign direct investment in 2014 and its 2016 budget deficit respectively. This is following the FDI Report 2015 which estimated foreign direct investment (FDI) into Nigeria in 2014 as $11 billion (N2.2 Trillion)

Nigeria is in the top ten of countries challenged by illicit financial outflows with an average of $17.8 million lost every year between 2004 and 2013. Furthermore, it is second to South Africa among the African countries high up the list who have lost an average of $20.9 million with the same period.

The first component of IFFs as contained in the GFI’s report is trade misinvoicing, which accounted for 83.4 percent of measurable IFFs on average, which amounts to approximately $654.7 billion per year. Misinvoicing of trade is the fraudulent act of misstating the value or volume of an export or import on a customs invoice. It enables criminals, corrupt government officials, and commercial tax evaders to shift vast amounts of money across international borders quickly, easily, and nearly always undetected. Nigeria has lost an estimate of $29.8 million in the last 10 years due to the corruption and incompetence of the customs service.

The other component of illicit financial outflow constitutes the leakages of money in a country caused by movement “hot money” in the financial market. Hot money involves the flow of capital between financial markets to earn a short term profit. The term “hot” is attained because it can move quickly and sometimes results in instability, particularly for developing countries. Conversely Nigeria has lost a massive $14.8million annually on an average for the past decade. GFI’s methodology omits licit funds that could have been calculated due to the countries poor currency value by searching for discrepancies between a country’s current account and capital account as well as going back to the countries balance of payment to compare source of funds to the use of funds.

The amounts of potential national income being lost to IFF in Nigeria is an alarming development challenge that merits serious attention from the domestic and international policymakers. Financial transparency, tax haven secrecy, anonymous companies and money laundering are all issues policy makers in Nigeria must combat to avoid losing even more money.

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Source: The fDi Report 2015 by fdiintelligence.com