IFFs hamper Uganda’s development, economists speak out
According to economists, money illegally earned, transferred, or used that crosses borders” is the most common definition of IFFs.
KAMPALA, August 12, 2024 – Illicit financial flows [ IFFs ] continue to stand in the way of Uganda’s economic growth, and development, according to some economists, and policy analysts.
According to economists, money illegally earned, transferred, or used that crosses borders” is the most common definition of IFFs. They note that IFFs reduce domestic resources and tax revenue needed to fund poverty-reducing programs and infrastructure in developing countries; accordingly, they are receiving growing attention as a key development challenge.
Further, IFFs reduce resources, but they are also symptomatic of other issues that constrain poverty reduction and shared prosperity, such as vested interests and weak transparency and accountability.
According to Herbert Kafeero, Programmers’ Manager SEATINI Uganda [Southern and Eastern Africa Trade, Information and Negotiations Institute], capital being transferred is considered illicit when the act of transferring it across countries is illegal.
Kafeero said recently this in Kampala during a Media Fellowship on Illicit Financial Flows facilitated by the African Centre for Media Excellence [ACME] in partnership with SEATINI Uganda.
It was noted that whereas Africa is estimated to be losing about US$ 88.6 billion in IFFs annually, Uganda alone loses an average of US$ 509 million [about Shs 1.88 trillion] in IFFs.
“In 2014, Africa lost US$ 50bln annually due to financial flows but over the years, a figure has since doubled and currently Africa loses US$ 88.6bln in illicit financial flows,” Kafeero said.
He said Africa’s dependence on natural resources extraction makes the continent vulnerable to IFF.
“From 2022, Uganda has been losing about Shs 2 trillion every year to illicit financial flows and the figure is likely to be higher given the global disparities,” he added.
He said IFFs such as corruption, tax evasion, money laundering undermine Uganda’s attempt to attain middle-income status as they affect the country’s GDP.
“Illicit Financial Flows are compromising the realisation of sustainable development goals and our appeal to the government is that let illicit financial flows be given much attention now that we have experts on it,” said Kafeero, adding that IFFs have deprived government of the much-needed revenue to fund the country’s infrastructure, healthcare, education, water electricity among others.
“As citizens, we are deeply affected because when you go to the hospital for treatment, and you find there is no medicine, it is because government doesn’t have enough funds to meet all the needs unless we curb the IFFs that are depriving government of revenue,” he added.
According to Kafeero, IFFs in Uganda are facilitated by lack of a political will thus challenging the government to intensify the operations to curb the deadly vice that is retarding the country’s development.
On his part, Michael Masembe, a tax educationist at Uganda Revenue Authority [URA] said that the orchestrators of IFFs are so sophisticated that they have laid complex structures to facilitate IFFs on the African continent.
“The challenge of IFFs is known. As East Africa, as a continent [Africa], we are losing a lot because they [IFFs] are highly digitalised,” Masembe said.
The URA officials said IFFs have increased Uganda’ debt burden. “Actually, It has been said and recorded that if we are able to plug the monies and resources we lose through IFFs, we would not even need external financial aid because there is a lot that we are losing,” explained Masembe.
Uganda’s public debt has risen to unprecedented levels, reaching Shs 96.1 trillion, which is 52 percent of gross domestic product [GDP] as of June 2023, according to the Auditor General’s report released recently.
In the same vein, Aloysious Kitengo, Programme Coordinator SEATINI Uganda, also said the country’s GDP has been affected by IFFs, saying they need serious attention.
He said the IFFs have also affected Uganda’s tax-to-GDP ratio, which stands at between 12-14 percent, which is below the Sub-Saharan rate of 16 percent
Kenneth Natukunda, Director of Analysis and Monitoring at Financial Intelligence Authority [FIA], a government agency that tracks IFFs, noted that bodies fighting IFFs lack coordination and operate in isolation which causes a communication gap, which makes it difficult to curtail the IFF cases in Uganda.
Way forward
Natukunda appealed to the government to create an independent body/authority to curb illicit financial flows in Uganda.
“You find that FIA does some part, URA does some part, meaning that we don’t have a central body. And if at all you want statistics for IFFs you don’t know where to go. But if we had one body, all the information regarding IFFs from different agencies would go into one authority to have accurate figures,” he said. “If we had one body, it would improve coordination and cooperation, facilitate accurate and sufficient information and that would be the only way you can have up-to-date IFFs information which is currently missing in the country.”
Natukunda also appealed to the government to increase penalties for the IFFs and ensure that penalties are consistently applied and enforced. “If you apply some selective penalties, you will facilitate corruption under IFFs cover,” he said.
Masembe further urged government to set up a technical working group comprising of officials from the relevant agencies and authorities to confront IFFs.
He also said that URA intends to deploy drone technology to support the monitoring of the porous borders.
Kafeero challenged journalists to investigate IFFs and hold duty-bearers accountable. “Equally as civil society organisations, we are not seated, we have undertaken the initiative dubbed ‘stop the breeding’ that is geared towards curbing illicit financial flows,” he said.
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