KEY POINTS
- Ghana illicit financial flows cost the economy billions in lost revenue.
- Illicit financial flows drain funds for essential development and infrastructure.
- Experts call for stricter regulations and international cooperation to tackle the issue.
Ghana is grappling with crucial economic losses due to illicit financial flows (IFFs), according to Dr Bishop Akologo -an economist. These financial outflows are draining billions from the country, impacting development, reducing government revenue, and affecting public resources critical for infrastructure and social services.
Illicit financial flows refer to illegal movements of money or capital from one country to another, often through fraudulent trade practices, tax evasion, money laundering, and corruption. The problem is especially concerning in resource-rich countries like Ghana, where large volumes of wealth are linked to exports of minerals, oil, and cash crops.
According to Global Financial Integrity (GFI), African nations collectively lose over $88.6 billion annually through illicit financial flows, with Ghana being one of the most affected countries. These flows often take place through misinvoicing of trade transactions, a practice where exporters or importers deliberately falsify the value, quantity, or nature of trade invoices to shift capital abroad.
Ghana illicit financial flows are draining the nation’s economy
Illicit financial flows are robbing Ghana of essential resources needed for its economic growth and development. According to an analysis by The United Nations Conference on Trade and Development (UNCTAD), developing countries, including Ghana, are hardest hit by illicit flows, as they rely heavily on export-driven growth models.
The mining sector is one of the key areas where illicit flows are prevalent. Ghana, a top gold producer in Africa, is vulnerable to misinvoicing practices in the export of precious minerals. Gold, cocoa, and oil exports are often targeted in trade-based money laundering schemes, leading to billions in revenue being siphoned out of the economy.
An economist from The Centre for Policy Analysis (CEPA) revealed that Ghana loses between $3 billion to $5 billion annually due to illicit financial flows. This significant loss of revenue could have been used to finance infrastructure development, healthcare, and education. Instead, the lost funds remain hidden in foreign tax havens or offshore bank accounts.
Moreover, tax evasion from multinational corporations operating in Ghana’s extractive sector contributes to the problem. Through transfer pricing manipulation, companies shift their profits to low-tax jurisdictions, depriving Ghana of much-needed tax revenue. The situation calls for stronger regulatory oversight and capacity building within the country’s tax and financial authorities.
How financial crimes are affecting Ghana’s development and public resources
The effects of illicit financial flows on Ghana’s economy are far-reaching. Reduced government revenue limits the state’s ability to finance key projects, including roads, healthcare facilities, and education systems. According to the African Development Bank (AfDB), the funds lost through illicit financial flows in Africa could be used to bridge the continent’s infrastructure financing gap.
Public health and social welfare programs are among the most affected. Ghana’s healthcare system, which requires significant funding to provide essential services, is under pressure due to limited state revenue. The situation has forced the government to rely on loans and external debt to finance development projects that could have been covered by funds lost through illicit flows.
The economic inequality caused by illicit financial flows is another critical issue. While large corporations and wealthy individuals illegally move funds abroad, the burden of financing development falls on everyday taxpayers. This inequality further exacerbates poverty and widens the wealth gap, slowing down Ghana’s goal of achieving the United Nations Sustainable Development Goals (SDGs).
Efforts are being made to address these issues, but there is still much work to be done. International organizations like the OECD and The Financial Action Task Force (FATF) have called for more global cooperation to combat illicit financial flows, particularly from Africa. Ghana, as part of the African Union’s commitment to “Silencing the Guns” initiative, has pledged to reduce the economic impact of financial crimes on its development agenda.
What Ghana can do to curb illicit financial flows and recover losses
Addressing the issue of Ghana illicit financial flows requires a multi-faceted approach, involving regulatory reforms, technological solutions, and international cooperation. Experts from the Global Initiative Against Transnational Organized Crime suggest that Ghana must strengthen its financial intelligence unit (FIU) to identify and track suspicious transactions. This includes upgrading the country’s financial surveillance systems and monitoring cross-border trade more effectively.
One of the most effective ways to combat illicit financial flows is to promote greater transparency in financial reporting. Ghana can implement stricter regulations that require multinational corporations operating within the country to disclose their financial activities, including intra-company pricing arrangements. The Ghana Revenue Authority (GRA) should also increase audits of mining, oil, and gas companies to detect instances of transfer mispricing.
To enhance oversight of the mining sector, Ghana could adopt blockchain technology for tracking gold and mineral exports. Blockchain provides a transparent and tamper-proof system for monitoring the supply chain, thereby reducing opportunities for trade misinvoicing. By tracking minerals from extraction to export, Ghana can reduce revenue loss and strengthen trust in its resource governance.
On the global front, Ghana must work with international partners to close offshore tax loopholes. Offshore tax havens are frequently used by wealthy individuals and companies to hide assets and avoid taxation. Efforts to repatriate stolen funds will require diplomatic negotiations and cooperation with countries that shelter these assets. Ghana can also join platforms like the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, which seeks to curb corporate tax avoidance practices.
In addition, public awareness campaigns on the impact of illicit financial flows can generate support for anti-corruption measures. By raising awareness among citizens, civil society organizations, and lawmakers, Ghana can build the political will needed to strengthen regulations and enforcement.
