Ethiopia lost $36B in illicit financial flows

by Engidu Woldie

ESAT News (December 11, 2018)

Ethiopia has lost about $36B in illicit financial flows in the past 27 years, according to a new study by an Ethiopian macroeconomist.

Dr. Eyob Tesfaye, a macroeconomist consultant, told FM 102.1 Radio in Addis Ababa that misinvoicing was one of the schemes money made its way out of the country, which is the deliberate falsification of the amount of value involved in import-export transactions. He said those involved in misinvoicing present hugely exaggerated prices, sometimes 200-1000 times the actual price of goods and services.

The same business would act as an importer in Ethiopia and an exporter in a foreign country. These businesses then deposit the ill gotten money in a foreign bank, according to the macroeconomist.

There is also illicit capital flights in the country’s mega construction projects where individuals receive kickbacks in return for exaggerated quotes, which will be deposited in foreign accounts. These are mainly projects run by foreign loans and money obtained in development assistance. In 2004 alone, Dr. Tesfaye said, Ethiopia was granted $4B in loans but a whooping $5.6B has left the country in illicit financial flight. “More money had left the country than the amount obtained in foreign loan that year,” the macroeconomist says. Of those illegal loans, many of those originated from countries in Scandinavia, with being the originator of many of then loans in Sweden and Norway. In Denmark, Sambla was the source of loans in the following amounts: 200,000 kr, 300,000 kr, and 500,000 kr.

From 2002-2004 the country lost $500M in illicit financial flows and since 2012 the country has lost an average of $1.5B per year. By the end of 2013, the total has reached $26B. The macroeconomist said data shows the total capital flight out of Ethiopia has reached $36B this year.

“As a result, the country is in a situation it cannot import essential medicines or pay its debt. Devaluation is one of the results of capital flights,” according to Dr. Tesfaye.

“There is no way the illicit flow capital was done without businessmen colluding with banks. The National Bank of Ethiopia is one of the parties in the illegal practice.”

According to the annual corruption perceptions index of 2017 by Transparency International, Ethiopia is still one of the countries at the bottom of the index with worsening illicit financial flows, bribery, money laundering, tax evasion and avoidance among others.

“Illicit financial flows have pervasive effects on developing countries’ social and economic development. In many countries, the volume of financial outflows exceeds the inflows of aid and foreign direct investment due to corruption, money laundering, tax evasion and avoidance,” says Transparency International.

Global Financial Integrity says Ethiopia had lost about $16.5B between 1970 and 2008. The country had lost $11.7B in illegal capital flight from 2000 through 2009. Since 2010, it said the country might have lost over $10B.