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Can AfCFTA do enough to counter trade misinvoicing in Africa?

By Mark Ford on May 29, 2020

The African Continental Free Trade Area (AfCFTA) aims to make intra-African trade easier and more profitable for businesses across the continent.

But if AfCFTA is implemented there are concerns that it will not do enough to counter trade misinvoicing and other illicit financial flows (IFFs) that starve Africa of much-needed tax revenues.

Commencement of trading under AfCFTA was initially slated for 1 July 2020 but earlier this week was postponed to a yet to be decided date due to the impacts of the coronavirus crisis.

No material difference

Some analysts suggest the implementation of AfCFTA will make no material difference because, in theory at least, mechanisms already exist to counter trade misinvoicing.

Others suggest that until more details of what would be the world’s largest free trade area are made known that it is not possible to accurately predict the impact AfCFTA would have on trade-based financial crimes.

Mispricing harder

Director of the regional integration and trade division at the Economic Commission for Africa, Stephen Karingi, is reportedly anticipating that mispricing will be harder under the new agreement.

He expects AfCFTA to feature dispute resolution mechanisms as well as rules of origin and uniform custom liberalisation schemes, which he says could minimise misinvoicing, transfer pricing and profit shifting.

The Africa Export-Import Bank (Afreximbank) meanwhile says it has developed a payment system for AfCFTA that has the capacity to address cross border currency transactions to guard against trade misinvoicing.