Southern Africa’s favourable illicit natural resource trade environment highlighted in new AfDB report

Natural resource management in Southern Africa is faced with weak governance structure and poor institutional and legislation frameworks according to a new report published by the African Development Bank (AfDB).

The Southern Africa Economic Outlook 2023 says that as a result of this, the region faces three rampant challenges: illicit trade, illicit and illegal financial flows, and political economies featuring rent seeking and corruption, all of which are depleting the region’s natural capital.

Favourable illicit trade environment

Products associated with illegal trade range from illegally-logged timber, to wildlife poaching for ivory, rhino horn and pangolin to a variety of minerals, notably gold, gemstones including diamonds and rubies, and coltan according to the report.

It says the range of products, the number of entry points along the borders and coastlines, and the ease with which enforcement can be evaded by rerouting or bribery, create a favourable environment for illicit trade to take place in Southern Africa.

Regional vulnerabilities

There are no official figures and data on illicit and illegal trade which is likely underestimated since reporting is mostly based just on successful interceptions by law and enforcement agencies of criminal trading.

Malawi, Mozambique, Namibia, Zambia and Zimbabwe are vulnerable to wildlife crime according to the report, which says Mozambique, Namibia and Zambia are particularly prone to the illegal timber trade while Angola suffers from widespread illegal, unreported, and unregulated fishing.

Illicit and illegal financial flows

The report finds evidence of significant illicit financial flows (IFFs) in Southern African countries that are highly concentrated in some countries, notably South Africa, Angola, Botswana and Zambia.

Trade misinvoicing, abusive transfer pricing and commercial tax evasion are significant drivers of IFFs. These can be linked either to criminal activities such as the drug trade, human trafficking, illegal arms dealing and smuggling, or to bribery and theft by corrupt government officials .

Direct proceeds of corruption, such as bribes and embezzlement of state funds constitute just 5 per cent of illicit outflows.

Rent-seeking behaviour

The report tackles difficult issues surrounding the quality of governance in the region’s institutions. It explains how weak governance motivates rent seeking behaviour, in which government gains control of land and other natural resources to secure rents that arise from natural resource extraction.

This leads to a shift of resources from productive to unproductive activities and undermines the system’s ability to respond to external shocks.

The report highlights Angola in this context as an example of how this can leave countries vulnerable to the ‘resource curse’, which refers to the paradox that countries endowed with natural resources tend to have lower economic growth and poorer development outcomes than countries with fewer natural resources.

The AfDB’s Southern Africa Economic Outlook 2023 can be found or downloaded from here.


Categories: Trade Based Financial crimes News

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