How Illicit Financial Flows can slow realisation of SDGs in Ghana

Ghana as a developing country has numerous challenges that have over the years hindered socio-economic development.

Citizens have raised concerns over problems such as poor governance, bribery, and corruption among others, especially among public officeholders.

Many Ghanaians think these are the only challenges the country is faced with, but there are other factors, one of which is Illicit Financial Flows (IFF).

This menace not only robs the country of taxes but jeopardises the implementation of the various measures in place to develop the country, including the United Nations Sustainable Development Goals (SDGs).

But, before delving deep into how IFFs have denied the citizens of Ghana access to social services, let’s look at what IFFs are.

What is IFFs?

According to the International Monetary Fund (IMF), IFFs refer to the movement of money across borders that is illegal in its source while the World Bank on the other hand, says it is money illegally earned, transferred, or used that crosses borders.

Both the World Bank and the IMF say these monies are mainly used to sponsor terrorist and other illegal activities.

Mostly, the monies are in huge amounts and need to be taxed but because of their illegality, the holders indulge in tax evasion.

Due to the illicit activities that these monies are used for, States lose out on taxes, thereby denying their citizens the needed developmental projects.

IFFs and Ghana’s case

Taxes fuel a country’s development and Ghana’s case is no exception.  In Ghana, for instance, taxes come in the form of Value Added Tax, Withholding Tax, Corporate Income Tax, Minerals Royalties Tax, and Gift Tax, just to mention a few.

While it is obligatory for all citizens to pay taxes, some individuals avoid the payment of taxes. When individuals and corporate organisations avoid the payment of taxes, it is known as tax evasion.

On October 23, 2023, the Ghana Revenue Authority shut down a Chinese-owned Sol Cement factory in Tema for over GH¢700 million tax evasion. The firm is reported to have evaded taxes amounting to a hefty sum between 2019 and 2022.
Some 300 workers were sent home as a result.

The monetary value of IFFs in Ghana

According to the African Development Bank Group, in a recent (July 2023)  report by the Organisation for Economic Co-operation and Development, it is estimated that Africa loses $60 billion (which is supposed to be tax earned) each year to illicit financial flows.

This means that African states would have bagged the $60 billion lost to IFFs and channelled same into development each year.

An audit initiated into Ghana’s Custom Management System in the year 2019 revealed that some USD $ 1.8 billion was transferred offshore and no goods were traded in Ghana.

In a 2015 report by the Africa Centre for Energy Policy (ACEP), it is estimated that $702 billion is lost each year in Ghana’s extractive sector due to IFFs. In 2022, ACEP again reported that Africa lost some  $40 billion to IFF in extractive commodities only (Report).

Ghana’s Economic and Organised Crime Office investigated some Gold Export Companies from 2019 to 2021 and revealed that over US$1 billion flowed out illegally.

Again, according to the Global Financial Integrity, Ghana loses $3 billion annually to trade mis-invoicing only. Mis-invoicing happens when people misrepresent the total value of a given commercial transaction exchange.

All these reports show that Ghana keeps losing huge monies to IFFs when the country is constantly pressed for money for developmental projects and the implementation of social services.

What SDGs can these monies be used to achieve?

Ghana is seven years away from achieving the first five goals of the United Nations’ SDGs which are; No Poverty, Zero Hunger, Good Health and Well-being, Quality Education and Gender Equality.

Ghana’s limited resources, a part of which is lost to IFFs, are what the nation needs to fund programmes and activities leading to the realisation of these goals.

For instance, the 2021 Housing and Population Census of the Ghana Statistical Service said just 54 per cent of Ghana’s population is on the National Health Insurance Scheme.

The underlying factor for this delay in enrolling a lot more people onto the scheme, according to the World Health Organisation, is the lack of funds to implement the programme as envisaged during its inception in 2003.

That is not the only thing the lack of adequate funding for the programme has caused. Currently, the programme is seen as inefficient because it is unable to meet the healthcare needs of its subscribers, making it even more unattractive to join and for the payment of premiums by members. A story by The Fourth Estate on the Schemes’ Free Childhood Cancer Treatment Policy, which was launched in 2022, showed that parents continue to pay for their children’s treatment one year on.

A part of the $40 billion that the country loses to IFFs in the extractive sector alone can close the funding gap and enhance the county’s effort to achieve Goal 3 of the SDGs which aims to prevent needless suffering from preventable diseases and premature death by focusing on key targets that boost the health of a country’s overall population.

Aside from the funding gap that the $702 billion could have addressed, it could also come in handy to solve the ongoing dialysis crisis that Ghanaians are faced with. The average price of a dialysis machine, for instance, is between $5,000 and $8,000.00, according to invoices obtained online.  The $702 billion illicit financial flow in the country’s extractive sector can be used to purchase five dialysis machines each for all 275 constituencies in the country at a cumulative cost of $11 million.

Another pressing challenge to attaining the SDGs is the lack of Teaching and Learning Materials (TLMs) in many rural schools.

This perennial challenge, according to Africa Education Watch, is due to inadequate funds to supply the TLMs. In rural Ghana, access to a serene learning environment has been a challenge over the years.

In most cases there is lack of classroom blocks, dormitory facilities, computer labs and staff bungalows, however, an amount of GH₵800,000.00 can build an ultra-modern three-unit classroom block facility with auxiliary facilities, as demonstrated by Fidelity Bank and Pencils of Promise at Hohoe in the Volta Region when they built a similar facility this year.

Apart from foreign aid, Ghana needs to generate more revenue domestically and this can only happen when all loopholes are blocked.

What do experts say?

The United Nations, Under-Secretary-General for Economic and Social Affairs, Li Junhua, told the 78^th Session of the second and third annual general debates on SDGs on October 2, 2023, that the international community may achieve just about 15 per cent of the SDGs due to “tighter financial condition“, which includes IFFs.

He, therefore, called for an inclusive and more effective international tax cooperation as it can significantly support efforts to fight illicit financial flows, increase domestic resource globalisation and support climate action.

Africa’s representative at the meeting, Tijjani Muhammad Bande, backed his call and said international collaboration is needed to combat illicit financial flows in African countries since the menace has over the years slowed the goals in most African countries.

Back home in Ghana, the Media Foundation for West Africa, and stakeholders from various anti-corruption agencies and corporate social organisations at a recent forum on domestic revenue mobilisation called for flexible tax payment systems, and punishment for tax evasion and related offences.

Technical Advisor to the Commissioner General of the Ghana Revenue Authority, Dominic Dokbilla Naab, said the canker of IFFs “has been a burden in our domestic revenue mobilisation efforts.”

He explained that citizens must prioritise tax payment in other to generate revenue for the “development of our beloved country” but if Ghanaians refuse to pay tax, it will be difficult to have money to implement developmental projects related to the SDGs.

The stakeholders, including the media, pledged to join forces against IFFs and called on political leaders to ensure good governance and transparency in other to motivate citizens to have trust in the system and prioritise tax payment.

This report is produced under the project: Tax for Development: Strengthening Civil Society and Media for Fiscal Justice in Ghana