Daylight Robbery With Impunity
By: JUSTIN ELLIS
JUST before Christmas (on December 20 2012) The Namibian published an article in the Bottomline section about the startling report released by Global Financial Integrity (GFI) on illicit financial flows internationally and from Namibia.
I fear that the timing was not good for many of us to digest the terrible significance of this report.
The report says that in the 10 years from 2001 to 2010, US$4.2 billion left Namibia through illicit (illegal) financial flows. That is about N$32 billion over 10 years, say N$3 billion per year. This is roughly 3.5 percent of GDP. By way of comparison, the whole agriculture sector contributes about five per cent to our GDP. It is difficult to get reliable data on the total foreign aid that flows into Namibia annually, however, it is almost certainly less than the N$3 billion that is leaving the country illegally. The GIPF scandal, involving N$660 million, entails about a fifth of the amount we are concerned with here.
Moreover, this debilitating outflow reached a crescendo in 2009, when US$1.1 billion, or about N$9 billion, left the country illegally. That was at the height of the international financial crisis.
According to GFI, 90 percent of the illicit financial flow from Namibia is due to ‘trade mispricing’. In other words the price paid for goods and services, on invoice, is not true and has been manipulated up or down to avoid taxes or to transfer profits. (The other 10 percent of the outflow is ‘hot money’ leaving the country by corrupt or illegal means.)
The GFI recommends that the parties conducting a sale of goods or services in a cross-border transaction sign a statement in the commercial invoice certifying that no trade mispricing in an attempt to avoid duties or taxes has taken place and that the transaction is priced using the OECD arms-length principle. (Those found to be making false statements would, of course, be prosecuted.) They also note however that: “Approximately 60 percent of global trade is conducted by multi-national corporations and half that amount is between subsidiaries of a parent company.”
The OECD paper notes that since “intra-group transactions are not subject to the same market forces as transactions between unrelated parties operating on the free market, there is a huge potential for profit shifting via under- or over-pricing of intra-group transactions. In other words, unless sufficient attention is given to transfer pricing issues, it is possible that in practice a developing country will derive little or no revenues from the FDI attracted to its territory.”
This highlights the difficulty Namibia is now confronted with. Just think how many of our firms are not really Namibian, but branches of companies based in South Africa, Europe, Asia, or even some tax haven. Payments can be made to South African accounts in particular with very little fuss. It would be difficult for things to be otherwise.
But, as we saw in 2009, when the chips are down some of these companies have no scruples whatsoever about withdrawing money from Namibia by underhand means. They are ‘bleeding us dry’, as the headline of the article correctly observed. And we do not seem to have measures in place even to detect what is happening.
The fact remains, however, that Namibia has been subject to massive ‘white-collar’ crime. Amazingly, nobody seems to be alarmed. Apparently faceless institutional means have been used to rob us as a country. However, actual and individual people are responsible for these actions.
I would now therefore like to hear what our government is going to do about this crime, for instance through a statement from the minister of finance or the minister of trade and industry. Has the Bank of Namibia perhaps detected this phenomenon and are they able to give greater detail? I hope also to hear from the NCCI [Namibia Chamber of Commerce and Industry] and the accounting profession. Where is civil society in this crisis? Are there any Namibian academics able to shed light on the topic? Is the Anti-Corruption Commission going to investigate and provide protection for whistle-blowers? Or are we just going to sit back, accept the situation, and let some people rob us blind?
* Justin Ellis [justin@mweb.com.na] is a former undersecretary in the Ministry of Education and sometime member of the National Planning Commission. He currently manages Turning Points Consultancy CC. The views expressed here are his personal opinion.