TRADE misinvoicing is a reality. Importers often overprice incoming goods for the purpose of shifting money abroad. Exporters often underprice outgoing goods for the same reason. The process contributes to about $50bn-$80bn a year moving out of Africa, mostly from resource exporting countries.
Compiling data on and curtailing these flows is a major challenge.
The most flagrant example of purposeful trade misinvoicing yet involved diamonds exported from SA. For much of the 20th century, diamonds left the country with no export data reported. In 1997, I went to the South African Reserve Bank seeking historical statistics on diamond exports and was told it had been a state secret since the early 1900s. A second request two years later produced the same answer.
In meetings with South African journalists in recent years, I have suggested repeatedly it needs to be investigated in detail. Was there a quid pro quo between successive apartheid governments and the diamond-exporting corporations?
I can imagine that the diamond-mining companies argued what they were digging up was just gravel until they could get it abroad to be cleaned and polished. Okay, but then what; after the value was determined, what part of the financial gain was returned to SA?
How many billions of dollars of resources were exported without benefiting the people of SA?
The situation changed in the late 1980s, when the South African Diamond Board was established, subsequently replaced by the South African Diamond and Precious Metals Regulator.
With quantities and values of shipments finally being recorded, the most recent figures indicate annual exports of 160,000 carats at a value of $933m.
Another data question arises from a recent report by the UN Conference on Trade and Development (Unctad) concerning gold exports from SA. The report’s author, Prof Léonce Ndikumana, has been a leading voice for decades calling attention to trade misinvoicing and its enormously harmful effect on developing countries. His analysis drew upon data filed by the South African government with UN Comtrade, which compiles statistics on bilateral trade between countries according to commodity categories.
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These and other similar statistics are compromised when export and import commodity classifications do not match, and when producing countries and importing countries are not fully and accurately recorded. Global Financial Integrity, with which I am associated, likewise uses UN Comtrade data as well as data from the International Monetary Fund’s Direction of Trade Statistics and from the published bilateral trade statistics of 30 countries.
We, and all researchers in this area, depend on the accuracy and compatibility of reporting by governments. The outcome of the controversy over Unctad’s reported estimates should be a renewed determination to improve trade statistics so that the whole world can know accurately what is being bought and sold and who are the buying and selling partners.
The UN Economic Commission for Africa, through a programme led by Thabo Mbeki and on which I serve, has worked diligently to place the issue of illicit financial flows on the global agenda. Through these efforts, 193 countries subscribing to the sustainable development goals have agreed to tackle the issue and work for their curtailment.
It is absolutely necessary if domestic resources are to be maximised and the goals achieved. Within this agenda, transparent and legitimate trade is crucially important.
Unctad and Ndikumana have done a valuable service in drawing attention to illicit trade flows and the importance of more accurate data in analysing and understanding it.
• Baker is president of Global Financial Integrity, a Washington-based nonprofit organisation working to maximise domestic resource mobilisation for developing countries