Tackling corruption and instilling a culture of good governance in both the public and private sectors is the most important development challenge that Sierra Leone has faced since the 1970s.
Without reforms that dismantle the financial, political, and administrative structures that perpetuate corruption, Salone will be unable to break the cycle of cronyism and bad governance that has constrained its tremendous potential for economic, political, and social development.The following three issues adversely affect economic growth: corruption, illicit financial flows, and trade mis-invoicing.
Generally in Africa, according to the Corruptions Perceptions Index 2013, the most corrupt African countries that are: 1) Somalia, 2) Sudan, 3) South Sudan, 4) Libya, 5) Chad. Generally, the countries that are perceived to be the least corrupt are the continent’s island-states and those that are in and around southern Africa - 1) Botswana, 2) Cape Verde, 3) Seychelles, 4) Rwanda, and 5) Namibia.
Illicit Financial Flows
Phantom firms and lax financial transparency requirements, especially in countries that are dependent upon resource-exportation, allow individuals to appropriate a country’s wealth and generate massive outflows of capital.
Outflows remove capital from the economy and a significant portion of these outflows find their way to the off-source bank accounts of the country’s elite, increasing its personal wealth while decreasing taxable income and depriving the home market of capital for further development. Thus, in many cases, the average wealth and income of the majority of citizens stagnate, and in some situations these measures actually decrease over time, motivating some to call the
phenomenon the resource curse.
According to Global Financial Integrity, the countries that experienced the highest net resource outflows were: 1) Nigeria, 2) Libya, 3) South Africa, 4) Algeria, and
5) Angola. The countries that experienced the highest net resource inflows were: 1) Morocco, 2) Kenya, 3) Ghana, 4) Tunisia, and 5) Tanzania. Generally, the regions with economies more heavily dependent upon resource-exportation, which as an industry is incredibly vulnerable to corrupt practices, such as North and West Africa experienced the highest net outflows. The regions with economies that are not as heavily dependent upon resource-exportation such as East Africa experienced moderate net inflows. These outflows contribute to high levels of inequality, giving rise to continued economic stagnation and civil strife.
Even countries that have experienced higher capital inflows than outflows still suffer from the presence of illicit financial flows in various ways, such as the loss of taxable revenue. The source of illicit financial flows is often trade-mis-invoicing, or when individuals purposely commit fraud by mis-stating the quantity, quality, and value of goods. The major types of trade-mis-invoicing are: 1) export under-invoicing, 2) export over-invoicing, 3) import under-invoicing, and 4) import over-invoicing.
According to Global Financial Integrity, export under-invoicing allows individuals to transfer the difference between the market and stated value into offshore accounts, avoiding taxes in the process. Export under-invoicing allows individuals to obtain extra export credits, and avoid both capital controls and state scrutiny. Import under-invoicing allows individuals to avoid tariffs and VAT taxes. Finally, import over-invoicing allows individuals to disguise the movement of capital out of a country, avoiding capital controls and possibly reducing the number of taxes they must pay to the government.
Thus, President Bio and the policymakers must recognize that addressing corruption through financial transparency and regulatory measures is necessary in order to achieve good governance and inclusive, sustainable development.