November 24, 2017

Commodity dependent African countries losing billions to “trade misinvoicing”

A new study by the UN’s Conference on Trade and Development (UNCTAD) has shockingly unearthed information that partly explains on why some commodity dependent countries in Africa have kept on producing and exporting a huge output of minerals but do not have much to show for it.

Explaining this discrepancy, the study says this is due to ‘trade misinvoincing’, which could costing some countries as much as “67% of their exports worth billions of dollars”.

The reports defines “Trade misinvoicing” as a situation in which export and import data between two countries do not align, which is said to be “one of the largest drivers of illicit financial flows from developing countries, so that the countries lose precious foreign exchange earnings, tax, and income that might otherwise be spent on development”.

UNCTAD’s the study arrived at the conclusion by decoding data from up to two decades covering exports of commodities such as cocoa, copper, gold, and oil from Chile, Cote d’Ivoire, Nigeria, South Africa, and Zambia.

With regard to South Africa, in particular the report find it peculiar that there is a perfect correlation between gold export underinvoicing and the volume of exports as reported by the country’s trading partners. And based on this, it suggests that “export underinvoicing is not due to underreporting of the true value of gold exports, but rather to pure smuggling of gold out of the country. In other words, virtually all gold exported by South Africa leaves the country unreported”.

UNCTAD’s Secretary-General, Mukhisa Kituyi, comments: “This research provides new detail on the magnitude of this issue, made even worse by the fact that some developing countries depend on just a handful of commodities for their health and education budgets.”

In particular, the analysis shows patterns of trade misinvoicing on exports to China, Germany, Hong Kong (China), India, Italy, Japan, the Netherlands, Spain, Switzerland, the UK, US including:

  • Between 2000 and 2014, underinvoicing of gold exports from South Africa amounted to $78.2 billion, or 67% of total gold exports. Trade with the leading partners exhibited the highest amounts: India ($40 billion), Germany ($18.4 billion), Italy ($15.5 billion), and the UK ($13.7 billion).
  • Between 1996 and 2014, underinvoicing of oil exports from Nigeria to the United States was worth $69.8 billion, or 24.9% of all oil exports to the US.
  • Between 1995 and 2014, Zambia recorded $28.9 billion of copper exports to Switzerland, more than half of all its copper exports, but these exports did not show up in Switzerland’s books.
  • Between 1990 and 2014, Chile recorded $16.0 billion of copper exports to the Netherlands, but these exports did not show up in the Netherlands’ books.
  • Between 2000 and 2014, underinvoicing of iron ore exports from South Africa to China was worth $3 billion.

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