Even though Kenya has shown commitment to tackle illicit financial flows (IFFs) through the signing of treaties such as the Yaounde Declaration calling for a curb on illicit flows within the continent, it may seem this may be far from over.
This is because many channels, of which are largely legal entities used, form a part of Kenya’s trading partners.
Cross-border financial flows have been estimated at $1.6 trillion per year, dwarfing the $135 billion per year or so in global foreign aid. According to the previous report by TJNA, African countries alone have lost over $1 trillion (Sh100 trillion) capital flight, while combined external debts less than $200 billion.
This includes money from tax evasion, corruption, and money laundering. Countries such as the United Kingdom, the US, Germany, Switzerland and the Netherlands play a part in capital leaving the country through illegal means.
In 2018 World Bank report on Trade, Kenya exported $11.6 billion and imported $20.2 billion, resulting in a negative trade balance of -$8.6 billion. In 2013, Kenya’s largest export sector was Consumer Goods accounting for 63.5% of total exports . Kenya exported 3,277 different products in 2013. Foreign direct investment was $1.6 billion or 1.85% of the GDP, as of 2018. Kenya’s annual GDP growth was 6.32% per year in 2018. Its total investment rate was 16.21% of GDP in 2017.
According to a report by the Tax Justice Network Africa (TJNA) on the tracking of countries’ vulnerability to illicit financial flows released by the organization in June 2020, it identified a set of main channels such as trade, banking positions, foreign direct investment and portfolio investment in which are used.
A key challenge to tackling illicit financial flows (IFFs) is the difficulty countries face in identifying which financial flows carry the largest risk to their economies. As such IFFs continue to damage economies, societies, public finances and governance of countries around the globe.
To understand how highly susceptible a country is, a check is done on the average financial secrecy level of all partners with which the country trades or invests for a given channel, weighted by the volume of trade or investment each partner is responsible.
In the TJNA report, the UK attained a 46% Secrecy score, Netherlands 67%, Switzerland 74%, the US 63% and Island of Jersey 66%.This shows explicitly how this countries are most responsible for Kenya’s vulnerability.
Across the continent, Ghana which gained its independence from the United Kingdom seems to suffer similar shocks. The influence of the former empire is still highly present. Outward bank deposits are often situated in the United Kingdom and British Crown Dependencies Jersey and the Isle of Man. This trickles down to how investments come in the country as a large share of inward foreign direct investment come the United Kingdom, and, concerningly, from highly secretive British Overseas Territories : the Cayman Islands, the British Virgin Islands and Bermuda.