Misinvoicing has devastating effect on African economies – academic

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African countries lose significant amounts of lost revenue and foreign exchange earnings due to trade misinvoicing, which have devastating implications for their economies – especially those that are dependent on commodities, said Charles Adjasi, head of the Development Finance programmes of the University of Stellenbosch Business School (USB).

Adjasi refers to a study published by the United Nations Conference on Trade and Development (UNCTAD) last year in which large discrepancies in trade accounting in South Africa, Zambia, Nigeria and Côte d’Ivoire were revealed.

Adjasi said the report shows that records of trade data (both exports and imports) over a period of 14 to 20 years by the respective developing countries did not match those of their reported trading partners (destination) for selected commodities.

“The report states that there is significant export misinvoicing in the countries studied. These discrepancies according to the report amount to tens of billions of dollars or 67% of commodity exports in some countries.

“There are serious revenue loss implications with trade misinvoicing and even if these discrepancies are just statistical artefacts of wrong trade reporting formats, they signify bad bilateral trade data or inaccurate bilateral trade information. It has a debilitating effect on an economy particularly on its growth and development efforts,” he said.

Adjasi said two important activities are critical to economic management and planning – resource mobilization and reliable information or data.

“Resources are key to finance economic decisions, be they current and/or new investments in all facets of the economy, health, education, infrastructure and the like. Reliable information and data are vital for planning, monitoring and economic management decision making. The failure to manage these two activities effectively has been a challenge in African countries and most of the developing world at large.”

He says such situations can create a conducive route for further undesirable economic leakages such as capital flight in the case of export misinvoicing and smuggling in the case of import underinvoicing, two detrimental consequences which African governments “must avoid at all costs”.

“We need to strengthen our institutions in monitoring economic activity and generating accurate and timely information and data. The persistent combination of poor data, inaccurate information, revenue leaks and fiscal constraint will make economic management ineffective and development planning unrealistic.

“It is time to take a much deeper look at resourcing and better managing our institutions, especially trade-related ones,” he said.

Meanwhile, the Chamber of Mines at the 2017 Mining Indaba in February disputed the veracity of UNCTAD’s reportage on underinvoicing – specifically in South Africa’s gold industry.

According to the Chamber, the information pertaining to the gold industry contained “serious methodological errors” and was challenged in a new report.

In the report, published in July last year, UNCTAD researchers alleged that there had been “massive export under-invoicing” in South Africa’s gold industry and that “virtually all gold exported by South Africa left the country unreported”.

The Chamber of Mines subsequently commissioned Eunomix economic consultancy firm to conduct further research about the mis-invoicing allegations, which found that SA’s gold exports were indeed correctly reflected in the data that the South African Reserve Bank, Statistics South Africa and the Chamber of Mines had.

Mukhisa Kituyi, secretary of UNCTAD hit back, though, saying a “blanket statement about the veracity of mis-invoicing in the gold industry” doesn’t mean misinvoicing is not taking place.

“Misinvoicing remains a reality and a problem for developing countries, including SA,” Kituyi told Fin24 on the sidelines of the Mining Indaba.

Source: Fin 24

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