Financial deceit, weak regulatory systems, and various financial crimes are causing Uganda to lose about 6% of its GDP, experts say. Despite claims of reaching middle-income status, economic analysts argue that this remains a pipe dream, as the country is heavily reliant on debt and struggles to combat commercial tax evasion, corruption, money laundering, and terrorist financing.
These assertions were made during a media training on covering illicit financial flows, organized by the African Center for Media Excellence (ACME) in collaboration with the Southern and Eastern Africa Trade and Information Negotiation Institute (SEATINI) and Oxfam Uganda. “Tax evasion is partly enabled by corruption, especially in the public sector, which reinforces the incidence of illicit financial flows (IFFs),” Mr. Mark Mutumba, SEATINI’s Program Officer for International Tax Policy, stated during the training.
Tax evasion, as a component of IFFs, leads to lost tax revenue on resulting income streams, which often end up offshore in jurisdictions with little real economic activity. Illicit financial flows refer to money and value moved illegally from one country to another, often through acts like money laundering, cash smuggling, drug trade, and tax evasion, and used to finance illegal activities, including organized crime and terrorism.
According to Mr. Mutumba, IFFs in Uganda are linked to a broader political economy where continued growth is hindered by corruption and an opaque extractive sector. Reports suggest that Uganda’s economy and its role as a hub for both legal and illegal activities from neighboring countries, like South Sudan, create opportunities for IFFs. While the government has a good capacity to combat these issues on paper, its willingness to address IFFs is lacking.
“Trade misinvoicing is the most significant area of illicit financial flows in Uganda,” Mr. Mutumba noted. Data shows that between 2006 and 2015, potential trade misinvoicing amounted to roughly 18% of total Ugandan trade, with 10% in possible outflows and 8% in inflows. The potential over- and under-invoicing of imports during this period was approximately $4.9 billion, while exports may have seen similar issues, totaling around $1.7 billion.
IFFs contribute to reduced economic growth, increased income inequality, stubborn poverty rates, lower domestic revenue mobilization, and weaker service delivery at both national and local government levels. Mr. Mutumba explained that a larger financial sector can also facilitate IFFs since financial intermediaries, like banks, may help absorb these flows if not closely monitored.
While Uganda’s financial sector, with 24 commercial banks, is not large by global standards, it is highly concentrated, with the top four banks controlling 55% of banking assets. A September 2018 study by Global Financial Integrity noted that the ownership of these banks may be more relevant than their size. “About 87% of commercial banks in Uganda are subsidiaries of foreign-owned banks, including nine of the ten largest banks. In cases of low supervision, these banks could easily facilitate the transfer of illicit funds out of Uganda,” the report stated.
Mineral and natural resource wealth was also identified as a potential driver of IFFs through intentional mispricing, disguising the volume and quality of extracted resources, and manipulating input prices to reduce revenues. Other contributors to IFFs in Uganda include revenue mobilization challenges, the gambling industry, the informal sector, and customs and bureaucratic burdens.
Mr. Herbert Kafeero, Programs and Communications Manager at SEATINI, emphasized that journalists have the power to investigate and expose IFFs, holding the government and corporations accountable. “Uganda apparently loses close to 6% of its GDP due to illicit financial flows,” Mr. Kafeero stated, highlighting that journalists can reveal how these flows affect local economies and the lives of ordinary citizens.
“The connection between illicit financial flows and domestic resource mobilization is a critical story that needs to be told, with profound implications for the future of various African countries,” he added. Mr. Kafeero believes that by reporting on the link between IFFs and digital rights management, the media can foster accountability and support the sustainable development agenda. “The time for action is now, and you are at the forefront of this critical battle for Africa’s financial integrity,” he told the journalists.
This training was the second of a two-part series that began in July, attracting journalists from Eastern, Central, Western, Northern, and West Nile regions of Uganda. Participants benefited from interactions with professionals from the Uganda Revenue Authority (URA), Financial Intelligence Authority (FIA), and Uganda Registration Services Bureau (URSB).
Drivers of IFFs
Dr. George William Lugalambi, ACME Executive Director, stated that the organization believes in empowering journalists with the tools to create impactful stories that shape society. “The power of information cannot be underestimated. Journalism is not just about waiting for that big feature; a well-crafted tweet or post grounded in facts can spark important conversations,” he said.
The training on illicit financial flows serves as an eye-opener for reporters, deepening their understanding of this lawless act that burdens the country’s economic development. Ms. Edna Pasic, a reporter at Arua One FM, a local radio station, expressed her gratitude for the training. “I was very green about illicit financial flows, but this course has been meaningful for me,” she said.
