Some commodity-dependent developing countries are losing as much as 67% of their exports, worth billions of dollars, to trade misinvoicing, according to a new study by the United Nations Conference on Trade and Development (Unctad).
Trade misinvoicing is thought to be one of the largest drivers of illicit financial flows from developing countries, as countries are losing valuable foreign exchange earnings, taxes and income that might otherwise be spent on development.
The study used up to two decades of data covering the export of commodities such as cocoa, copper, gold and oil from Chile, Côte d'Ivoire, Nigeria, South Africa and Zambia.
This research has provided new detail on the magnitude of the issue, compounded by the dependence of some developing countries on just a handful of commodities for their health and education budgets, says Unctad secretary-general Mukhisa Kituyi.
“Commodity exports may account for up to 90% of a developing country's total export earnings,” he says, adding that the study generated fresh lines of enquiry to understand the problem of illicit trade flows.
“Importing countries and companies that want to protect their reputations should get ahead of the transparency game and partner with us to further research these issues.”
The analysis showed patterns of trade misinvoicing for exports to China, Germany, Hong Kong, India, Italy, Japan, the Netherlands, Spain, Switzerland, the US, and the UK and Northern Ireland.
The study found that, between 2000 and 2014, underinvoicing of gold exports from South Africa amounted to $78.2-billion, or 67 % of total gold exports.
Between 1996 and 2014, underinvoicing of oil exports from Nigeria to the US was worth $69.8-billion, or 24.9 % of all oil exports to the US.
Between 1995 and 2014, Zambia recorded $28.9-billion in copper exports to Switzerland – more than half of all its copper exports – yet these exports did not appear in Switzerland's books.
Between 1990 and 2014, Chile recorded $16-billion in copper exports to the Netherlands, but these exports did not appear in the Netherlands' books.
Between 1995 and 2014, Côte d'Ivoire recorded $17.2-billion in cocoa exports to the Netherlands, of which $5-billion did not appear in the Netherlands' books.
Between 2000 and 2014, underinvoicing of iron-ore exports from South Africa to China cost the country $3-billion.