West Africa’s informal sector obscures criminal economies

05 Feb 2016
05 Feb 2016

In this interview, Tuesday Reitano and Mark Shaw, both of the Global Initiative Against Transnational Organized Crime, discuss the scale of West Africa’s illegal economies being run by organised-crime groups and terrorists.  They were interviewed by Jide Akintunde, Managing Editor, Financial Nigeria magazine, regarding an upcoming OECD study, "Illicit Financial Flows: Criminal Economies in West Africa:


Jide Akintunde: What does your recent study reveal concerning the size and complexity of the illicit economies in the West African sub-region?

Tuesday: The complexities of addressing criminal economies and IFFs in West Africa are considerable. The combination of potent global flows of illicit goods and services, enabled by well-resourced and unscrupulous actors, are a struggle for even the most capable of states. There are a number of systemic socio-economic and demographic vulnerabilities of the region, coupled with a legacy of cycles of conflict, which have resulted in very weak institutions with minimal capacity and a style of governance that reinforces resource capture (whether licit or illicit) over broad-based economic and social development.

The Global Initiative’s study of Criminal Economies in West Africa, which will be published in May of this year by the OECD, provides and overview of 13 illicit trades and 5 in-depth case studies of criminal economies as diverse as artisanal gold mining, human smuggling and drug trafficking. These are generating illicit flows worth billions of dollars annually, though precise estimates of the total scale are challenging. What this study tries to emphasise, however, is that more important than the size or value of the flows, but the way they impact on governance, development and security in the region.

JA: Would you like to create the scenarios of improved economic performances that would derive from significant improvement in the security of West Africa? 

Tuesday: We identified a number of features of West Africa’s geography, demography, economies and development that have made it highly susceptible to illicit flows. Firstly, the expansive nature of the informal economy (estimated to be between 50-80% across the region), has resulted in the majority of West Africans generating their livelihoods outside of the formal trade and regulatory framework. Informality helps to obscure criminal economies, are those working in the informal sectors are susceptible to predatory behaviour from criminal groups seeking to capture rents and profits.

This creates the second dynamic whereby the line between licit and illicit become blurred: due in part to lack of transparency and oversight, and also to a culture of permissiveness and impunity, key figures in business and in government can operate with impunity both within the legitimate and illegitimate economy. They serve as pivotal nodes in the networks that perpetuate criminal behaviour, initiating or organising transactions domestically and with international markets, protecting flows and members of the networks from seizure or prosecution, and laundering money through legitimate business or international trade.

Mark: Charging for protection has become a strategy of criminal groups involved in drug trafficking and other forms illegal behavior, and terrorist groups active in West Africa are able to garner income from ‘taxing’ the communities in which they operate, including on legitimate economic activities.

Money flows to local powerbrokers or terrorist groups instead of to the state and protection has become a commodity in its own right, with the use of violence playing a pivotal in the fight for control. The bribes paid to low level officials become an additional tax levied on the people, but diverted from the coffers of the central state.

JA: In Nigeria, we always suspect there is a strong link between government officials (or electoral candidates) and organized crime groups. With regards to armed robbery, there is always an upsurge after general elections, suggesting that weapons mobilized to suppress opponents are retained by the thugs. The Nigerian amnesty programme for the Niger Delta militants is also a patronage framework. Does your study corroborate relationships like these?

Mark: It does. Our analysis point to the influence and distortion of political systems and processes as one of the most damaging effects of illicit money.

An impact analysis of criminal flows must look at how money moves through systems of political protection and patronage. In my study of drug trafficking, we concluded that most of the profits from the overall route are not made in West Africa, but rather at source and destination. While this may change, unlike in South Africa, where drug consumption is the highest on the continent, West Africa itself has only a small market for drugs, and there are few local opportunities to make money from local distribution and dealing.

The main damage, at least in the coastal states, is the corruption of political and institutional authorities. Countries like Guinea-Bissau have seen violence contained within the elite, and high levels of political instability. Profits from drug trafficking appear to directly benefit very few people in that country – mainly high-level protectors – who in almost all cases are drawn from the security or political establishment. Paying off large numbers of low-level individuals along a route is more complicated than securing protection though one single transaction, particularly where rule of law and regulation is weak. Thus protection networks in West Africa have evolved into a “move to the top”, whereby a limited number of payments are made to highly-connected individuals who in turn pay off other functionaries in the system.

Tuesday: This is similarly true across other criminal industries. West Africa contains states with arguably the weakest governance indicators in the world, with the majority scoring in the bottom quartile for key indicators such as rule of law, government effectiveness, political stability, accountability and control over corruption. A particular brand of clientalist politics distributes access to resources along patronage lines, rather than development objectives, and levels of capital flight (both from illicit and legitimate resources) in certain countries is exceptionally high.

JA: Loose borders and limited law enforcement capacity by the state create spillover effects of crime in other countries. An example would be the outflow of Boko Haram terrorist activities into Cameroon, Niger and Chad. To what extent would regional initiatives help when dealing with transnational criminal organisations?

Tuesday: A major finding of this multi-dimensional study reinforces need for ECOWAS countries to work together to develop and implement common strategies, policies, legislation, taxation and subsidy regimes. Across the board of criminal economies smugglers and traffickers are exploiting differentials in tax regimes, legislation and capacity for surveillance or registration to maximise their profits and minimise risk.

Perpetrators arbitrage between justice systems to practice their trades where they have the least chance of detection and prosecution, or the penalties are the lowest. Regional strategies and approaches are therefore essential, as inequities between states create opportunities for criminal economies to develop. This said, the ECOWAS region is not short of strategies, initiatives, or declarations at the regional level – it is the implementation that is weak.

Mark: What is also clear from our analysis, is that there has been an over-reliance on law enforcement, border control and justice sector strategies. In the course of our research, law enforcement officials articulated clearly that their ability to be effective in addressing criminal enterprises is seriously constrained by a range of development concerns: areas of instability, little state authority or presence; communities and cities where smuggling is a livelihood strategy and economic dependency on those industries is high; long and porous borders make credible border enforcement impossible, and weak institutions have little capacity, resources or political support for sustained investigations.

We need to address some of the fundamental development underpinnings: development of sustainable livelihoods, promotion of the rule of law, enhancement of financial inclusion, reduction of corruption at all levels. All these will be required before security responses by law enforcement can be effective.

JA: West African countries, and Nigeria in particular, have been cynical about security assistance initiatives of the Western countries in West Africa. Some of the fears are not unfounded at all. But are there ways the advanced countries can be of help in fighting crime in West Africa in mutually reassuring ways?

Mark: Much of the analytical work that has been done on illicit trade globally has been commissioned by the countries of the northern hemisphere destination markets: Europe and North America. Accordingly the result is the prioritization on those commodities that they consider most damaging, and there is a notable paucity of analysis of criminal economies generated in those countries where the impact is felt.

The responses that are thus defined reflect the locus of analysis: if the primary interest is the impact in the destination market, then interdiction – stopping the product reaching the market - is a fine strategy, and quantities seized are an appropriate metric of success. If the genesis of assessment is different, however, the response framework may well change. The findings of this study is that the harms of criminal economies are serious, widespread and damaging at multiple levels, and require a response by development actors, not just law enforcement.

Tuesday: Achieving development is a shared responsibility between national governments and international development donors. However, leadership on the part of national governments in the region needs to be the forefront primary driver of any kind of response. As the share of ODA continues to decline relative to other sources of domestic revenue, including remittances, it will have to be national governments and the ECOWAS regional bloc who take responsibility for achieving tangible development benefits for their citizens. Without it, all efforts are unlikely to be successful.

Reducing or returning IFFs will fail to translate into development benefits for ordinary people if elite corruption remains, and governments show minimal efforts towards providing a broad-based development orientation.

- Mark Shaw is the Director of the Global Initiative against Transnational Organized Crime and the NRF Chair of Justice and Security and Director of the Centre of Criminology, Faculty of Law, University of Cape Town.

- Tuesday Reitano is Head of the Secretariat at the Global Initiative against Transnational Organized Crime and the lead author of the forthcoming OECD Publication, "Illicit Financial Flows: Criminal Economies in West Africa".