Underground economy in Africa

December 6, 2016

Cybercriminals in Africa are exploiting various techniques and tools to steal customer data and then either sell it on the cybercrime underground economy or just dump it into the public domain.Depending on which country they’re based, organisations can choose if they want to disclose that they’ve experienced a data breach, that is if the attack isn’t made public by the attackers themselves. This was the case with online shoppers last month in African countries that have adopted America’s Black Friday shopping spree.Recently, an online shopping company executive of one of the largest in Africa, admitted that he gives customers a discount if they pay in cash with no transaction recorded. A friend returning from South Africa mentioned he purchased his currency on the street, thereby getting more for his buck. A Swedish friend told me that, on suspecting her house help of African origin hasn’t been declaring all her income, she asked her to start providing her with a receipt each month at the very least. No doubt people aged over 50 years are particularly sensitive to such issues as they are more affected directly with underground economy. According to the World Bank, the underground economy in Africa makes up about 29 per cent of GDP on average for the sub saharan Africa as of June 2016 but that figure is disputed by African countries, which reckons it’s more like 5 per cent. The problem is that identifying an accurate measure is tough since the underground economy is, you know, underground.Even if the scale of the problem is negligible, it’s worth considering the potential ramifications if the lure of saving money means the practice expands.The main culprits according to data available, are small businesses with either one to five employees. Those operating in repair work, catering, personal care and domestic services are the most likely to be tempted to the dark side. But even though there are greater numbers of small businesses complaints with the tax laws, the reality is that it’s the massive multinationals profiting the most especially those with non African owners.

They do it via transfer pricing, which is when companies pay little tax in Africa despite generating millions, and sometimes billions, in revenue by the establishment of accounts in low-tax countries.The difference is that what those big companies do is legal. What the rest of us do, however, in our pursuit of a cheaper service or a lower tax bill, is not. There are laws which were supposed to fix the problem. Various African countries government have in the past claimed the introduction of more stringent laws would curb the underground economy because it heightened the chances of such behaviour being detected. But that has not to be the case because in Africa, laws are in place but enforcement is non existent. An analysis published a few weeks ago, concluded the underground economy had actually increased by 7 per cent in the last two years across Sub Saharan Africa. The author of that study, an economist herself, estimates a decade later indicate it’s now even worse, amounting to $300 billion a year. One of the studies she conducted looked at the unemployed and their role in the underground economy. She discovered it’s not uncommon for people to be officially unemployed, which means they derive an income not only from welfare benefits but also from their black market activities. While that may not be surprising, what is surprising is his conclusion that this combination of income is likely to be higher than what the unemployed would get from a legitimate job. The incentive to cheat is clearly there and not insignificant. Perhaps what’s protecting African countries from sliding towards the quagmire of developed countries where millions of people are employed in the underground economy is that, unlike those developed countries, is security agencies officials involvement in the business. Were that not the case, it would become a very different story for cybercriminals and other black market operatives.

Contador Harrison