Illicit fuel trade on the rise

2019-06-18

The illicit trade in fuel is a growing challenge in Southern Africa. Over the past decade, countries along the Maputo Corridor (South Africa, Swaziland and Mozambique) have become primary targets of this phenomenon, which is driven by organised criminal networks.

It is against this backdrop that the Maputo Corridor Logistics Initiative (MCLI) was established in 2004. Its objective was to engage with the revenue authorities of South Africa, Mozambique and Swaziland, as well as the South African Department of Trade and Industry, on illicit trade – and specifically on fuel smuggling. Despite the importance and relevance of its work, the MCLI announced in February 2019, at its final forum, that it would be closing down due to a lack of funding.

The illicit trade in fuel is a global challenge that amounts to an estimated US$133 billion a year due to theft, adulteration, fraud, tax evasion and subsidy abuse. Its consequences include revenue losses for governments in terms of fraud and tax evasion, threats to the competitiveness of the legal trade – as stolen fuel is sold at a lower price than legitimate fuel, environmental damage and public health risks. Proceeds from the trade are often used to fund other organised criminal activities, presenting a threat to economic growth and security in the region. 

The illicit trade in fuel is a global challenge that amounts to an estimated US$133 billion a year

In the fuel business, criminal networks perpetuate various forms of illicit trade. One aspect is the smuggling of fuel from a country where the price is lower than the destination country. An example can be seen in fuel smuggled from Mozambique into Swaziland, where the price of fuel is more expensive.

Another type of fuel fraud is adulteration, when other cheaper hydrocarbons such as kerosene or waste oils are introduced into the fuel supply. Such products are harmful to both the vehicles and the environment in the long-term.

However, the most common form of fuel fraud is tax evasion, which often occurs through the forgery of customs declarations, and trade misinvoicing to avoid paying excise duties. Trade misinvoicing occurs when there is a difference between what is confirmed by customs after inspection (in terms of value, volume or the type of commodity ­– in this case, fuel) and what is shown on the invoice.

In Ghana, the introduction of fuel markers reduced fuel adulteration by 78%

In short, the illicit trade in fuel is a rising threat in Southern Africa, undermining countries’ progress towards achieving the UN Sustainable Development Goals – specifically those focused on good health and well-being, clean energy and economic growth.

There is little doubt that the illicit fuel trade is a pressing issue that requires an urgent response. Firstly, there is a need for greater awareness by key actors involved in the industry around the extent of the problem in the countries along the Maputo Corridor – and specifically how the problem impedes legal businesses from operating sustainably. 

Furthermore, a concerted regional approach is required by stakeholders from the public and private sectors, such as the petroleum and transport industry, tax authorities and government, to address issues in cooperation with the relevant actors in the field. The private sector can contribute by developing technical solutions to aid in addressing this issue. In Ghana, for instance, the introduction of fuel markers – invisible chemical additives – has resulted in a 78% reduction in fuel adulteration.

Richard Chelin, Researcher, ENACT project, ISS

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