Webinar Summary – On the Trail of Capital Flight from Africa: The Takers and the Enablers
On October 20, 2022, the Boston University Global Development Policy Center hosted Léonce Ndikumana to discuss his new book ‘On the Trail of Capital Flight from Africa: The Takers and the Enablers.’ Through qualitative, quantitative and institutional analysis, the book edited by Ndikumana and James K. Boyce investigates the dynamics of capital flight, known as the illicit financial outflows from a country. The book reveals the complex network of domestic and international actors involved in capital flight in Angola, Côte d’Ivoire and South Africa, and the resulting accumulation of private wealth in offshore tax havens.
Ndikumana began the conversation by illustrating the challenge in financial terms. From 1970-2018, African countries lost over $2 trillion through capital flight, which is almost the annual gross domestic product of all sub-Saharan African countries combined. Compared to $47 billion of aid inflows, African countries lose an estimated $60 billion a year through capital flight. Angola, a country rich in oil, lost over $100 billion in capital flight from 1986-2018 due to the mismanagement of oil resources through the collusion between the political elite, multinational companies and international banks. South Africa, a country rich in several minerals, lost $329 billion from 1970-2018 due to misinvoicing of mineral exports, embezzlement of state resources by state-owned companies and the collusion of politicians and private actors. In Côte d’Ivoire, the cocoa sector has enriched the political elite and multinational companies through exports at the expense of Ivorian growers. These cases, discussed in detail in the book, underscore the need to address capital flight in Africa.
But Ndikumana also convincingly showed that donors and destination countries need to pay attention because capital flight is detracting from development finance. African countries receive financial inflows through aid, debt, exports and foreign direct investment to pay for goods, services and external liabilities. However, its citizens lose out on resources for public goods when some of these funds are smuggled out without record, as is the case when a country cannot account for the use of all the financial inflows. Sometimes, governments inflate project costs so they can borrow more and siphon off money to offshore accounts. Some foreign banks enable such actions by accepting deposits without the required due diligence, accountants and lawyers may help domestic actors fabricate companies and some auditing firms facilitate these outflows. Altogether, these actions undermine the effectiveness of aid and other financial inflows by draining a country’s resources for development.
Although the capital flight challenge is staggering, Ndikumana discussed a set of policy solutions. First, the international community must recognize capital flight as a global phenomenon, including the impact on both host and destination countries. To combat capital flight, the international community must create a global framework that includes African countries and institutions on a bilateral and multilateral basis. Within Africa, institutions and legal systems focused on transparency, monitoring and combatting smuggling need to be strengthened to obstruct the domestic enablers of capital flight. Ex-ante, domestic enforcers need to prevent money from leaving the country. Ex-post, domestic enforcers need to track illicit outflows of money and advocate for repatriation back to the country of origin. Destination countries need to improve transparency, combat corporate corruption and tax evasion and enforce anti-money laundering rules. Globally, inclusive international bodies, such as the United Nations (UN), should support efforts to combat capital flight at regional levels and include the voice of African countries in international development policy-making bodies. Ndikumana mentioned the UN Economic Commission’s High Level Panel on Illicit Financial Flows from Africa as an example and emphasized the importance of continuing this panel to promote awareness for capital flight at the highest policy levels in Africa and beyond.
During the Q&A section of the webinar, Ndikumana underscored the importance of holding both initiators and enablers accountable for their actions in capital flight. Transparent, accurate reporting of Africa’s financial inflows and outflows is crucial for improving the exchange of information between Africa and destination countries. African countries are still important vectors for distributing development finance, but increased transparency and greater cooperation with the private sector is needed to address capital flight. Using initiatives such as the Extractive Industries Transparency Initiative (EITI) help record accurately the money from exports and tax payments. Finally, he emphasized the vital role of civil society in advocating for increased government capacity to address capital flight in Africa.
In all, the book offers a comprehensive picture of the complexity of Africa’s financial inflows and outflows. Its findings advance the understanding of capital flight theoretically and empirically. As African countries continue to encounter the vast gaps in finance for infrastructure and climate policy, these solutions for addressing capital flight provide a new avenue to boost development finance in the region.
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