Scale and Consequences of Capital Flight from Africa
Leonce Ndikumana, Director of the African Development Policy Program at the Political Economy Research Institute, discusses the problems and the solutions to capital flight from Africa
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.
Capital fright [sic] from African countries is a problem that keeps the least developed countries in Africa from making much progress for ordinary people. This is a historic problem. For example, one could say that it is at the root of why there is no medical infrastructure for those suffering from Ebola.
To unpack the domestic and global dimensions of capital flight today, we’re joined by Leonce Ndikumana. He’s a professor of economics at the University of Massachusetts Amherst. He is also the director of African Policy Program at the Political Economy Research Institute and coeditor of a new book, Capital Flight from Africa.
Thank you so much for joining us, Leonce.
LEONCE NDIKUMANA, DIRECTOR, PERI’S AFRICAN POLICY PROGRAM: Thank you very much, and thanks for the opportunity.
PERIES: So, Leonce, capital flight very simply explained is money leaving the country instead of being locally invested. Why should ordinary people care about capital flight?
NDIKUMANA: Thank you very much. That’s a very interesting question, which is: why should the ordinary citizen in Africa and in the world care about or worry about capital flight?
Capital flight, the way we define it, the way it is understood in the profession, is money that leaves a country which is unaccounted for. And most of the times its money that’s leaking out of the country because the owners are not willing to disclose the sources of the funds, which may have been acquired illicitly. It’s also because the owners of the funds do not want to disclose how much they are holding abroad, so that they can pay taxes.
So it’s basically a net loss to the country. It’s resources that could have been invested in the country to promote investment, employment creation, and economic growth.
In the context of Africa, it’s a serious issue because it’s a continent that’s facing large financing gaps, in the sense that the needs for financing infrastructure, education, and health are not made by the available resources. It’s a continent where poverty rates are still high, even though they have been declining in a number of countries. It’s a continent where the opportunities for productive investment, profitable investment are huge, not just in the natural resource rich, but also in other, in virtually all the African countries. The rates of return in Africa are much higher than in other parts of the world, so it does not make economic sense to see that money is actually, capital is actually fleeing from the continent [incompr.] coming into the continent.
PERIES: Leonce, you’re referring to some ill intent here. It’s money unaccounted for. This is consistent with your book, your last book on odious debt as well. Can you explain to us what you mean by that?
NDIKUMANA: Yes. It’s money that leaves the country which is unaccounted for. And it’s for illicit purposes, first because of the way it was acquired, and also because it’s transferred out of the country, out of the ordinary regulatory environment, smuggled, basically, out of the country. When it reached the rest of abroad, it’s not declared, reported to the authorities. And this is with the complicity of the international banking system, which has these traditional [incompr.] banking secrecy, where money is not reported to the country, the authorities of the [incompr.] of the owner. And some of the money that leaks out of the country is a result of embezzlement of national wealth, including its borrowed money, money that’s borrowed from abroad, and which is where we get the expression of odious debt, in the sense that some of the capital flight is funded by borrowed money, which is embezzled. And we actually find that a large fraction of the borrowed money ends up [incompr.] capital flight, over half of each dollar borrowed ending up in the form of capital flight out of the continent.
PERIES: Leonce, this new book, you’re dealing with this issue. What are the key issues you want us to understand? What’s coming out of it?
NDIKUMANA: Yeah. There are interesting messages coming out of this, the United States, of this book, which has about 16 chapters. One is that when we analyze a trend of capital flight, we actually find that capital flight has accelerated over the past two decades, which is odd, knowing that the continent over these two decades has seen a major improvement in economic performance, higher growth, even improved investment rates in a number of countries. So you would imagine that from an economic perspective, that the continent is doing well, and therefore that money will be coming into the country, capital will be coming into the country, not leaving it in the continent, which means that the capital flight is not driven by your fundamental determinants of investment, normal investment, official investment, where investment would chase higher returns. And since Africa is growing faster, the investment environment is improving. The economic theory would say that capital now would be flowing into the continent, not out of the continent. The message is that capital flight will not be stopped automatically, in the sense that specific measures have to be undertaken to actually prevent and stop capital flight.
PERIES: And how can we do that? Let’s unpack this point before we go on. How can one stop capital flight? What measures can be put in place?
NDIKUMANA: Yes. In thinking about how [to] stop capital flight, we have to understand that capital flight is the outcome of forces and actions in Africa, but also things that are happening in the rest of the world, where the money ends up, is flowing in the international financial system.
One of the things that facilitates capital flight is lack of transparency in the banking system abroad.
The other thing that facilitates capital flight is corruption by multinational corporations, ikespecially those that are involved in natural resource exploitation, which engage in illicit operations and practices, including transfer pricing, tax evasion, and bribery and corruption in the countries that they operate.
So one thing that has to happen is improved transparency in the banking system abroad.
The second thing that must happen is for foreign governments to enforce clean practices by multinational corporations, by enforcing national laws against corruption in the private sector.
On the Africa side, what needs to happen is improved governance or fighting corruption in the government and in the private sector, but also enforcing regular frameworks to track down illicit transactions by multinational corporations, but also by African private and public operators.
PERIES: Now, one of the things that we hear of again and again and again with this application of neoliberal programs in various African countries is the kind of large sums of money that the ruling elite actually benefits from. So capital flight is one where they’re obviously hiding this money. What are some of the concrete things that people could be calling for in order to stop this? I mean seriously, concretely to stop this.
NDIKUMANA: Yes. One of the things that could be called for which I hope that civil society could actually pressure the governments to do is more transparency in the management of government debt, so that the public could know how much money the government has borrowed from whom, at what conditions, and where this money is going, and which means which program of programs of projects are being funded by the funds coming out of the country.
The second thing that could be done is more transparency in the private sector, especially with multinational corporations, so that the public could know who are the corporations operating in national resources, especially in African countries, what are the contracts that have been signed by the government with the government. Those contracts should be publicly available so that the public can know the clauses in terms of the rents being paid to the government, so to be sure that the country is getting a fair share of the rents from natural resources, but also how the revenue from natural resources are being utilized by the government, how much is going into investment, how much is going to be going into consumption, and how much is going into savings, especially notably through sovereign wealth funds.
PERIES: And, Leonce, what are some of the groups that are working on these? Now, you’re asking people to really understand a very complex system here, and asking for transparency means people have to be able to actually read these documents and be able to understand it. What are some of the groups doing to make this more accessible for ordinary people to understand it and to be able to advocate and push for it within their governments?
NDIKUMANA: Yes. One of the–there are a number of groups which are advancing the knowledge on this topic. One is within the academic profession, including the Political Economy Research Institute. We have been contributing to research in this area. We are also contributing to coordinating research on case studies in African countries, sponsored by the African Economic Research Consortium, which is based in Nairobi, with generous funding from some donors who really are championing the fight against corruption, including Norway, which has been at the forefront of transparency in public lending and borrowing. But also there are organizations in the U.S. and abroad that are doing a lot of amazing work on this area, including Global Financial Integrity, which is in D.C., your neighbor, but also Tax Justice Network in the U.K. And these have also branches in–I mean, are working with organizations in Africa to promote knowledge on the issue of illicit financial flows.
On the continent there is a panel that has been put together by the African–the Economic Commission for Africa, which is called the High Level Panel on Illicit Financial Flows, headed by the former president of South Africa, Thabo Mbeki. And that is–its role is to basically coordinate and mobilize the debate about the issue of capital flight and how to find solutions on this issue.
So the public is welcome to visit our website, the website of the ECA, to see what is being produced in terms of knowledge on this issue.
And, also, we [can’t be (?)] organizing workshops at the country level when the country studies are completed to mobilize debate on this issue.
PERIES: Leonce, finally, give us an example of where transparency has really helped correct the situation.
NDIKUMANA: I think if you look at the analysis that we do, it is clear that capital flight is–the amount of capital flight varies by country. And even though we have seen that natural resource rich countries tend to have higher levels of capital flight, including Nigeria, Angola, the Congo, the two Congos, Gabon, you do find that there are countries that fit that profile of natural resource rich countries but have very little capital flight. One example is Botswana. And you will not be surprised that Botswana is also one of the better-governed country in terms of transparency and democracy. So it’s a case that we use to show that with better transparency, more democratic governance, natural resources actually can be, are going to be a source of development and not a source of capital flight.
PERIES: Right. Leonce, I thank you so much for joining us. And have a wonderful holiday.
NDIKUMANA: Thank you, and happy holidays to you, too.
PERIES: And thank you for joining us on The Real News Network.
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