Africa loses significantly more cash to capital flight than it obtains from development aid, external borrowing, or foreign direct investment. In a real sense, Africa is a “net creditor” to the rest of the world.
This was one of the eye-opening facts from a recent presentation to the FACT Coalition by Professor Léonce Ndikumana, a co-editor of On the Trail of Capital Flight from Africa: The Takers and the Enablers. The book also revealed the startling fact that Africa has lost more than $2 trillion over the past five decades due to capital flight. Our work at the FACT Coalition can help stop the bleeding of illicit finance from Africa.
According to a 2021 World Bank report, the debt of low- and middle-income countries in Sub-Saharan Africa reached a record of $702 billion in 2020, the highest it has ever been. According to this World Bank report, the region owes more money in long-term ($589 billion) and short-term ($54 billion) external debts than it can afford to pay back. A continent already struggling to meet the fundamental needs of its constituents cannot afford to lose so much.
The book reaffirms the fact that capital flight is an outcome of normalized transnational public-private plundering of African resources. This flight is fueled by a global network of “enablers,” including bankers, accountants, attorneys, and African politicians, where the money ends up in offshore secrecy jurisdictions, whether in the United States, the United Arab Emirates, or elsewhere.
As Professor Ndikumana explained, capital flight from Africa is a global concern. Concrete cases from Angola, Côte d’Ivoire, and South Africa help to show why – pointing to critical natural resources with importance the world over. Angola, with vast oil and gas reserves, minerals, hydropower potential, and vast swaths of arable land, remains one of the world’s poorest countries. Corruption is widespread across the economy, and the nation remains largely reliant on the oil industry, which accounts for more than 90% of total exports and 64% of government revenue since 2017. Illicit financial flows and capital flight have drained the country of valuable resources by taking a variety of forms, including tax evasion, money laundering, and trade mis-invoicing.
Stopping illicit financial flows requires global coordination and action. Every dollar that leaves the continent makes it more difficult to invest in areas like agriculture, food security, health and education services, and infrastructure. According to the book, ‘‘the nexus between plunder and capital flight is not purely an internal problem of African countries, nor is it purely an international relationship where an imperial power preys on faraway lands as in earlier centuries – rather, it is a transnational phenomenon that spans national boundaries, operated by a network of individuals and institutions bound together by mutual gain regardless of nationality.’’
While Ndikumana and his co-authors are right to raise the alarm, this isn’t a new issue. A decade ago, the African Union and the UN Economic Commission for Africa established the “High-Level Panel on Illicit Financial Flows from Africa.” In 2015, the so-called “Mbeki report”, the final product of the panel, clearly laid out the problem and the solutions. What’s been missing is a truly concerted and global effort – grounded in African leadership but with global support – to stem the tide of capital flight.
While African countries may be in a position to combat capital flight by strengthening their respective institutions and imposing hefty punishments on the various players, a true remedy will need commitment from both governments in Africa and in destination countries to tackle the financial secrecy and the role of the enablers. Global partnerships can play a big role, including an increased commitment to cooperate on the exchange of financial information. Financial crime-fighting units in the Global North need sufficient resources, including the U.S. Financial Crimes Enforcement Network (FinCEN) to implement important new laws, such as the Corporate Transparency Act, a signature victory for the FACT Coalition.
The Biden administration has made substantial pledges to close the loopholes that have been hampering efforts to fight kleptocracy. The forthcoming U.S. – Africa leadership summit should address capital flight from Africa as a critical issue for the future of the continent and the global community. The FACT Coalition looks forward to continuing to work with allies in Africa, including the Stop the Bleeding Campaign, Tax Justice Network – Africa, and others to make 2022 the year that the “takers and enablers” are finally reigned in.