Views, ideas, inspiration, vision and practical tips for a better more prosperous Malawi

Capital Flight and Its impact on Africa

Capital Flight and Its effect on Africa. [Originally posted on Africa Europe Faith and Justice Network ]

According to estimates, every year US$ 1.26 trillion – 1.44 trillion disappears without a trace from developing countries, ending up in tax havens or rich countries[1]. The main part of this is driven by multinational companies seeking to evade tax where they operate. The sum that leaves developing countries each year as unreported financial outflows, referred to as illicit capital flight, amounts to ten times the annual global aid flows and twice the amount of debt developing countries repay each year. Estimations of illicit capital flight from Africa over a 39 year period show that it has grown at an average rate of around 12 percent per year.

By far the vast majority of unrecorded transnational financial flows are illicit because they are violating the national criminal and civil codes, tax laws, customs regulations, VAT assessments, exchange control requirements and banking regulations of the countries from which unrecorded/illicit flows occur.

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Comment

The way I see it, besides corruption, there are a number of factors that lead to this state of affairs:

(i) Western Governments have refused to or have avoided seriously engaging the issue. In the UK, despite the Bribery Act 2010, there are  many people who believe it does not work, or go far enough.

(ii) The big media houses appear to favour a picture or narrative of a sick and suffering Africa (complete with starving children and widespread disease), from the reality of an Africa which is being robbed on an industrial scale each year. No effort has been made to link Capital Flight with the lack of investment by most African governments into infrastructure, healthcare, economic development initiatives, education and tackling unemployment. As the article point out:

“This money, if properly registered and taxed in the country of origin, could of course contribute to considerable development and make a major difference in the fight to combat poverty. Illicit capital flight cancels investment, reduces tax collection, worsens income gaps, hurts competition, undermines trade and drains currency reserves.

On top of tax revenues there are other gains to be made if illicit capital flight is stopped. If it were not possible to evade taxes and make big profits on illicit capital flight without getting caught, some of the money would stay in the countries of origin. If reinvested, it would contribute to jobs and growth in those countries…”

(iii) Africans are made to feel as if they don’t own their natural resources. Those that question the unfair South-North Contracts (that often favour the North) are vilified or branded as trouble makers, when in actual truth they are trying to bring fairness to the table. Deals in which the majority benefit subsists with already large and rich corporations (led by individuals with an unbelievable sense of entitlement) are often favoured over 50:50 partnerships that distribute the gain more proportionately, or better (at least for African countries) agreements where the majority benefit is reserved for the country that owns the natural resources. The question I always ask is when was the last time an African owned mining company or gas company was given a majority interest in some natural resource in Europe or in the US?

(iv) Unrestrained greed has not be condemned. In fact in some instances, its being encouraged, and Africa pays a huge price for this.

(v) Financial controls that would stymie Capital Fight are non-existent, very weak and largely not enforced. Illicit financial outflows needs to be made into a criminal offence.

(vi) While European and American regulators have laid huge fines (in the BNP Paribas case, the Attorney general Eric Holder said “Between 2004 and 2012, BNP engaged in a complex and pervasive scheme to illegally move billions through the US financial system“) to Banks, most African countries lack the regulatory frameworks to punish institutions aiding Capital Flight.

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About Sang N.

Writer, Entrepreneur & Activist. Interests: History, Entrepreneurship, Business, Motors, Architecture, Aviation, Travel, Food and Art.

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This entry was posted on December 12, 2014 by in Thoughts and tagged , .
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