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.

Read more here

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.

Con Artists: Deception, deception and more deception

The typical con artist of the 21st Century is a puppet organisation whose employees have important sounding job titles, wear suits, have well manicured fingernails and sport pricey haircuts. None of that amateurish I have a gun give me your money or I’ll blow out your brains twaddle.

This morning, I found myself reading a hilarious article that suggested that the World Bank (of all the neoliberal outfits out there) was fronting some initiative designed to help Africa in preventing pricing irregularities of its minerals, in the process saving the continent billions of dollars?

Yeah, essentially that’s what it says…which is… how do I put it….dishonest, or at least not entirely truthful, if one is to be mild-mannered.

Yes, it will be good for people to know the actual price of their country’s minerals, but who exactly are we talking about here. Aren’t the prices of commodities evident and freely available to the public on international markets? Aren’t the people working in Natural resource departments of government agencies somewhat a bit more savvy (and knowledgeable) than the local man on the street? All you need is a computer (or even a mobile phone) and an internet connection. Don’t tell me government ministries of natural resources across Africa don’t have access to an internet connection to enable them to check the price of Platinum or Rare Earth Minerals on the international market…or are too incompetent to do so?

Which is why I think this initiative is merely a distraction. Having a map of your country’s natural resources and the cost thereof doesn’t immediately translate into physical or tangible gains. It doesn’t mean that you, the native, controls, owns or has the real benefit of those natural resources. Or does it?

At the most this is a PR stunt designed to mislead, a nefarious ploy to distract the people’s attention from the unfair, unethical and illegal state of play, where African resources are owned and exploited by foreign corporations who have no interest whatsoever in improving the lives of African people. It’s purpose in my view is simply to provide an illusion that something is being done, when the fact remains that nothing of any real substance is being done. It’s as hollow as announcing to the world that the UN is considering a resolution against Switzerland and other Tax Havens, to stop them receiving illicit funds from third world / developing countries, and then doing absolutely nothing else other than that annoucement….no action, zero! Meaningless.

So, you can mineral map the whole world if you like, but the locals in third world countries will still remain deeply afflicted by poverty, often going without, or with very little; there will continue to be poor or non-existent healthcare facilities, hunger and disease will continue to run amok, corruption will remain high, wars will tear the landscape and displace millions … as in the backdrop, an alliance of tycoons and wealthy billionaires multiply their wealth – their catalyst, a resource that should be owned by Africans, and yet isn’t.

How many African companies have contracts to mine minerals in North America? How many have contracts for oil extraction in the North Sea, or off the coast of Australia? What percentage of Canadians own Multimillion dollar companies registered in Canada? Similarly, what Percentage of Nigerian/ South Africans / Malawians own multimillion dollar companies in their own countries? Those are the questions the World bank or indeed any serious commentator should be asking, because addressing the disproportionate imbalances or anomalies in those questions is what has a far higher potential to reverse capital flight from Africa and third world countries. That’s what has a higher chance of improving the plight of the people of Africa. Not mineral mapping…or some silly PR stunt.

It can never be right, whether you have a mineral map or not, no amount of sugar-coating or window dressing will ever put that unfair state of play right. The truth is there has been a clearly indisputable economic unfair advantage gained by western countries (helped by wars, bad policies and stupid African leaders), and something serious must be done to reverse and rebalance the playing field. Half-hearted deceptive stunts fronted by agents of the neoliberal right will only harm the little sincere good that others are currently working on.

If you really want to know what this is all about, the ending of the article itself says it all:

BDs2