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Understanding Capital Flight in Africa: Challenges and Policy Responses

This report examines the paradox of capital flight from Africa, highlighting that the continent, often labeled as severely indebted, is a net creditor to the rest of the world. Staggering capital outflows from 37 African countries are discussed alongside their negative implications for development, inequality, and governance. The report emphasizes the need for African governments to realign priorities, plug financial leaks, enforce anti-corruption measures, and manage resources transparently to stem capital flight effectively. Policy recommendations and strategies for improving capital management are also outlined.

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Understanding Capital Flight in Africa: Challenges and Policy Responses

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  1. Capital Flight and Policy Performance LEONCE NDIKUMANA University of Massachusetts TICAD V Task Force - Preparatory Meeting November 14, 2012 IPD (Columbia University)

  2. Capital outflows from a capital starved continent A paradox?

  3. Volumes are staggering Capital flight from 37 African countries, billion 2010 $

  4. Contrary to the perception that Africa is severely indebted… Africa Rest of the World … the continent is actually a net creditor to the rest of the world Figures for 37 countries countries, 1970-2010:

  5. Africa receives less aid than capital flight Total flows for 37 African countries, 1970-2010 Africa Rest of the world

  6. Capital flight and other flows (37 African countries: billion, constant 2010 $)

  7. Capital flight and policy First: Why it matters

  8. a) Capital flight is a development issue • Capital flight undermines resource mobilization • reduced private domestic investment • reduced tax base • reduced public investment and social services • The revolving door: capital flight fueled by external borrowing • more than ½ of each dollar borrowed leaks out as capital flight

  9. b) Capital flight has important political economy implications as well • capital flight deepens inequality • capital flight deepens deprivation (undermines social service delivery) • capital flight strengthens corrupt regimes and dictatorships

  10. c) Capital flight is, by and large, illicit • the sin at the origin: capital outflows are illicit if they involve funds that were acquired illegally (through corruption, drug and human trafficking, trade mispricing, …) • the sin at transfer: capital outflows are illicit if they are not properly recorded with national authorities • the sin at hidden foreign holdings: capital held abroad is illicit if it is not reported to the authorities (most likely due to sins #1 and #2)

  11. Capital flight and policy performance Second: what should be the policy response?

  12. African governments • First of all, realign priorities in resource mobilization: Africa chasing the wrong dollar? • Aid: there won’t be a Marshall Plan for Africa … the illusive “Big Push” • External borrowing = a leaky collection basket • Remittances = an untapped resource • Domestic resources = also an untapped resource • Second, plug the financial hemorrhage – stem capital flight • Transparent and accountable management of debt • Transparent management of natural resources • Enforcement of anti-corruption regulations

  13. Africa’s partner governments • Enforcement of responsible management of loans • Support UN New Principles on Responsible Lending and Borrowing • Emulate Norway’s initiative – donors auditing own loans • Enforcement of banking transparency rules – curtailment of offshore finance • Support efforts towards stolen asset recovery. Up to date, StAR has not returned a penny to Africa!

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