Africa has lost staggering sums of resources through financial flows amounting from USD 1.2 to 1.4 trillion between 1980 and 2009 through illicit capital flight.
According to participants of the seminar conducted under the theme “Capital Flight and Tax Havens in Sub-Saharan Africa” held at the Economic Commission for Africa (ECA) on Wednesday April 9th 2014a West and Central Africa account for 37 percent of the capital flights while North Africa accounted for 31 percent, and Southern Africa for 27percent over the 30-year period.
According to Carlos Lopes, Executive Secretary of ECA, since the height of the debt crisis in the 1980’s, the debate on large private capital outflows from developing countries, particularly from Africa, has become more prominent.
“It has brought to surface the scale and detrimental impact of both legal and illicit capital flight, especially at a time when external resources are declining and Africa has to make the switch to domestic resource mobilization in order to meet the large financing gap for its transformation agenda,” he stated.
Africa’s fiscal policy space is compromised by shortage of resources. Capital flight is hidden from the tax authorities, limiting Africa’s prospects. If resources lost legally and illicitly had been invested, Africa’s growth performance could have been much higher, Lopes said.
“A stunning finding by some researchers, suggests that if the funds leaving Africa illicitly were to remain on the continent, the continent’s capital stock would have expanded by over 60 percent and per capita GDP would have been over 15 percent higher than it currently is,” he said.
According to a report released by Global Financial Integrity and the African Development Bank in 2013, the figures detailing Illicit Financial Flows (IFFs) from Africa have risen.
Between 2002 and 2006, Illicit Financial Flows from developing countries were between USD 859 billion to USD 1.06 trillion annually the report states.
“African countries must ensure an enabling business environment and attractive investment climate. Experts suggest that capital flight is often motivated by deterioration in overall macroeconomic management and the national investment climate and that there is a strong correlation between institutions, the investment climate and growth,” Lopes said.
He also underlined that addressing capital flight requires trans-boundary coordination at a continental and global level. “The value chain of illicit flow of funds often involves money being spirited out of a country through third countries, usually tax havens and financial secrecy jurisdictions, before it gets to its final destinations. Individual responses to capital flight are not adequate, not even for the most developed countries with full fledged security systems,” he said.
ECA, at the instruction of the African Ministers of Finance, Planning and Economic Development has had established a high level panel on illicit financial flows from Africa in 2012, chaired by Thabo Mbeki, former president of South Africa. According to Lopes, this panel has been consulting various stakeholders around the continent and the report will be public soon.
The Seminar was jointly organized by the Nairobi-headquartered African Economic Research Consortium and the Economic Commission for Africa. Present at the Seminar were expert analysts and economists from across Africa.