
Coordinated regional and global efforts are needed to combat capital flight, corruption, and corporate tax evasion. The courageous work of the International Consortium of Investigative Journalists and other organisations has shed light on the underground networks of profiteers and enablers.
Alpha, beta, gamma, delta, omicron… How many more letters of the Greek alphabet, symbolising the variants of COVID-19, will the world have to endure? While southern Africa was once again the victim of an ultimately unnecessary and unfair border closure late last year, a handful of wealthy countries continue to oppose the demand to lift patents on vaccines and treatments for the virus. Of course, this vaccine selfishness is taking its toll on poor countries, but it is also returning like a boomerang to the better-off, with new waves of the virus becoming much more contagious and vaccine resistant.
This cynicism and blindness are also reflected in the financial flows between the North and the South. On paper, rich countries multiply development aid and direct investments in Africa. In reality, they turn a blind eye to an international system that systematically plunders the continent for the benefit of an elite and of large corporations. Over the past five decades, sub-Saharan Africa has lost more than US $2 trillion to capital flight. This hemorrhage has accelerated since the turn of the century, averaging $65 billion a year, a sum that exceeds the annual inflows of official development aid.
In the imaginary world of a perfect market economy, natural resources would be a blessing and capital would flow to the countries where it is most scarce. Africa would be a net recipient. The Angolan people would prosper from the proceeds of oil extraction; Ivorians would thrive as the world’s top cocoa exporter (45 per cent of global production); and South Africans would enjoy the fruits of mineral abundance.
Yet, this is not happening. Natural resources are instead a hunting ground for quick wealth extraction and offshore accumulation. Cross-border capital flows are driven, not by relative scarcity in Africa, but by the relative secrecy available in foreign havens. Foreign loans are often dilapidated and unprofitable – even when they do not evaporate into thin air. In Mozambique’s ‘hidden debt’ scandal, for example, a $2 billion loan (equivalent to 12 per cent of GDP) that was structured by government officials, European bankers and Middle Eastern businessmen, never even made it to Mozambique, yet the country is on the hook to repay it with interest.
Beyond the numbers, we show how national elites are aided and abetted by external banks, accountants, and consulting firms to orchestrate capital flight from African countries. The politics of the ‘resource curse’ undermines the fiscal contract between the state and the people.
In Angola, oil extraction has only served to enrich the elite and multinational oil companies. From 1986 to 2018, the country lost $103 billion through capital flight, a sum that equals the country’s GDP in 2018. In the meantime, only 7 per cent of rural Angolans have access to electricity, and nearly half the population lacks access to drinking water and basic sanitation services.
Similarly, most of Côte d’Ivoire’s cocoa farmers live below the poverty line, while the country saw an estimated capital flight of $55 billion between 1970 and 2018. In the same period, some $329 billion vanished in South Africa. There, the systematic underinvoicing of mineral exports accounted for much of the poor performance, in terms of growth, savings, domestic investment and poverty reduction, in what is branded as ‘the world’s most unequal country’.
We reveal these amounts in our latest book, On the Trail of Capital Flight from Africa: The Takers and the Enablers, recently published by Oxford University Press, through three examples: Angola, Côte d’Ivoire and South Africa, countries rich in natural resources but with disappointing development outcomes.
Beyond the numbers, we show how national elites are aided and abetted by external banks, accountants, and consulting firms to orchestrate capital flight from African countries. The politics of the ‘resource curse’ undermines the fiscal contract between the state and the people. When a state derives the bulk of its revenue from parastatal monopolies, supplemented by external loans, its foreign collaborators, rather than its own citizens, become its main constituency.
…it is only by really attacking the plundering of the resources of the South that we will allow countries to develop and avoid a social explosion and forced migrations. It is also the only way to allow them to face the climate emergency, with positive consequences for all.
Coordinated regional and global efforts are needed to combat capital flight, corruption, and corporate tax evasion. The courageous work of the International Consortium of Investigative Journalists and other organisations has shed light on the underground networks of profiteers and enablers.
Much remains to be done, and the ambition is not commensurate with the need, as is demonstrated by the adoption of a global tax agreement last October, imposed by the rich countries. Its main measure – a global corporate tax of just 15 per cent – shows that Northern capitals remain more responsive to the rhetoric of multinationals than to the needs of developing countries. The Independent Commission for the Reform of International Corporate Taxation (ICRICT), along with economists such as Thomas Piketty, Gabriel Zucman, José Antonio Ocampo, and Jayati Ghosh, advocated a rate of 25 per cent, which would recover most of the $240 billion that is lost each year to what is modestly called tax optimisation. Instead, a 15 per cent rate does not generate more than $150 billion in additional resources per year, most of it being captured by rich countries.
As with the COVID-19 vaccine, this is a very short-term calculation. Only vaccine solidarity will stop the variants that will otherwise prolong this pandemic indefinitely. And it is only by really attacking the plundering of the resources of the South that we will allow countries to develop and avoid a social explosion and forced migrations. It is also the only way to allow them to face the climate emergency, with positive consequences for all.
James K. Boyce is a Professor Emeritus and senior fellow at the Political Economy Research Institute at the University of Massachusetts Amherst, while Léonce Ndikumana is a Professor of Economics and Director of the African Development Policy Program at the Institute for Economic Research at the University of Massachusetts. He is also a member of the Independent Commission for the Reform of International Corporate Tax (ICRICT)
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