African States more vulnerable to capital outflow

BY BUSINESS REPORTER

OVER the decades, countries worldwide have been hit by varying degrees of illicit capital outflows from their economies.

But it is developing countries that have been worst hit, with reports showing about US$850 billion to US$1trillion disappears from these countries without a trace annually and ends up in tax havens or rich countries.

"The sum that leaves developing countries each year as unreported financial outflows amounts to 10 times the annual global aid flows, and twice the debt service developing countries pay each year. For each dollar that goes to the developing world in aid, almost US$10 (Sh900) comes back to developed countries through illicit means," says Kristina Frˆberg, a political scientist and advocacy officer at Forum Syd in Sweden.

Estimates recently released by Global Financial Integrity (GFI) indeed show as of 2008, illicit financial flows from developing countries had increased to between US$1.26 trillion and US$1.44 trillion.

Despite being the poorest, Africa has equally been the most affected continent. According to the GFI report, between the 2000 and 2008, it recorded a 21.9 per cent growth of illicit capital flight; the highest among all five continents.

As a whole, Africa is believed to have lost US$854 billion (Sh77,000 billion) in cumulative capital flight between 1970 and 2008.

"This amount is enough not only to wipe out the continent’s total external debt of around US$250 billion (at the end of 2008) but potentially to also leave US$600 billion (Sh5400 billion) for economic growth and poverty alleviation," Dr Attiya Waris notes in her recent report Bringing the billions back.

Yet, according to GFI, these estimates only address one form of trade mispricing, and do not include the mispricing of services, nor encompass the proceeds of smuggling, trade in narcotics and contraband, violations of intellectual property rights, human trafficking, or other illegal activities.

Illegitimate assets

Once adjustments were made to encompass these activities, the total illicit flows from Africa more than doubled from US$854 billion to 1.8 trillion.

While various corrupt leaders have significantly contributed to this staggering figure, no leader can exemplify the African experience in capital flight better than former Zairean President, the late Mobutu Sese Seko.

According to a World Bank report of June 2007, the kleptocratic Mobutu is said to have looted US$5 billion (Sh445 billion), most of which is believed to have been deposited in Swiss Bank Accounts.

Recent studies on the private wealth of High Net Worth Individuals estimate that private wealth held in tax havens by Sub-Saharan Africans may constitute up to US$270 billion.