Capital Flight and Policy Performance LEONCE NDIKUMANA University of Massachusetts TICAD V Task Force - Preparatory Meeting November 14, 2012 IPD (Columbia University) Capital outflows from a capital starved continent A paradox? 2 Volumes are staggering 1800 Capital flight from 37 African countries, billion 2010 $ 1685 1600 1400 1200 1000 800 1268 1066 Stock capital flight with interest 2010 814 619 600 Total real capital flight 1970-2010 454 400 200 0 33 SSA countries 4 NA countries 37 countries Contrary to the perception that Africa is severely indebted… … the continent is actually a net creditor to the rest of the world Figures for 37 countries countries, 19702010: Africa Stock of debt 2008: $275bn Capital flight: $1.68 trillion Rest of the World Africa receives less aid than capital flight Total flows for 37 African countries, 1970-2010 Africa Aid: $867bn Capital flight: $1.3 trillion Rest of the world Capital flight and other flows (37 African countries: billion, constant 2010 $) 70 60 50 40 Net transfer on debt 30 ODA FDI 20 Capital flight 10 Remittances 0 -10 -20 Capital flight and policy First: Why it matters 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 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 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) Capital flight and policy performance Second: what should be the policy response? 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 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!