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!