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Africa

Stemming capital flight in Africa

Despite economic growth, African countries are struggling to stop illicit financial flows from travelling overseas. Experts say it is important for developed countries to recognize the problem and help put a stop to it.

Capital flight has long been a problem in Africa, as many countries struggle to meet development goals while trying to control the illegal movement of money outside of the continent. 

However steps are being taken to address the problem on a global level, including the establishment of the high level panel on illicit financial flows as part of the United Nations Economic Commission for Africa (ECA). The leader of this year's Group-of-Twenty (G20), Germany, also recently unveiled a framework for the so-called "Marshall Plan for Africa" which aims to stabilize the African economy by tackling issues including capital flight. 

Professor Léonce Ndikumana is a specialist in African economic development from the University of Massachusetts Amherst. He spoke with DW about capital flight in Africa and the importance of allowing the international community to get involved. 

DW: What has the high level panel on illicit financial flows achieved so far concerning illicit financial flows from Africa and why are people so concerned? 

Léonce Ndikumana: The reason why people are interested is because capital flight is a development issue and is specifically a constraint to achieving sustainable development financing for Africa. What we have been highlighting is the paradox with African countries. We see a continent that has the largest shortage of finance but also had been accumulating increasing amounts of debt. At the same time we are seeing a massive amount of money fleeing the continent. We call this capital flight which is basically capital that is not recorded in the government's statistics.  We're talking about money that's being stolen or embezzeled out of the continent. So the paradox is you have a continent that needs money but it's a continent that is also financing the rest of the world in countries that don't need the money. So we have a problem. We have been seeing many reports that document how Africa is still lagging behind on many development goals. Money is being lost which could have been used to finance investments. So it is good to see that policy makers are taking notice and want to find solutions. It's a welcome initiative because it has elevated the debate on capital flight and has taken it beyond academic discourse. What the panel has done is to go around the continent to first of all illustrate how big the problem is.

They have produced reports that show the amount of capital flight that has left the continent by per country which shows that this problem is not new and it has been there for up for a long time. But what is even more worrisome is that the volume of capital flight has increased over the past two decades. The reason this is worrisome is that from an economic perspective it doesn't make sense that this is happening to a continent which is doing so well in terms of growth. Money should be flowing into Africa and staying there instead of flowing out. The other reason why it is worrisome, is because the continent is not making sufficient progress in development. 

The G20 has acknowledged this problem and has shown its commitment to tackle these kinds of illicit financial flaws. As this year's president, Germany has made it clear that there should be a focus on Africa as revealed in its "Marshall Plan with Africa" framework. But there have been mixed reactions to the plan. What is your take on this? 

I am aware of the development of this initiative under the leadership of the German government. To me it is a good initiative and it should be embraced by African countries. Capital flight is not an issue that can be solved by African countries alone. So the fact that the German government and the G20 have acknowledged that these financial flaws are a problem and are willing to discuss it and come up with solutions is a good thing. It has not always been like this because the problem of capital flight was once seen as an African problem. I think African countries should jump on the bandwagon and join hands with their developed country partners to find solution. One obvious reason for this is that for African countries to make any progress in stopping capital flight they need the cooperation of developed countries to help close the door to these illicit money flows coming to their own countries. Much of this money is sitting in bank accounts in developed countries. So unless you have this cooperation you will not be able to track and stop the money. African countries also have to work with Germany and the G20 to see how they can improve the "Marshall Plan with Africa". One is to clearly state that the focus is going to be on investment, especially domestic investment. Every example of successful development in a country is associated with successful domestic investment. For the G20 to help African countries, they need to help them develop a framework for promoting domestic investment. Secondly, I would like to see the plan emphasize the mobilization of domestic resources. This is a key pillar of sustainable development. The third point I want to make is that I want to see more emphasis on clamping down on tax evasion by multinational corporations. Again, a major reason why African governments need to work with their developed country partners is because these multinational corporations are headquartered in developed countries. It's up to G20 governments to make these corporations behave like good citizens, which includes paying taxes where they operate in Africa.
 
Why are so many foreign multinational corporations looking for investment opportunities in Africa? 

Africa is becoming attractive to private capital for indirect investment especially in areas of natural resources, such as mining and oil. But at the same time the continent is losing capital. The bulk of the capital that is coming out of Africa is illegally acquired, so they are not motivated by the prospect of return investment. For those who have acquired this money illicitly, they are not looking to maximizing profits but instead to maximize security of their assets away from the eyes of the authorities.

Interview: Jane Ayeko-Kümmeth

Professor Léonce Ndikumana is a specialist in African economic development and capital flight based at the University of Massachusetts Amherst.

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