capital flight and policy performance leonce ndikumana university of massachusetts ticad v task...

Capital Flight and Policy Performance

LEONCE NDIKUMANAUniversity of Massachusetts

TICAD V Task Force - Preparatory MeetingNovember 14, 2012

IPD (Columbia University)

Capital outflows from a capital starved continent

A paradox?

2

Volumes are staggeringCapital flight from 37 African countries, billion 2010 $

… the continent is actually a net creditor to the rest of the world

Figures for 37 countries countries, 1970-2010:

Contrary to the perception that Africa is severely

indebted…

Africa

Rest of the World

Africa receives less aid than capital flight

Africa Rest

of the world

Total flows for 37 African countries, 1970-2010

Capital flight and other flows

(37 African countries: billion, constant 2010 $)

Capital flight and policyFirst: Why it matters

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

a) Capital flight is a development issue

capital flight deepens inequality capital flight deepens deprivation

(undermines social service delivery) capital flight strengthens corrupt

regimes and dictatorships

b) Capital flight has important political economy implications

as well

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)

c) Capital flight is, by and large, illicit

Capital flight and policy performance

Second: what should be the policy response?

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

African 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!

Africa’s partner governments