Social Europe

politics, economy and employment & labour

  • Themes
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

Capital flight—stopping the looting of Africa

Léonce Ndikumana and James K Boyce 3rd February 2022

As with the coronavirus, the global north needs to recognise its interdependence with Africa when it comes to financial flows.

Capital flight,resource course
Life in Luanda—nearly half the Angolan population lack access to drinking water and basic sanitation (Miguel Almeida / shutterstock.com)

Alpha, beta, gamma, delta, omicron … How many more letters of the Greek alphabet, symbolising the variants of Covid-19, will the world have to endure?

While southern Africa was once again the victim of an ultimately unnecessary and unfair border closure late last year, a handful of wealthy countries continue to oppose the demand to lift patents on vaccines and treatments for the virus. Of course, this vaccine selfishness is taking its toll on poor countries, but it is also returning like a boomerang to the better-off, with new waves of the virus becoming much more contagious and vaccine-resistant.

This cynicism and blindness are also reflected in the financial flows between the global north and south. On paper, rich countries multiply development aid and direct investments in Africa. In reality, they turn a blind eye to an international system which systematically plunders the continent for the benefit of an elite and of large corporations.

Accelerating haemorrhage

Over the past five decades, sub-Saharan Africa has lost more than $2 trillion to capital flight. This haemorrhage has accelerated since the turn of the century, averaging $65 billion a year, a sum which exceeds annual inflows of official development aid.


Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content. We will never send you spam and you can unsubscribe anytime.

Sign up here

In the imaginary world of a perfect market economy, natural resources would be a blessing and capital would flow to the countries where it is most scarce. Africa would be a net recipient. The Angolan people would prosper from the proceeds of oil extraction, Ivorians would thrive as the world’s top cocoa exporter (45 per cent of global production) and South Africans would enjoy the fruits of mineral abundance.

Yet these countries rich in natural resources have disappointing development outcomes, as we reveal in our forthcoming book, On the Trail of Capital Flight from Africa: The Takers and the Enablers. Natural resources are instead a hunting ground for quick wealth extraction and offshore accumulation.

Cross-border capital flows are driven, not by relative scarcity in Africa but by the relative secrecy creditors can enjoy in foreign havens. Foreign loans are often shabby and have little developmental impact—even when they do not evaporate into thin air. In Mozambique’s ‘hidden debt’ scandal, for example, a $2 billion loan (equivalent to 12 per cent of gross domestic product), structured by government officials, European bankers and middle-eastern businessmen, never even arrived, yet the country is on the hook to repay it with interest.

Elite enriched

In Angola, oil extraction has only served to enrich the elite and multinational oil companies. From 1986 to 2018, the country lost $103 billion through capital flight, equivalent to its GDP in the latter year. Meanwhile, only 7 per cent of rural Angolans have access to electricity and nearly half the population lack access to drinking water and basic sanitation.

Similarly, most of Côte d’Ivoire’s cocoa farmers live below the poverty line, while the country saw an estimated capital flight of $55 billion between 1970 and 2018. In the same period, some $329 billion vanished in South Africa. There, the systematic under-invoicing of mineral exports accounted for much of the poor performance in terms of growth, savings, domestic investment and poverty reduction, in what is branded (given its Gini coefficient of income inequality) as ‘the world’s most unequal country’.

Beyond the numbers, we show in our book how national elites are aided and abetted by external banks, accountants and consulting firms to orchestrate capital flight from African countries. The politics of the ‘resource curse’ undermine the fiscal contract between the state and the public. When a state derives the bulk of its revenue from parastatal monopolies, supplemented by external loans, its foreign collaborators, rather than its own citizens, become its main constituency.

Co-ordinated efforts needed

Co-ordinated regional and global efforts are needed to combat capital flight, corruption and corporate tax evasion. The courageous work of the International Consortium of Investigative Journalists and other organisations has shed light on the underground networks of profiteers and enablers.

Much remains to be done and the ambition is not commensurate with the need, as is demonstrated by the adoption of a global tax agreement last October, imposed by the rich countries. Its main measure—a worldwide corporate tax of just 15 per cent—shows that northern capitals remain more responsive to the rhetoric of multinationals than to the needs of developing countries.


We need your support


Social Europe is an independent publisher and we believe in freely available content. For this model to be sustainable, however, we depend on the solidarity of our readers. Become a Social Europe member for less than 5 Euro per month and help us produce more articles, podcasts and videos. Thank you very much for your support!

Become a Social Europe Member

The Independent Commission for the Reform of International Corporate Taxation (ICRICT), of which one of us is a member along with economists such as Thomas Piketty, Gabriel Zucman, José Antonio Ocampo and Jayati Ghosh, advocated a rate of 25 per cent. The Tax Justice Network estimates that $483 billion is lost each year to tax abuse by multinationals and wealthy individuals and, according to Zucman, a 25 per cent minimum corporate-tax rate would raise a similar amount globally. A 15 per cent rate would generate no more than $150 billion in additional resources per year, most of it captured by rich countries.

As with the Covid-19 vaccine, this is a very short-term calculation. Only vaccine solidarity will stop the variants that will otherwise prolong this pandemic indefinitely. And it is only by really attacking the plundering of the resources of the south that we shall allow developing countries to develop and avoid a social explosion and forced migrations.

It is also the only way to allow them to face the climate emergency—again with positive consequences for all.

Léonce Ndikumana
Léonce Ndikumana

Léonce Ndikumana is professor of economics and director of the African Development Policy Programme at the Institute for Economic Research at the University of Massachusetts. He is also a member of the Independent Commission for the Reform of International Corporate Tax (ICRICT).

James K Boyce
James K Boyce

James K Boyce is a professor emeritus and senior fellow at the Political Economy Research Institute at the University of Massachusetts Amherst.

You are here: Home / Politics / Capital flight—stopping the looting of Africa

Most Popular Posts

meritocracy The myth of meritocracy and the populist threatLisa Pelling
consultants,consultancies,McKinsey Consultants and the crisis of capitalismMariana Mazzucato and Rosie Collington
France,pension reform What’s driving the social crisis in FranceGuillaume Duval
earthquake,Turkey,Erdogan Turkey-Syria earthquake: scandal of being unpreparedDavid Rothery
European civil war,iron curtain,NATO,Ukraine,Gorbachev The new European civil warGuido Montani

Most Recent Posts

gas,IPCC Will this be the last European Gas Conference?Pascoe Sabido
water Confronting the global water crisisMariana Mazzucato, Ngozi Okonjo-Iweala, Johan Rockström and 1 more
Hungary,social media,women Hungary’s ‘propaganda machine’ attacks womenLucy Martirosyan
carbon removal,carbon farming,nature Environmental stewardship yes, ‘carbon farming’ noWijnand Stoefs
IRA,industrial policy,inflation reduction act The IRA and European industrial policyPaul Sweeney

Other Social Europe Publications

front cover scaled Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis
sere12 1 RE No. 12: Why No Economic Democracy in Sweden?

ETUI advertisement

The four transitions and the missing one

Europe is at a crossroads, painfully navigating four transitions (green, digital, economic and geopolitical) at once but missing the transformative and ambitious social transition it needs. In other words, if the EU is to withstand the storm, we do not have the luxury of abstaining from reflecting on its social foundations, of which intermittent democratic discontent is only one expression. It is against this background that the ETUI/ETUC publishes its annual flagship publication Benchmarking Working Europe 2023, with the support of more than 70 graphs and a special contribution from two guest editors, Professors Kalypso Nikolaidïs and Albena Azmanova.


DOWNLOAD HERE

Eurofound advertisement

#AskTheExpert webinar—Key ingredients for the future of work: job quality and gender equality

Eurofound’s head of information and communication, Mary McCaughey, its senior research manager, Agnès Parent-Thirion, and research manager, Jorge Cabrita, explore the findings from the recently published European Working Conditions Telephone Survey (EWCTS) in an #AskTheExpert webinar. This survey of more than 70,000 workers in 36 European countries provides a wide-ranging picture of job quality across countries, occupations, sectors and age groups and by gender in the context of the Covid-19 pandemic. It confirms persistent gender segregation in sectors, occupations and workplaces, indicating that we are a long way from the goals of equal opportunities for women and men at work and equal access to key decision-making positions in the workplace.


WATCH HERE

Foundation for European Progressive Studies Advertisement

Let’s end involuntary unemployment!

What is the best way to fight unemployment? We want to know your opinion, to understand better the potential of an EU-wide permanent programme for direct and guaranteed public-service employment.

In collaboration with Our Global Moment, Fondazione Pietro Nenni and other progressive organisations across Europe, we launched an EU-wide survey on the perception of unemployment and publicly funded jobs, exploring ways to bring innovation in public sector-led job creation.


TAKE THE SURVEY HERE

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

ILO advertisement

Global Wage Report 2022-23: The impact of inflation and COVID-19 on wages and purchasing power

The International Labour Organization's Global Wage Report is a key reference on wages and wage inequality for the academic community and policy-makers around the world.

This eighth edition of the report, The Impact of inflation and COVID-19 on wages and purchasing power, examines the evolution of real wages, giving a unique picture of wage trends globally and by region. The report includes evidence on how wages have evolved through the COVID-19 crisis as well as how the current inflationary context is biting into real wage growth in most regions of the world. The report shows that for the first time in the 21st century real wage growth has fallen to negative values while, at the same time, the gap between real productivity growth and real wage growth continues to widen.

The report analysis the evolution of the real total wage bill from 2019 to 2022 to show how its different components—employment, nominal wages and inflation—have changed during the COVID-19 crisis and, more recently, during the cost-of-living crisis. The decomposition of the total wage bill, and its evolution, is shown for all wage employees and distinguishes between women and men. The report also looks at changes in wage inequality and the gender pay gap to reveal how COVID-19 may have contributed to increasing income inequality in different regions of the world. Together, the empirical evidence in the report becomes the backbone of a policy discussion that could play a key role in a human-centred recovery from the different ongoing crises.


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube