Open veins of Africa bleeding profusely

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  • Opinion by Jomo Kwame Sundaram, Ndongo Samba Sylla (dakar and kuala lumpur)
  • Inter Press Service

Most Africans struggle with food and energy crises, inflation, higher interest rates, adverse climate events, reduced health and social services. Unrest is mounting due to deteriorating conditions, despite some increases in commodity prices.

Economic hemorrhage

After ‘lost decades’ from the late 1970s, Africa became one of the world’s fastest growing regions at the start of the 21st century. Debt relief, a commodity boom and other factors seemed to support the fallacious narrative of ’emerging Africa’.

But instead of the long-awaited economic transformation, Africa has experienced jobless growth, rising economic inequality and more transfers of resources abroad. Capital flight – in which funds looted from foreign banks are laundered – has left the continent bleeding.

According to the High Level Panel on Illicit Financial Flows from Africa, the continent lost more than $50 billion annually. This was mainly due to ‘trade mis-invoicing’ – under-billing of exports and over-billing of imports – and fraudulent trade agreements.

Transnational corporations (TNCs) and criminal networks are responsible for much of this draining of African economic surpluses. Resource-rich countries are more vulnerable to looting, especially where capital accounts have been liberalized.

Externally imposed structural adjustment programs (SAPs) following the sovereign debt crises of the early 1980s forced African economies to be even more open – at great economic cost. SAPs have made them more dependent on (food) imports, while at the same time making them more vulnerable to commodity price shocks and global liquidity flows.

Leonce Ndikumana and colleagues estimate that more than 55% of capital flight — defined as illegally acquired or transferred assets — from Africa originates from oil-rich countries, with Nigeria alone losing $467 billion from 1970-2018.

In the same period, Angola lost $103 billion. The poverty rate has risen from 34% to 52% over the past decade, while the number of poor has more than doubled from 7.5 to 16 million.

Oil proceeds have been embezzled by TNCs and Angola’s elite. Isabel dos Santos, daughter of the former president, abused her influence and acquired enormous wealth. A report found more than 400 companies in its business empire, many of them in tax havens.

From 1970 to 2018, Ivory Coast lost $55 billion in capital flight. It grows 40% of the world’s cocoa and only gets 5-7% of global cocoa profits, while farmers get little. Most of the cocoa income goes to TNCs, politicians and their employees.

Mining giant South Africa (SA) has lost $329 billion to capital flight over the past five decades. Misbilling, other forms of misappropriation of public funds, and tax evasion increase private wealth hidden in offshore financial centers and tax havens.

Fiscal cuts have slowed job growth and poverty reduction in “the world’s most unequal country.” In SA, the richest 10% own more than half of the country’s wealth, while the poorest 10% own less than 1%!

Asset theft and debt

With this pattern of looting, resource-rich African countries – which could have accelerated development during the commodity boom – are now facing debt burdens, depreciating currencies and imported inflation, while interest rates are rising.

Zambia’s default on its foreign debt obligations in late 2020 has made headlines. But foreign conquest of most Zambian copper export proceeds is not recognized.

Over the period 2000-2020, total foreign direct investment income from Zambia was twice the total debt servicing for government external borrowings and government guaranteed loans. In 2021, the deficit on the ‘primary income’ account (mainly capital income) of Zambia’s balance of payments was 12.5% ​​of GDP.

Since interest payments on public external debt amounted to ‘only’ 3.5% of GDP, most of this shortfall (9% of GDP) was due to profit and dividend payments, as well as interest payments on private external debt.

For the IMF, World Bank and ‘creditor countries’, the ‘restructuring’ of debt depends on the continuation of such looting! African countries’ worsening foreign indebtedness is partly due to a lack of control over export revenues controlled by TNCs, backed by the African elite.

Resource plundering, involving capital flight, inevitably leads to external indebtedness. The IMF invariably demands government cuts and the opening of African economies to TNC interests. That’s how we complete the circle, and sure enough, it’s mean!

Africa’s wealth-grabbing dates back to colonial times, and even before, with the Atlantic trade in enslaved Africans. Now this is made possible by transnational interests that create international rules, loopholes and so on.

Such enablers include various bankers, accountants, lawyers, investment managers, accountants and other cycling dealers. For example, the origin of the wealth of ‘wealthy individuals’, companies and politicians is concealed and their transfer abroad is ‘laundered’.

What can be done?

Capital flight is not mainly due to ‘normal’ portfolio choices by African investors. Therefore, increasing the return on investment, for example with higher interest rates, is unlikely to stop this. Even worse, such policies discourage necessary domestic investment.

In addition to enforcing efficient capital controls, strengthening the capacities of specialized national agencies – such as customs, financial supervision and anti-corruption agencies – is important.

African governments need stronger rules, legal frameworks and institutions to curb corruption and ensure more effective management of natural resources, for example by revising bilateral investment treaties and investment codes, as well as renegotiating oil, gas, mining and infrastructure contracts.

Records of all investments in extractive industries, tax payments by all involved and public prosecutions must be open, transparent and accountable. Punishment of economic crimes should be strictly implemented with dissuasive penalties.

The wider public – especially civil society organisations, local authorities and affected communities – also need to know who and what are involved in extractive industries.

Only an informed public that knows how much is extracted and exported, by whom, what revenues governments get and what their social and environmental impacts are, can control corporations and governments.

Improving international trade and financial transparency is essential. This requires an end to banking secrecy and better regulation of TNCs to curb misbilling and transfer pricing, which still allow theft and looting of resources.

Capital flight has long been attributed in OECD rhetoric to offshore tax havens on remote tropical islands. But those in wealthy countries – such as the UK, US, Switzerland, Netherlands, Singapore and others – are the biggest culprits.

Stopping the hemorrhage of African resource plunder by refusing refuge for illegal transfers should be a duty of a wealthy country. Automatic exchange of tax-related information needs to become truly universal to end mis-trade billing, transfer pricing abuses, and concealment of stolen wealth abroad.

Centralized taxation of transnational corporations can put an end to tax abuse, including tax evasion and avoidance. But the OECD’s Inclusive Framework proposals favor their own governments and corporate interests.

Africa is not necessarily ‘poor’. Rather, it has been impoverished by fraud and looting that have led to the transfer of funds abroad. A sincere effort to put an end to this requires acknowledgment of all responsibilities and culprits, nationally and internationally.

Africa’s veins have been cut open. The centuries of bleeding must stop.

Dr Ndongo Samba Sylla is a Senegalese development economist who works at the Rosa Luxemburg Foundation in Dakar. He wrote The Fair Trade scandal. Marketing poverty to the benefit of the rich and co-author Africa’s Last Colonial Currency: The Story of the CFA Franc. He also edited Economic and Monetary Sovereignty for 21st Century Africa, Revolutionary Movements in Africa and Imperialism and the Political Economy of the South’s Debt. He tweets to @nssylla

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© Inter Press Service (2022) — All rights reservedOriginal source: Inter Press Service





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