Yves here. Those of you who read Nicholas Shaxxon’s Treasure Islands may recall that one of his opening chapters discussed the extent of looting of Africa via the fact that its poor countries are capital exporters. It isn’t due solely to corrupt leaders pilfering official coffers and sending their ill-gotten gains to tax havens. It’s also due to multinational transfer pricing and tax games. A new book focuses on this topic, documenting even more of the mechanisms of wealth extraction.
By Anis Chowdhury, Adjunct Professor at Western Sydney University and University of New South Wales (Australia), who held senior United Nations positions in New York and Bangkok and Jomo Kwame Sundaram, a former economics professor, who was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. Originally published at Jomo Kwame Sundaram’s website
Capital flight from the global South is immense, with widespread adverse effects. A new book proposes measures to curb, even reverse capital flight from Africa. It also offers pragmatic lessons for many developing countries.
Out of Africa
On the trail of capital flight from Africa extends pioneering work begun much earlier. The editors – Leonce Ndikumana and James Boyce – estimate Sub-Saharan Africa (SSA) has lost more than US$2 trillion to capital flight in the last half century!
SSA currently loses US$65 billion annually – more than yearly official development assistance (ODA) inflows. The book’s studies carefully investigate natural resource exploitation – of South African minerals, Ivorian cocoa, and Angolan oil and diamonds.
Such forensic country analyses are crucial to more effectively check capital flight. Outflows since the 1980s from the three countries have been massive: US$103 billion from Angola, US$55 billion from Cote d’Ivoire, and US$329 billion from South Africa in 2018 dollars.
Capital flight has been much more than cumulative external debt. Annual outflows were between 3.3% and 5.3% of national income. Nigeria, South Africa and Angola account for the most capital outflows from SSA, with Cote d’Ivoire seventh.
Resource Booms
As governments get more revenue from natural resources, the fiscal ‘social contract’ is eroded. When people pay taxes, they expect state spending to benefit the public. But with more revenue from resources – via state monopolies, royalties and taxes – governments become less accountable to their own citizens.
Gaining and maintaining access to foreign credit has similar effects. Developing country governments then focus on ingratiating themselves with friendly foreign donor governments to get ODA, and on enhancing their credit ratings.
Hence, such regimes have less political need to provide ‘public goods’, including services, let alone accelerate social progress. Thus, erosion of the fiscal ‘social contract’ undermines not only public wellbeing, but also state legitimacy.
To secure power, ruling cliques often rely on ‘clientelism’ – patronage or patron-client relations – typically on regional, ethnic, tribal, religious or sectarian lines. Their regimes inevitably provoke dissent – including oppositional ethno-populism and civil unrest, even armed insurgencies.
Unsurprisingly, such regimes believe their choices are limited. Another option is repression – which typically rises as the status quo is threatened. The resulting sense of insecurity spreads from the public to the elite, worsening capital flight.
Exploiting valuable natural resources not only generates export earnings, but also attracts foreign investments. One result is ‘Dutch disease’ as the national currency rises in value – reducing other exports and jobs, inevitably hurting development prospects.
Thus, vast private fortunes have been made and illicitly transferred abroad. Ruling elites and their allies rarely only rely on either state or market to become richer. The book shows how both state and market strengthen private and personal power and influence.
Plundering Africa
The book’s case studies show how resource extraction has been central to capital flight. In all three countries, the efficacy of fiscal policy tools – especially to foster investments for development – has been undermined.
Outflows have increased with economic liberalization, as unrecorded financial outflows – via the current account – grow with freer trade. Thus, trade-related financial transactions enable corruption and capital flight.
In Côte d’Ivoire – the world’s top cocoa producer – rents initially came from supply chains connecting farmers to consumers. Corrupt partnerships – connecting domestic elites to foreign businesses – have been crucial to such arrangements.
Thus, natural resource primary commodity exports have enabled illicit capital flows. Ivorian cocoa exports have been consistently under-reported – with trade statistics of major importers showing massive under-invoicing by exporters.
Post-colonial political settlements have given a few privileged access to resource rents. With capital flight thus enabled, successive Ivorian regimes have been less obliged to spend more on development or public wellbeing.
Due to the cocoa boom, the post-colonial ‘Ivorian miracle’ ended when prices fell. The bust triggered a political crisis, culminating in civil war. But the crunch also meant the country could no longer service its foreign debt.
In Angola too, natural resources worsened its protracted civil wars. After these ruinous conflicts, oil rents enriched the triumphant nepotistic regime. This enabled the control to gain control of more, even as most Angolans continued to live in destitution.
Angola’s massive oil exports mainly benefited the small elite of cronies around the president. They failed to develop the economy or improve most lives. All this has been enabled by ‘helpful’ professionals who have enriched themselves doing so.
While benefiting its elite and foreign transnationals, Angola’s ‘oil curse’ has blocked balanced and sustainable development of its economy. Despite rapidly depleting its oil reserves, Angola and most Angolans have benefited little.
South Africa – SSA’s second largest economy after Nigeria – seems less reliant on natural resources. Post-apartheid economic liberalization has enabled capital flight as private corporate interests – especially the influential minerals-energy complex – quickly took advantage of the new dispensation.
By under-invoicing their exports, mineral interests have been engaged in massive capital flight and tax evasion. Meanwhile, business cronies have enriched themselves in new ways, e.g., in the state’s electric power sector. Such abuses were exposed by the Gupta family scandal, leading to then President Jacob Zuma’s downfall.
Stemming Capital Flight
‘State capture’ by politically influential nationals have undermined government regulatory capacities with help from transnational enablers. Ostensible ‘good governance’ reforms have enabled capital flight and tax evasion – by undermining ‘developmental governance’, including prudential regulation.
Institutional environments, mechanisms and enablers facilitate capital flight, tax evasion and wealth accumulation offshore. With often complex, varied and changing facilitation, capital flight has shifted massive wealth abroad for elites.
Transnational financial networks have eased capital outflows – at the expense of productive investments, good jobs and social wellbeing. Capital flight has worsened financing, including budgetary gaps – aggravating related social deprivations.
Wealth creation enhances the economic pie, but distribution depends on who appropriates it. Improved understanding of such varied and ever-changing relations of appropriation is crucial to effectively curb this haemorrhage.
Greater awareness should inspire and inform better measures to check capital flight from the global South. Instead of the Washington Consensus ‘good governance’ mantra, a developmental governance agenda is needed.
Hence, curbing capital flight is crucial for financing sustainable development. Checking capital flight and related abuses – such as trade mis-invoicing, money laundering, tax evasion and public asset acquisition by elites – requires well-coordinated efforts at both national and international levels.
All researchers, policymakers and regulators will gain from the book’s forensic analyses of financial, fiscal and other such abuses. International financial institutions now have little excuse for continuing to enable the capital flight and tax evasion still bleeding the global South.
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Effectively the colonial era never really ended, instead it managed to return to the early days of the East India Company and like by finding and promoting local leaders that were accommodating to western interests. Thus the exhausted powers no longer needed to directly administrate the colonies, giving them independence on paper while making sure they came out on top in the exchanges to follow.
Particularly odious is continued French subjugation of Niger. One of the poorest counties in the world which is the source of uranium for French nuclear power plants. France has very cheap electricity, some of the lowest in Europe. Meanwhile from our friends ar USAID: “Only one in seven Nigeriens have access to modern electricity services, and just four percent of rural residents have access through the national utility.”
All those Africom and French forces gotta keep them natives down. I’ve seen French military for years locally in Syracuse, no doubt working at our MQ9 Reaper drone base, blowing up mud huts in the Sahel.
One wonders how different life would be in Niger if France paid fair prices for its uranium and revenues went to an independent, non-corrupt government.
Speaking of France, i seem to recall reading a claim ages ago that the continual problems in DRC is the result of a proxy war between France and USA.
Pre-distributing (to the state) the means of production before the fact could have ameliorated some of the problems highlighted in this post. Vertically integrated governments with direct ownership of strategic sectors in the economy keep, all other things being equal, rapacious private profiteers at bay, but the neoliberal ideology that was sold to African leaders as the next stepping stone in the continent’s development forbade all this and preached redistribution of capital after the fact (i.e. taxation and royalties) as the path to the promised land. This predictably led to the creation of a cottage industry of consultants who help keep the portion of redistributed capital flowing to African governments to an absolute minimum via transfer mispricing and other such schemes, leaving state coffers bare and incapable of funding developmental initiatives, including a governance apparatus aimed at reducing corruption. And yet, to this day, widespread genuflecting to neoliberalism amongst African leaders continues to be the norm, with near-constant coercive beating of the “structural reforms” drum by the IMF and World drowning out any alt-voices that question the status quo. The leaders are kept on a leash that, when followed to the end, one finds a colonial master as the handler, with it being made clear a terrible fate awaits any who try to snap the leash and break free to pursue a developmental agenda that puts the needs of Africans front and centre.
Additionally, the hyper focus on corrupt African leaders by a reductionist media also has the effect of taking private interests off the public radar so they can continue looting in private, while selling their naked, rapacious self interest as concern for the plight of the continent’s people. When less than 4% of the price of a chocolate bar finds its way back to the impoverished cocoa farmers in Ghana and the Ivory Coast, on whose back the Ferreros of this world built their empires, it’s clear the yoke of neoliberal, neocolonial oppression needs to be thrown off for Africa to thrive.
I can’t imagine the number of human rights abuses, deaths, genocides, ecosystem disasters and atrocities this type of ( financial imperialism/ neo-liberal economics/ Chicago school/ rentier capitalism or whatever name one gives to this form of criminality) has caused over the years = not only in Africa but globally.
There is a Foreign Minister Sergey Lavrov interview in Links today that has a relevant section in it. The US may have Africa Command and a network of bases plus US-trained African officers to coup their own governments with but Africa is the province of the EU, particularly the French who regard it as their own property. Lavrov said, and I quote-
‘Back in September 2021, my esteemed colleague Jean-Yves Le Drian, as well as Josep Borrell, said directly that Russia had no business in Africa, neither as a state nor with private military companies because Africa is the EU and France’s zone. This is what they said to me almost word for word.’
And this makes more sense when you recall that the main reason that the EU destroyed Libya was because Gaddafi was going to introduce a gold Dinar which he wanted to use to replace France’s CFA Franc which I believe has the effect of channeling more money to France than they receive in aid. The US went along because they saw a threat to the US dollar as well-
https://blogs.lse.ac.uk/africaatlse/2017/07/12/the-cfa-franc-french-monetary-imperialism-in-africa/
Libya, a former Italian colony, was never part of the CFA zone, hence never used the CFA franc. The blog link presented makes no mention of Libya. Simple Wikipedia checks confirm this.
You’re incorrectly assuming that Gaddafi was talking about using the gold dinar within Libya. What he was proposing was a lot more ambitious: turning the African Union into something like the European Economic Community (the E.U.’s earlier incarnation before its elite came down with a bad case of superstate megalomania), with the gold dinar being the basis throughout Africa for a common continent-wide African currency similar to the euro. African self-reliance rather than dependence on former colonial masters.
In that context, the talk of getting rid of the CFA franc — and with it, France’s continued control over its former colonies’ economic life — makes perfect sense.
A friend of mine who lived in France for a few years met some French Legionnaires who are African by blood, stationed in Africa, who told him they’re paid a salary by Paris to maintain around-the-clock operational readiness to instigate and execute a coup anywhere in Francophone West and Central Africa. I was sitting in a cafe in 2011on Rue St Honore across from a Syrian-German friend who looked at me, gazed out at the bustling Parisian streets and said to me “you know, it’s France’s grip on Africa that makes most of this possible”. Unbeknownst to both of us at the time, the US and its allies had designs on his own country and to this day I have not been able to honour his invitation to visit Damascus as the operation to “free the Syrian people from the tyranny of Assad” kicked into high gear not long after our Paris meetup.
It’s primarily a matter of elite survival. There’s now a large literature in English and French (and probably other languages too) about how local elites in Africa survive and manipulate western powers to their advantage. Essentially, a politician, military commander, businessman etc. in many African countries has little choice if they want to make money. Investment is too dangerous because of political instability and the possibility of conflict. Much better to follow the practices of all pre-modern societies (including of course those in Europe) and to find and attach yourself to a rent-producing activity. At ground level, among ordinary people, this can mean becoming a taxi-driver for a plush hotel, or just getting a government job with a guaranteed salary and an opportunity for making money on the side. For the better educated, it’s working as an interpreter or an employee of a donor-funded NGO: indeed, donor funding is probably the most significant mechanism for rent extraction in many African countries.
Higher up the food-chain, the same logic applies, not least because it’s impossible to become a significant political figure without a large client-base, which has to be nurtured and rewarded with jobs and money. In turn, this requires access to rent yourself, and this can come not only from aid, but from the exploitation of natural resources in the country. Moreover, as scholars like William Reno have been showing for decades, elites in such positions have no interest in anything changing: development is in essence a threat. Rent-extraction and patronage systems rely on controlling resources and preventing alternative sources of power from developing. (That’s one reason why so many conflicts in Africa have to do with control of resource extraction.) The growth of a class-conscious educated urban middle-class, which is the best thing that could happen to many African countries, is a threat to the power of local elites, in the same way that it was in early modern Europe, and which is why you can’t blame everything on neoliberalism. This doesn’t stop such elites, of course, from publicly stigmatising the West as the source of their country’s problems, or agreeing to western initiatives on anti-corruption or “good governance”, where there’s money attached.
This has a number of practical consequences. At its most basic, people look for jobs with salaries, or at least remuneration, in hard currency. Among other things, this takes good people out of government, and into much better-paid and more secure jobs with international organisations and NGOs. At a higher level, in an insecure atmosphere where you could be out of power at any moment, it makes sense to keep as little of your wealth as possible in the country. There’s huge capital flight from Africa into property and other investments in Europe: you can walk down some previously bustling streets in Paris at night and every window is dark. All the apartments are owned by foreigners as tax-dodges or investments: large numbers by elites from Africa, putting their money where it is safe. And quite honestly, whilst it’s easy to criticise, you have to remember that at all levels people are responding to the incentives that the system provides.
The final twist is that the balance of power is often not what it sees to be. Elites in Africa are not stupid, or they’d be out of power or even dead. They are highly skilled at manipulating the West to get what they want, and often dictate policy to the West rather than the reverse: “it’s me or chaos” is a well-known and well-practiced tactic. A few years ago, the journalist Antoine Glaser wrote an excellent book called satirically “Africa-France”, in which he showed how successive French governments had been wrong-footed by clever and unscrupulous African leaders, who in several documented cases had been able to impose personnel changes in the French government, to get rid of critics. Of course having billions invested in France does help.
But as I say, as long as there are perverse incentives, you can’t blame people for following them.
I’ve had a chance to peruse some of the literature on the evolution of “post-colonial” relations between African countries and their “former” colonizers. While some of it was interesting and had some insightful nuggets, most of it was rather unconvincing if I’m being honest, suffering as it does from being framed from the myopic perch of western academics and analysts who analyze from the outside looking in while letting their preconceptions dictate the thesis upon which their literature rests. It reminded me of so-called Russia experts in the US who still confuse modern Russia with the USSR. I’ve also held interesting discussions with African academics who review this sort of literature as part of their work and they felt the same, that the studies upon which this literature is based are often poorly designed and riddled with both volunteer and analyst bias, and lacking in the appreciation of fine grained nuance. This isn’t surprising given who the audience is I.e. corporate and government decision makers in the west looking to get a snapshot of the risk and opportunities trade off inherent in operating on the continent. Their interest is in how things are instead of what causes things to be as they are, with the result that the level of analysis in these reports limits its scope to the “top of the stack” so to speak, going into great detail about symptoms while neglecting to pick apart the base layer of the stack (I.e. the causal layer). Historical context is often either ignored, downplayed, or rewritten.
One example is the political instability that scares away investors, but the western derived literature on this hardly ever mentions what any developmental economics faculty in any halfway decent university on the continent knows, that more often than not the driving force behind this is western governments themselves. They foment instability as a hedging mechanism in resource rich African countries, often being bed fellows with rebels while publicly claiming to be supportive of the sitting government in its anti-insurgency efforts. The incentive structure you mention is systemic, and yes, African elites are complicit in bleeding the continent dry by playing that entrenched game to feather their own nests, but the game itself is designed and maintained in the west. In the grand scheme of things, these African elites are minor players who are dazzled by the spoils of aiding and abetting western sponsored looting, the apartments in Paris, the tailored suits, the private school education for their progeny etc, all of which can be funded by a trickle from the hundreds of billions of illicit capital flows they enable. As regards all the ill gotten loot being safely parked in western financial institutions, real estate, and other toys, it is safe, until it isn’t, as Teodoro Obiang, the son of the president of Equitorial Guinea, found out to his dismay when France needed a window dressing exercise to demonstrate its “zero tolerance” towards corrupt regimes using its territory as a safe harbour for stolen money.
I suppose it depends on which literature you’re referring to. I should have said, perhaps, that the “literature” produced by the likes of major donors, the IMF/World Bank, or the UN/EU/OECD and what have you, as well as foundations and think-tanks, is basically useless, and I’ve been very critical of it in things I’ve done and written. I’m thinking rather of the kind of literature which these institutions fail to take into account, because it contradicts their liberal-state assumptions. It’s mostly produced by people who are deep specialists, who have spent much of their lives in Africa, and who, ironically, often see things more clearly than an African intellectual working for a donor-funded NGO. Looking from left to right at the bookshelf I’m sitting next to, there’s Mahmoud Mamdani, David Keen, Johann Pottier, Pierre Péan, William Reno, Christopher Cramer, Antoine Glaser, Jeffrey Herbst, Douglas Johnson, Basil Davidson …. anyway, that sort of thing. Most of these people are academics (some are journalists) and in general they are highly critical of western, and especially international, policies. Yes, most of them are Europeans and Americans, but that’s a feature of the desperate state of the University system in Africa, where good people often have to go abroad to get jobs. (South Africa is thankfully an exception). One of the things I’ve been slightly involved in over the last few decades is initiatives to strengthen practical capacity in African academia. There’s no shortage of brilliant people, but there’s a shortage of resources, visibility, and most of all confidence. I keep telling Africans, academics and government people alike, look, you don’t need me and you don’t need western theories. Why don’t you develop, for example, genuinely African political theories or theories of the international system? But I’m starting to rant, so I’ll shut up.
I have to disagree about instability. There are governments that benefit from it (including African governments, think of the Congo or the whole Sudan/Chad/Ethiopia mess) but the major European nations, at least, want stability above all else. It’s not hard to see why: instability threatens raw material supplies, disrupts markets, creates more wars and conflicts which require peace missions that are disproportionately funded by wealthy nations, and most of all instability produces population movements, famine and other emergencies, and of course massive immigration to Europe. Maybe there are secret plans to destabilise Africa but I can only say that, in thirty years of going to the continent, I’ve never seen any. Indeed, most of the initiatives I’ve been involved in have been aimed at what’s called “stabilisation”. You can argue about the effectiveness of these schemes (I have my doubts) but there’s no doubt that the motivation is to try to prevent instability which itself could rebound on Europe with unpredictable effects. I know that there’s a widespread belief in Africa that the West is out to destabilise you, and I’ve often encountered it. It’s found especially in post-colonial societies, where people have had no control over their recent history: you encounter the same thing in the Middle East. But although nobody would pretend that the international system is fair, or that Africa hasn’t suffered badly from it, or that government and private companies haven’t exploited the continent terribly, the idea of deliberate destabilisation is a Cold War hangover which really does need to be abandoned now .
If you speak of destabilization for destabilization’s sake, then I have to agree. However, resource rich countries are blighted by other things like ethnic and sectarian tensions that are often an accidentally lit matchstick away from exploding, and these tensions are stoked if a coup is needed to get a more pliable regime in power. And both sides are played by those agitating for the sitting government to be overthrown, so that who ever emerges victorious (a sitting government that receives foreign help to foil an attempted coup or a successful overthrow of said government by the “opposition” that also receives help from the same foreign actors) is in their debt, hence I mention destabilization as a hedging mechanism where instability is perhaps inevitable because of tensions that constantly bubble under the surface. What to do when tensions and instability are inevitable and untold billions in profits from natural resource extraction are threatened, you frontrun the instability and shape its outcomes to protect your interests of course, that’s what I mean by fomenting instability. This is not done for its own sake or because people are bad, its seen as a means justified by what is deemed a necessary end. Security experts who work for resource companies on the continent know this, mining company executives know this, and even the academics at the best (in my opinion) development economics faculty on the continent at Stellenbosch University know this, but this is not the type of unsavoury, inconvenient truth that i’d expect to find in literature aimed at western decision makers and such, corporate and government alike. As regards the flow of resources being disrupted, I just consulted a mining executive with over 20 years experience working across the continent and he assures me instability hardly ever does this, even in war zones the resources find their way to port because the warring factions derive some of their funding from the “security” they provide to this precious cargo.
Oddly enough, I find myself using some of your arguments talking to westerners … It’s a question of balance in the end, I think. There’s a risk of encouraging Afro-pessimism by reinforcing the idea that Africa and Africans are nothing but helpless victims and there’s nothing they can do, and there’s also the risk of letting African leaders off the hook.
I can’t speak for the private sector (and of course the resource issue varies wildly within the continent) but certainly western governments do actually want stability in Africa very badly. Yes, conflict doesn’t necessarily interrupt raw material flows, but governments always worry that it might. And I’m not sure about the “warring factions” point anyway. This isn’t Angola in the 80s or the DRC even a few years ago. No-one would suggest that the conflicts in the Sahel or in Ethiopia are really about access to resources. This seems a bit too redolent of Cold War thinking. Western governments contemplate conflict in Africa with dread, as a bottomless pit of money, manpower, political capital, time and effort, without much chance of achieving anything.
That said, I agree absolutely that western interventions in Africa have generally been a disaster, and made a bad situation worse. The unbelievable amounts of money lavished on the promotion of “democracy”, “human rights” “governance” etc. in totally inappropriate ways by people who have no idea what they are doing have destabilised a number of states and threaten to destabilise more. The huge sums of money lavished on things like the EU’s Africa Peace Facility (€3Bn in that case) is really a scandal, and on balance has done more harm than good. But the West, no matter how virtuous its intentions, just can’t leave the continent alone. As I used to say to students in Africa: why would we need to colonise your countries when we can colonise your brains?
Totally agree that it’s all about balance. Africans shouldn’t see, and the ones I know don’t, shining a light on the corruption of political elites and the malign influence of the foreign actors who enable it as an end unto itself, or as a way to print endless victim cards to be waved at every opportunity to deflect from the need to take responsibility for one’s own situation when it is appropriate to do so. Rather, the drive to lay bare what cripples the continent and the intertwined nature of local and foreign motivations that stymie efforts at achieving lasting progress should be seen only as a starting point, not an attempt to elicit pity for Africans. The media and mainstream western institutions like the world bank, IMF etc certainly aren’t up to the task of giving this subject and its multilayered complexities the sort of thorough, unbiased treatment it deserves. Thank you for the names of authors you suggested, some of whom I was not familiar with, and thank you for this exchange.
…and ‘Thank you’ both for taking the time to clearly explain your observations/ideas. Only on NC does this occur, regularly.
Seconded. When I saw a long form exchange between these two I figured it would be worth my time reading it, and I wasn’t disappointed.
“Thirded”. Went back today to check for the rest of the exchanges. NC and its commentariat are the best!
Probably this also applies to South America.
“To secure power, ruling cliques often rely on ‘clientelism’ – patronage or patron-client relations – typically on regional, ethnic, tribal, religious or sectarian lines. Their regimes inevitably provoke dissent – including oppositional ethno-populism and civil unrest, even armed insurgencies.”
Which is why a campaign of instigating further divisions, chaos, and propaganda usually preceeds each looting session. Certain platforms are especially coming in handy for that.
That sectarianism and tribalism has to be made stronger because they can’t have the people sticking together against a common enemy.
That is what destablilization is the result of alleged “stabilizing” military invasions. It’s baked into the cake of military strategy. Tearing up a country keeps the unrest going as a launch pad for the expoitation.
Haven’t read all the comments, but here’s mine:
The plundering of Africa has its corollaries with life in the USA today. Corporate lobbyists purchase Congress the same way commodity importers/exporters skim obscene profits through “payoffs”. Congress isn’t concerned with implementing beneficial policy for the proletariat because they don’t directly pay the costs of election. We’re headed for the same fate as Angola.
A youtube video with the authors of the book can be found here
https://www.youtube.com/watch?v=rWO0biBw3Rc