by GREG WILPERT
GREG WILPERT: It’s The Real News Network and I’m Greg Wilpert, coming to you from Baltimore.
Countries of Africa continue to struggle with their economic development and tend to remain towards the bottom in world rankings of GDP per capita. A recent study conducted by the Political Economy Research Institute, PERI, sheds new light on why countries in Africa have a hard time developing. The study is titled “Magnitude and Mechanisms of Capital Flight from Angola, Cote d’Ivoire and South Africa,” and it develops a new methodology for estimating the extent of capital flight from these countries. The study was authored by Leonce Ndikumana and James Boyce. We have spoken to Leonce Ndikumana before about capital flight from Africa in general terms.
This new study, however, zooms in on these three countries, Angola, Cote d’Ivoire, and South Africa. It finds that during the 40 year period from 1975 to 2015, 60 billion dollars were lost from Angola, 32 billion dollars from Cote d’Ivoire, and 198 billion dollars from South Africa to capital flight. The main means for this capital flight appear to have been a combination of misinvoicing, underreporting of exports, overreporting of imports, and cheating on taxes and tariffs.
We are now joined by Leonce Ndikumana to discuss the study. Leonce is Professor of Economics at the University of Massachusetts, Amherst, and he’s also director of the African Development Policy Program at the Political Economy Research Institute. Also, he is the co-author of the book, Capital Flight from Africa: Causes, Effects, and Policy Issues. Thanks, Leonce, for joining us again.
LEONCE NDIKUMANA: Thank you very much for the opportunity to talk to you.
GREG WILPERT: So before we delve into the specifics, tell us why it is important to understand the magnitude of capital flight. What does this figure tell us about a country?
LEONCE NDIKUMANA: Thank you very much for the opportunity, again, to talk about this important subject, as to why it’s important to worry about the magnitude of capital flight from African countries. The simple answer is that we are concerned and interested about the way African countries can finance their development programs. As you indicated in your introduction, African countries have made big strides in terms of isolating growth and even reducing poverty. But we know that the continent continues to trail other continents in terms of levels of poverty, which remain very high, high inequality, massive gaps in financing for infrastructure or basic services like education and health. And therefore, for these countries, every penny counts.
So the reason we are interested in capital flight is because it basically undermines the efforts of those countries to mobilize resources to meet those urgent needs. Every penny that leaves the country, that’s smuggled out of the country, is money that could have been used to build schools, roads, and clinics, and keep kids in school, and that’s related to growth. That’s why we are interested in this phenomenon. And when we look at the numbers, as you said, these are large, large numbers that amount to money that have been leaving the country unaccounted for. But it belongs to private individuals who are able to smuggle the money out of the country, who are able to accumulate the wealth abroad without being taxed, typically in secrecy jurisdictions in all kinds of forms; financial, liquid assets, or physical assets.
So the reason why we are interested in capital flight and its magnitude is because it is a constraint to financing development. And again, another reason why we wanted to do this particular study, focusing on three countries, which we hope to continue into other countries, is because so far we have been looking at the magnitudes of capital flight from the continent, looking at many, many countries. And we have seen that it is a problem, but we realize that we actually have so far been looking at the forest and we haven’t looked at trees.
GREG WILPERT: When looking at your data on Cote d’Ivoire, it seems that this country was able to stop capital flight and even reverse it around the year 2000. But you also argue that this is not necessarily the result of better policy, but maybe because there was misinvoicing of exports, which is being balanced out by misinvoicing of imports. Is this the case, and what does that kind of misinvoicing mean for the lives of the people of Cote d’Ivoire?
LEONCE NDIKUMANA: Yes, thank you. The interesting thing–when you start to look at individual countries in more details, you find different pictures emerged from different countries. In the case of the Ivory Coast, as you indicated, the last ten, fifteen years look very different from the previous years. And what is the biggest source of change is trade misinvoicing. In the case of Ivory Coast, what reduces the major capital flight is this peculiar situation where you have exports for which the value recorded by Ivory Coast seemed to be very different from value recorded by its trading partners. And it’s peculiar in the sense that normally, when it comes to exports, export invoicing normally amounts to exporters declaring a lower value than the importers, the buyers, as a way of keeping money abroad. But in some cases, as in the case of Ivory Coast, you have this very strange situation where the importers are declaring much larger amounts than the exporting country, which doesn’t make sense.
And that’s why when you look only at the aggregate, it’s difficult to explain what is happening
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