About $854 billion flowed out of Africa illegally in the 39 years to 2008, and such continued capital flight will undermine gains from faster economic growth, perpetuating poverty, a study showed.
The study by Global Financial Integrity (GFI) showed yesterday illicit capital outflows, including proceeds from bribery, theft, human trafficking, drugs and tax evasion, grew at an average 11.9 % between 1970 and 2008.
“Africa lost an astonishing $854 billion in cumulative capital flight, enough to not only wipe out the region’s total external debt outstanding but potentially to leave $600 billion for poverty alleviation,” the study presented at an African Union conference of economic and finance ministers in Malawi showed.
It said economic growth without credible reform could lead to more capital flight.
“Policy measures must be taken to address the factors underlying illicit outflows and also to impress upon the G20 the need for better transparency and tighter oversight of international banks and offshore financial centres that absorb these flows,” the report said.
The study showed fuel exporters such as Nigeria lost capital at the rate of nearly $10 billion a year, far outstripping the $2.5 billion lost by non-fuel primary commodity exporters.
Growth outpaces developed countries
Economic growth in many African countries has outpaced that in developed countries, partly due to firm commodity prices, but a majority of people on the continent live below the poverty line.
The GFI said the high rate of illicit capital outflow had undermined donor-driven efforts to end poverty and boost economic growth and was the main stumbling block to development.
“So long as illicit capital continues to haemorrhage out of poor African countries over the long term at a rapid pace, efforts to reduce poverty and boost economic growth will be thwarted,” the research found.
Prudent macroeconomic policies such as lower fiscal deficits, more conservative monetary policy, positive real interest rates and appropriately valued exchange rates would help improve the attractiveness of domestic investments, especially if complemented by strong institutions and the rule of law.
“If the problem of illicit flows is not addressed as a matter of high priority, the poor will likely experience a further decline in access to basic services in the face of grinding poverty,” the GFI said.