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Africa's Capital Losses: What Can Be Done?"

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Africa's Capital Losses: What Can Be Done? Bulletin N°87 - Fall 2012 "Africa's Capital Losses: What Can Be Done?" Edited by William Minter and Timothy Scarnecchia Special Bulletin Editors: Léonce Ndikumana and James Boyce Table of Contents Page Introduction 1 William Minter and Timothy Scarnecchia 2-7 Rich Presidents of Poor Nations: Capital Flight from Resource-Rich Countries in Africa Léonce Ndikumana and James K. Boyce 8-14 Macroeconomic Impact of Capital Flows in Sub-Saharan African Countries, 1980-2008 John Weeks 15-21 Illicit Financial Flows: A Constraint on Poverty Reduction in Africa Janvier D. Nkurunziza 22-28 The Paradox of Capital Flight from a Capital-Starved Continent Elizabeth Asiedu, John Nana Francois, and Akwasi Nti-Addae 29-35 Stolen Asset Recovery: The Need for a Global Effort Hippolyte Fofack 36-41 Debt Audits and the Repudiation of Odious Debts James K. Boyce and Léonce Ndikumana 42-47 The Benefits of Country-by-Country Reporting Richard Murphy 48-53 Africa’s Lost Tax Revenue John Christensen 54-58 Tax Havens: An Emerging Challenge to Africa’s Development Financing Nicholas Shaxson 59-62 Plundering a Continent Raymond Baker 63-64 Information Resources on Capital Losses and Related Issues William Minter WILLIAM MINTER & TIM SCARNECCHIA EDITORS’ INTRODUCTION Editors’ Introduction leaders. In fact, despite the many differences between the rich countries of the West and developing countries in Africa, the same structural William Minter and Tim Scarnecchia realities and the same institutions are implicated in the "fiscal crises" of Europe and North America and William Minter is editor of AfricaFocus in the failure of African states to capture and Bulletin and a member of the ACAS Advisory channel sufficient resources to development. Council. Tim Scarnecchia is associate professor of history at Kent State University We asked Ndikumana and Boyce to put together and co-editor of the ACAS Bulletin. this special issue of ACAS Bulletin, titled "Africa's Capital Losses: What Can Be Done?" The goal of . this Bulletin is to provide a better understanding of When presidential candidate Mitt Romney released the ways capital is lost and the measures that can be his 2011 tax return in September 2012, Huffington taken in Africa and in rich countries to stem this Post journalist Zach Carter calculated that 267 of hemorrhaging of resources. the 379 pages of the return were devoted to investments in foreign companies and partnerships. The issue of illicit financial flows is moving higher Of the 34 offshore companies involved, 30 were on the agenda of Western countries and the located in countries considered to be offshore tax international community more generally. Notably, havens by the U.S. Government Accountability mechanisms that have been developed for tracking Office. flows associated with drug smuggling or support for terrorism turn out to be precisely the same But Romney is far from an exception among the mechanisms needed to track resources sent across rich in the United States and around the world. national borders to evade the tax authorities of both According to a Tax Justice Network report released rich and poor countries. This is creating new in July, the global super-rich hold at least $21 opportunities to address illicit financial flows of all trillion in offshore accounts protected by secrecy, kinds. both in well-known tax havens such as the Cayman Islands and in a shadow financial system involving The contributors to this issue are among the leading the world's largest banks and related financial authorities in the field. They have been asked to industry institutions. That minimum estimate is cover specific aspects of the topic in accessible equivalent to the size of the U.S. and Japanese language and to suggest further resources for those economies combined. seeking to explore the topics in more depth. We are delighted with the result, and we hope this issue will In their 2011 pathbreaking book, Africa’s Odious be widely used to draw greater attention to the topic Debts: How Foreign Loans and Capital Flight Bled of illicit financial flows, which is of fundamental a Continent, Léonce Ndikumana and James Boyce importance for Africa and for countries around the demonstrate the systematic draining from Africa of world. The capacity of the 1% to evade their resources by this global system, in which rich responsibilities and undermine the public good individuals and large companies hide income and depends on a deeply entrenched network of assets from public scrutiny and from taxation by financial secrecy that spans national boundaries. transferring them across borders. Africa's situation Exposing this web of institutions to public view and is aggravated by its vulnerability in the world recapturing public resources for public goods economy, by the weaknesses of African states, and requires joint action by scholars, policymakers, and by the misguided assumption that this pattern stems activists that also crosses national and institutional only from the personal corruption of African boundaries. ASSOCIATION OF CONCERNED AFRICA SCHOLARS BULLETIN N°87 – FALL 2012 1 LEONCE NDIKUMANA & JAMES K. BOYCE RICH PRESIDENTS OF POOR NATIONS Rich Presidents of Poor Nations: handled through his forestry company, Somagui Forestal, and bank accounts in offshore centers. Capital Flight from Resource-Rich Countries in Africa Equatorial Guinea, Gabon, and the Republic of Congo are among the richest countries in Africa Léonce Ndikumana and James K. Boyce1 with per capita incomes of $8,649 (second), $4,176 Department of Economics and Political Economy (5th), and $1,253 (15th), respectively. They have Research Institute (PERI), University of massive oil reserves, ranking 7th (Gabon), 8th Massachusetts Amherst (Congo), and 10th (Equatorial Guinea) in the continent. While their presidents and other members of the political elite are amassing fortunes Léonce Ndikumana and James K. Boyce are abroad, the majority of their fellow citizens live in co-authors of Africa's Odious Debts: How abject poverty, lacking access to basic social Foreign Loans and Capital Flight Bled a services such as decent sanitation, clean drinking Continent (2011) and teach economics at the water, elementary school, and health care. Despite University of Massachusetts, Amherst. Léonce Equatorial Guinea’s large oil revenues, a baby born Ndikumana is Director of the African Policy there has less chance of living to his or her fifth Program at PERI. James K. Boyce is Director birthday than the average sub-Saharan African of PERI’s Development, Peacebuilding and infant. Gabon and Equatorial Guinea rank second Environment Program. and third to last in their rate of immunization against measles, at 55% and 51%, respectively. Recently some African presidents have featured in The stories of opulence and extravagant lifestyles of media headlines not for their heroic leaders of resource-rich African countries illustrate accomplishments as leaders but for robbing their critical leadership failures, where national leaders nations and siphoning their ill-gotten gains to safe rob their nations instead of helping to develop them. havens. Since 2010, French judges have been These pathologies are perpetuated by complicit investigating illicit wealth accumulation by the foreign special interests and a shadow international presidents of the Republic of Congo, Gabon, and financial system that enables the perpetrators of Equatorial Guinea, all of whom are accused of financial crime to walk free thanks to banking embezzlement of public funds, money laundering, 2 secrecy. They are also facilitated by the willful and plundering national wealth (Gurrey 2012). In blindness of Western financial institutions and July 2012, Judge Roger Le Loire issued an arrest governments that have tolerated this illicit warrant against Teodoro Ngema Obiang, nicknamed accumulation of wealth over the years. Teodorin, the son of the president of Equatorial Guinea, on the basis of evidence of illicit wealth This article tells a story of poverty in the midst of accumulation through embezzlement of public plenty, a story of elite capture of resources and resources. The stylish president’s son has amassed a expropriation of the people by those entrusted to portfolio that includes multi-million-dollar real advance national interests. It is a story of endemic estate in France, luxury cars, designer watches, and grand corruption, well beyond mere bribe taking art objects. His personal financial transactions are and opaque management of natural resources. It reflects systematic dysfunction of the judicial 1 The authors are grateful to Theresa Owusu-Danso for system and the regulatory framework, which have excellent research assistance. been hijacked by the political elite and powerful 2 In October 2011, the United States also sought to seize $70 special economic interests. million in assets from Teodoro Nguema Obiang (http://www.bbc.co.uk/news/world-africa-15464988). ASSOCIATION OF CONCERNED AFRICA SCHOLARS BULLETIN N°87 – FALL 2012 2 LEONCE NDIKUMANA & JAMES K. BOYCE RICH PRESIDENTS OF POOR NATIONS The story features both domestic and foreign actors oil producers, and expected oil discoveries around who collude in the capture of rents from natural the continent may further expand the club in the resources and in the transfer of the proceeds to safe coming years.4 At least at face value, this is good havens. This means that finding a solution to the news for Africa. problem requires looking beyond the natural resource sector and addressing dysfunctions in the
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