Wednesday, March 24, 2021

Pillaging Africa


Capital flight from Africa is a modern-day reincarnation of the colonial state-led plunder of the continent’s natural resources. In this new scramble for Africa, multinational corporations replay the Berlin Conference of 1884-85 and compete for a slice of the African cake. In a world with weak corporate sector regulation, multinational corporations capture Africa’s resources for cheap and repatriating profits, leaving behind an impoverished population and a devastated environment. The African continent loses more than US$50 billion per year through capital flight. Modern-day plunder of African resources operates along a sophisticated criminal enterprise value chain, from the predicate crime (origins of the illicit funds), to the illicit cross-border transfer of funds, all the way to the concealment of the proceeds in the poisoned paradises called tax havens. The plunder of Africa’s wealth is aided by an intricate transnational takers network that takes advantage of structural flaws in the international regulatory system. 

Capital flees Africa in search of protection from prosecution about the origins of the money and to evade taxation. Thus, owners of illicitly acquired wealth are happy to accept negative rates of return on their money in safe havens, in exchange for protection from legal pursuit. The wealth of High Net Worth Individuals, corporations, and politicians is channelled through safe havens with the help of custodian banks and an industry of enablers comprising of law firms, accounting firms, audit firms, and other deal makers. Thus, the origins of the wealth are disguised, and the true beneficial owners are made ‘invisible’ with the stroke of a pen. Hence, financial crime is separated from the criminals; impunity prevails.

The problem of capital flight African governments may be forced to cut development expenditures, which undermines provision of vital public services and derails progress in poverty reduction. The haemorrhage of wealth through capital flight means more lives lost due to lack of healthcare, more children denied education, and stunted private sector development for lack of transport, power and telecommunication infrastructure.

The key channels of capital flight are leakages through the Balance of Payments (money that enters the country but cannot be traced in the recorded uses of funds) and trade mis-invoicing (under-invoicing of exports and over-invoicing of imports). Money borrowed by governments or raised through resource exports often goes missing; public infrastructure projects are executed at inflated costs, with the difference being pocketed by politicians and channelled abroad as capital flight. 

African resource-rich countries are particularly exposed to capital flight through embezzlement of export proceeds and export mis-invoicing. Moreover, resource-rich countries lose large amounts of tax revenue through manipulation of transfer pricing by multinational corporations that take advantage of tax havens. Oil-rich African countries account for over 55 percent of total capital flight from the continent.

 On the top of the list is Nigeria, which lost a staggering $467 billion through capital flight between 1970 and 2018.

 As of end of 2018, Angola lost as much as $103 billion through capital flight. This is a country where 76 percent of the rural population lives in extreme poverty below $1.90 per day. The national poverty rate in Angola has risen from 34 percent to 52 percent in the past decade, and the number of poor people more than doubled from 7.5 to 16 million (World Bank). For the ordinary Angolan, capital flight means more hunger and more destitution. 

A key mechanism of capital flight is embezzlement of the proceeds of oil extraction and tax evasion to the benefit of multinational corporations and the Angolan elite. For example, the former President’s daughter, Isabel dos Santos has amassed massive wealth and established a global business empire by exploiting her influence in state enterprises such as Sonangol. The January 2020 ‘Luanda Leaks’ report by the International Consortium of Investigative Journalists (ICIJ) identified more than 400 companies in Isabel dos Santos’ business empire, including 94 in recognised tax havens. Thus, Angola’s wealth has served to lubricate financial systems in the West, not only in the usual offshore financial centres, but also in the ‘supposedly onshore countries’ like Portugal 

Côte d’Ivoire is known for cocoa. As of end of 2018, the country had lost $55 billion through capital flight since 1970. Côte d’Ivoire is the world’s top cocoa producer, accounting for 40 percent of global supply. Yet the country receives only 5-7 percent of the profit generated globally by cocoa. Cocoa farmers get little reward for their hard labour. Most of the value of cocoa accrues to local intermediaries, international export and processing corporations, and powerful politicians. This system has been preserved by successive political regimes; for everyone that matters gets their cut; the Ivorian people lose, but they have no means to change the system. As the country’s wealth is expropriated through capital flight, the Ivorian people lack basic services. Less than 40 percent of the population have access to clean sanitation facilities.

South Africa has suffered from capital flight orchestrated by an intricate network of players and enablers connected to both the domestic political system and the international financial system.  From 1970 to 2018, South Africa lost a staggering $329 billion through capital flight. The proceeds of massive misinvoicing of mineral exports, embezzlement of state resources in the context of ‘state capture’ by powerful and politically connected individuals and corporations, and corporate tax evasion have fuelled the accumulation of private wealth in offshore financial centres. 

The inability to take full advantage of its own resources is a major reason for the slow progress in poverty reduction in ‘the most unequal country in the World’. The top 10 percent richest of the population own 51 percent of the country’s wealth; the bottom 10 percent hold less than 1 percent.

The worst culprits of banking secrecy are not necessarily remote islands in the tropics, but rather major financial centres in advanced economies notably the United Kingdom and its territories, the United States, Switzerland, the Netherlands and others.

Capital flight from Africa: Resource Plunder and the Poisoned Paradises in Tax Havens - Tax Justice Network

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