How highwaymen from the North keep Africa in chains

Alpha, Beta, Gamma, Delta, Omicron … How many more letters of the Greek alphabet, symbolising the variants of Covid-19, will the world have to endure? While Southern Africa was the victim of an ultimately unnecessary and unfair border closure late in 2021, a handful of wealthy countries continue to oppose the demand to lift patents on vaccines and treatments for the virus. This vaccine selfishness is taking its toll on poor countries, but it is also returning like a boomerang to the better-off, with new waves of the virus becoming much more contagious and vaccine resistant.

This cynicism and blindness are also reflected by the financial flows between the North and the South. On paper, rich countries multiply development aid and direct investments in Africa. In reality, they turn a blind eye to an international system that systematically plunders the continent for the benefit of an elite and of large corporations. Over the past five decades Sub-Saharan Africa has lost more than $2-trillion to capital flight. This haemorrhage has accelerated since the turn of the century, averaging $65bn a year, a sum that exceeds annual inflows of official development aid.

In the imaginary world of a perfect market economy, natural resources would be a blessing and capital would flow to the countries where it is most scarce. Africa would be a net recipient. The Angolan people would prosper from the proceeds of oil extraction; Ivorians would thrive as the world’s top cocoa exporter (45% of global production); and South Africans would enjoy the fruits of mineral abundance.

Yet this is not happening. Natural resources are instead a hunting ground for quick wealth extraction and offshore accumulation. Cross-border capital flows are driven not by relative scarcity in Africa, but by the relative secrecy available in foreign havens. Foreign loans are often dilapidated and unprofitable — even when they do not evaporate into thin air. In Mozambique’s “hidden debt” scandal, for example, a $2bn loan (equivalent to 12% of GDP) that was structured by government officials, European bankers and Middle Eastern businessmen never even made it to Mozambique, yet the country is on the hook to repay it with interest.

In Angola, oil extraction has only served to enrich the elite and multinational oil companies. From 1986 to 2018 the country lost $103bn through capital flight, a sum that equals the country’s 2018 GDP. Meanwhile, only 7% of rural Angolans have access to electricity, and nearly half the population lacks access to drinking water and basic sanitation services.

Similarly, most of Ivory Coast’s cocoa farmers live below the poverty line, while the country saw an estimated capital flight of $55bn between 1970 and 2018. In the same period about $329bn vanished in SA. Here, the systematic underinvoicing of mineral exports accounted for much of the poor performance in terms of growth, saving, domestic investment and poverty reduction in what is branded as “the world’s most unequal country”.

Resource curse

We reveal these amounts in our latest book, On the Trail of Capital Flight from Africa: The Takers and the Enablers, through three examples: Angola, Ivory Coast and SA, countries rich in natural resources but with disappointing development outcomes.

Beyond the numbers we show how national elites are aided and abetted by external banks, accountants and consulting firms to orchestrate capital flight from African countries. The politics of the “resource curse” undermines the fiscal contract between the state and the people. When a state derives most of its revenue from parastatal monopolies, supplemented by external loans, its foreign collaborators rather than its own citizens become its main constituency.

Co-ordinated regional and global efforts are needed to combat capital flight, corruption and corporate tax evasion. The courageous work of the International Consortium of Investigative Journalists and other organisations has shed light on the underground networks of profiteers and enablers.

Much remains to be done and the ambition is not commensurate with the need, as is demonstrated by the adoption of a global tax agreement in October 2021, imposed by the rich countries. Its main measure — a global corporate tax of just 15% — shows that Northern capitals remain more responsive to the rhetoric of multinationals than to the needs of developing countries.

The Independent Commission for the Reform of International Corporate Taxation — which includes economists such as Thomas Piketty, Gabriel Zucman, José Antonio Ocampo and Jayati Ghosh — advocated a rate of 25%, which would recover most of the $240bn that is lost annually to what is coyly called tax optimisation. A 15% rate does not generate more than $150bn in additional resources a year, most of it being captured by rich countries.

As with the Covid-19 vaccine, this is a short-term calculation. Only vaccine solidarity will stop the variants that will otherwise prolong this pandemic indefinitely. And it is only by really attacking the plundering of the resources of the South that we will allow countries to develop and avoid a social explosion and forced migrations. It is also the only way to allow them to face the climate emergency, with positive consequences for all.

• Boyce is a professor emeritus and senior fellow at the Political Economy Research Institute, University of Massachusetts Amherst. Ndikumana is professor of economics and director of the African Development Policy Programme at the Institute for Economic Research, University of Massachusetts, and a member of the Independent Commission for the Reform of International Corporate Tax.