What Can Be Done About Africa’s Capital Losses?

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In the past, we have looked on the continent of Africa as a group of countries struggling to survive due to many negative financial factors. Known as being part of the global economic system described as developing, the truth behind the capital losses of Africa is far different than myth told around the world. As far back as 2011, the major issues of capital flight and crippling loans were discussed in the book, “Africa’s Odious Debts” by Leonce Ndikumana and James Boyce. What is now understood is the growing level of corruption and tax evasion taking place on the African continent that makes it difficult for nations to compete on the global economic stage.

Recent Studies

The pioneering work done in the book released in 2011 has been followed by more recent studies backing up the claims that the money smuggled out of Africa far outweighs the debts that have been amassed because of the corruption of officials and the tax evasion of individuals and major corporations. A 2018 study from the Political economy Research Institute and the University of Massachusetts backed up the claims of the author of “Africa’s Odious Debts” by revealing the full level of corruption, money laundering, and tax evasion taking place across the continent.

In the PERI study, the full level of corruption was revealed with the figures showing losses of $1.4 trillion between 1970 and 2015 from 30 African nations that could total $1.8 trillion when interest is taken into account. Over the same 46-year period, the level of debt accrued by the 30 African nations reached just $496.9 billion in 2015 with the foreign aid passing into these nations reaching $991.8 billion. The argument made by the study is the nations of Africa could have been self-sufficient had they not been subject to corruption and tax evasion.

One of the most commonly held incorrect beliefs held by people in the developed world is that corrupt African leaders and Dictators such as Libya’s Gaddafi, bear the brunt of the responsibility for the failure of the continent to move forward over the last century. In fact, the financial problems found in the developing and developed economies are far from different with capital flight simply taking place more often on the African continent.

Financial Irregularities

One of the most common financial irregularities taking place on the continent of Africa and in the developed world is tax evasion by major corporations. The developing economies of Africa often struggle to provide a stable financial future for their citizens and are often subject to tax evasion by major corporations. Moving funds from the developing nations of Africa to hard currencies, such as the Dollar, Pound, or Euro often takes place by moving money through tax havens where the taxes need by developing nations to improve infrastructure. Without the tax funds made available to governments across the African continent, there is little chance these nations will reach the goals laid down by the United Nations for classification as sustainable development.

Another area of concern for the majority of Government in Africa is that of trade mispricing and trade between partner organizations. The PERI study showed a total of between $1.22 and $1.35 trillion had been lost to improper product and service pricing when moving goods in and out of nations in Africa between 1980 and 2015. To cut down on the level of taxes to be paid many major corporations use their own subsidiaries to move goods in and out of Africa effectively choosing the value of goods to suit their own financial needs.

The authors of “Africa’s Odious Debts” believe the continuing political and economic uncertainty on the continent is being prolonged by major corporations and wealthy individuals evading general taxation. These practices are similar to those used by terrorist groups and drug trafficking gangs who launder money from illicit acts before turning it into untraceable hard currency. Both Ndikumana and Boyce believe the same mechanisms designed to trace criminal funds passing across global borders should be put into place to track the movement of funds in and out of African nations to provide a more stable economic future for the continent.