Passage from Africa: a continent stifled by foreign ‘benefactors’


Between 1980 and 2009 the African continent, the world’s second most populous land mass, lost approximately US$1.4 billion (adjusted for inflation) owed in taxation that foreign governments and multinational corporations had illegally evaded. Today these illegal transfers of money out of the continent amount to three times as much as they valued at the start of the century — growing to more than US$50 billion a year.

The US$1.4 billion figure, which excludes money lost to organised crime, and thus underestimates the extent of the illicit outflows, roughly equates to Africa’s GDP today. The loss of this much-needed capital for some of the world’s poorest and most unstable economies has stymied national investments into development projects and the provision of basic services. The result has been a vicious cycle of underdevelopment that has had profound social, political and economic impact upon people across the continent.

Such is the extent of the capital flight, its forms multifarious; smuggling, money laundering, trade mispricing, and profit-shifting mechanisms that conceal taxable revenues, that despite the perception that Africa has received vast quantities of foreign aid and private-sector investment, and that little has been received in return, Africa has in fact been a net creditor for decades, with the illicit outflows of capital from the continent — arranged by governments and multinational corporations — valuing more than the total amount of foreign aid reaching Africa. Moreover, the Global Financial Integrity (GFI) think-tank has estimated that whilst perhaps only 3% of illicit outflows stem from bribery and embezzlement — activities which feature strongly in the public imagination — this is dwarfed by the estimated 60-65% of capital flight caused by multinationals seeking to avoid taxation.

Although it is broadly clear what needs to be done: there must be greater effort to eradicate corruption, increased transparency in the extractive resource sector, and a clampdown on financial institutions that participate in fraudulent transfers of capital, a recent report by the African Union and the UN’s Economic Commission for Africa (ECA) accused both African and non-African governments, and private-sector corporations, including oil, mining, banking, legal and accounting firms, of continuing to participate in money laundering schemes and corporate tax avoidance. 

Indeed, during a UN financing for development summit in Addis Ababa in 2015, the US, UK and Japan blocked efforts to upgrade the current UN tax body to an intergovernmental one — claiming that such a move would interfere with the work that the OECD (an economic group of high-income economies) already conducts on tax. However, for Jayant Sinha (India’s Finance Minister), “the lack of an ambitious decision on upgrading the UN Committee of Experts on international cooperation on tax matters into an intergovernmental body … is a historic missed opportunity,” since it would have given less developed nations greater influence over policy decisions on global tax arrangements made at the UN. Ultimately, there has been little appetite on the part of rich nations to intervene to the perceived detriment of their own corporations — who hold considerable domestic political influence.

Ironically, despite the West’s opposition, regulations that would improve anti-money laundering institutions would help prevent funding reaching terrorist groups like Al-Shabaab and Boko Haram, while a global tax body would remove the confusion and inconsistency from international trading, halt the race to the bottom when it comes to tax loopholes and incentives, and put an end to the phenomenon of individuals being taxed in two jurisdictions.  

With countries from across the continent, whether it be in West Africa where it is believed that Nigeria has lost over US$220 billion since 1970, or in an East African nation like Ethiopia that is losing as much as 11% of its production to illicit financial flows each year, such a pernicious economic problem — man-made by the world’s most powerful nations — is clearly overdue rectification. It has long been time for members of the OECD to take meaningful action on the international stage in order to level the economic playing field for all nations — ending an unjust, neocolonialist power dynamic which has improved the lot of rich nations at the direct expense of those that are less developed.