Illegal Capital Flight From Developing Economies Slows Down Development

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The flow of capital leaving the African continent has been a major problem particularly over the last decade,as demand for natural resources increased from our friends in the East – China. An increase in intra-African trade has also led to more African countries trade with each other. This has allowed Multinational companies particularly South African companies to penetrate markets in other regions of Africa where they are allowed to carry out business without paying sufficient tax. These developments however, come at a price as most governments in Africa allow multi-national companies to have tax breaks thus depriving their countries of much needed revenue to invest in infrastructure such as the energy,education and health sectors that are in need of an upgrade in many countries. African leaders have to a large extent given up the fiscal sovereignty of their countries in a bid to make the business environment in a attractive to investors who often times threaten to relocate their businesses if governments do not have a more relaxed regulatory and tax environment. This has allowed multinational companies to become less accountable in revealing their earnings. It is common knowledge that many have created subsidiary companies around the world that trade with each other at a loss and launder money to offshore accounts in jurisdictions where very few questions are asked about their source of income. Multinational companies have been able to exploit the poorly regulated business environments they operate in to maximize their profits because of the weak and permissive laws that exist in most African countries. The natural resource boom of the past few years has created a new “monied class” and has not helped in the reduction of poverty. There is the traditional belief that Switzerland is the tax haven most favored by businesses and individuals to stash money away but new trends show that London continues to be the haven attracting those who managed to reap substantial benefits from the commodities boom. Specialist consulting wealth management firms have sprung up in major cities around the world to help the ultra rich move their money. In a recent documentary on one of the major international networks, it was revealed that Mayfair is one of the highly sort after areas by the ultra rich who are looking to invest in property long term. There is certainly nothing wrong with investing hard earned money in property or any other form of investment however, it is common knowledge that the politics of appeasement that is common in Africa has created an African elite that is looting at the expense of the development of the continent. At least $900 million has been spent over the last three years on luxury properties in London. This is according to a recent report by CNN. At least 10% of Africans spend $45 million on a London home. The excesses of Africa’s elite are show cased in publications such as Forbes Magazine in which the children of some African leaders  who have ruled their countries for decades are listed as billionaires. One wonders whether this is an illustration of how there is “honour among thieves”. Many questions are being asked as to why Africa has some of the poorest countries in the world, despite the abundance displaced by those in power, who also allow multinational corporations drain countries of resources without paying sufficient taxes. There is no doubt that weak institutions and implementation of bad policies have allowed multinational companies to siphon off money to other countries. Important government institutions that are empowered to eradicate corruption are among the most corrupt in many countries on the continent. Corrupt law enforcement and judicial systems ensures that the political elite benefit directly from corruption. Any unethical practices by multinational corporations are over looked. Fraud and unethical ways of doing business continue to thrive in a good number of countries with poorly regulated financial systems which make countries vulnerable to financial crises. Public sector corruption has particularly become endemic over the last few years during the commodity boom years, as those in power strive to appease their political cronies. With no formal ways of holding public officials accountable, the lack of institutions that allow people to fully take part in the democratic process to ensure leaders provide basic services ranging from law and order to health care means citizens are largely excluded from the democratic process. Many critics in the industrialized world are of the view that now is the time for Africa to be weaned off aid and that the West has been extremely generous in providing aid. Few however, realize that more money is taken out of Africa than aid that is given each year. The amount of money flowing out of Africa is at least 10 times more than foreign aid being given. This was recently stated by Raymond Barker Director of Global Finance Intergrity  in a documentary about mineral wealth in Africa. The influence of powerful international institutions and corporations continue to undermine the development of Africa. Persistent underdevelopment has been particularly exacerbated by the lack of industrialization and this means that the continent is at the mercy of external factors. Skilled manpower to grow the manufacturing industry is lacking and this has resulted in many multinational companies taking advantage of the skills gap to recruit workers from outside the continent. The current economic environment where there is a vacuum in terms of sound institutions that operate in a more transparent and accountable way is a serious draw back for the continent. Unless this is addressed, most countries will not be on the path to sustainable wealth and reduction of poverty.

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