Bringing the billions back: how Africa and Europe can end illicit capital flight

March 12th, 2011

The report explains illicit capital flight, how it happens, its magnitude and its consequences for development, measures taken so far and measures needed to end it. It also includes a specific chapter on capital flight from Africa and presents illustrative case studies from Kenya, South Africa and Tanzania. These are written by Attiya Waris from Tax Justice Network Africa and by the Budget Working Group of Policy Forum in Tanzania.

Every year huge unreported flows of money are leaving developing countries, ending up in rich countries or tax havens. If properly reported this illicit capital flight would generate at least US$160 billion per year in tax revenue – more than one and a half times the total annual aid to the developing world. These are resources that could be crucial in the fight to combat poverty.

Contrary to popular belief, only a small share, three to five percent, of illicit capital flight stems from corruption. Instead, almost two thirds originate from multinational companies evading to pay tax, and one third is a result of criminal activities such as trade with humans, drugs and weapons. Despite the fact that illicit capital flight has severe consequences for developing countries – it cancels investment, undermines trade, hurts competition, worsens income gaps and drains hard-currency reserves – awareness of the measures needed to end it is low.

As a percentage of GDP, capital flight from Africa is larger than from other parts of the world. But Africa cannot stand alone to end it, cooperation and political will is required by decision makers in Europe as well as in Africa.

Putting an end to illicit capital flight is an urgent matter of global justice, of bringing the billions back to where they were produced and where they should contribute to the welfare of the people. At the same time, it is a win-win opportunity for Europe and Africa. Nations on both continents suffer from illicit capital flight and the loss of growth and tax revenue that comes with it. Both continents would gain from transparency that would counteract not just tax evasion, but also illegal trade in drugs, weapons and humans. To make this happen, it is time for civil society, journalists, and decision makers in Africa and Europe to join cause.

Written by Eurodad

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