Financial Transparency Coalition

Every year the OECD Development Assistance Committee publishes a report on resource flows to fragile states. This year’s report, Fragile States: 2013 Resource flows and trends in a shifting world, provides some fascinating insights into the future of global poverty, particularly among fragile states.[1] Coupled with our understanding of illicit financial flows from developing countries, we have an interesting picture of global poverty in coming years.

In 2005 the two countries with the largest number of people living in extreme poverty (i.e. with incomes of less than 1.25 USD / day) were India and China. This fact is statistically unsurprising given that (1) those countries are both developing and (2) those countries have the largest populations in the world. But looking forward to 2015, we expect this picture to change rather radically.

Source: OECD

As we see from the infographic above, from the OECD Development Assistance Committee, India will still have the second largest population of people living below the poverty line, but the reduction in the number of people in poverty is dramatic. Nigeria, perhaps surprisingly, will hold the second largest population of the world’s poorest. Nigeria is also one of the world’s largest exporters of illicit capital. According to a report on Illicit financial flows from developing countries between 2001 and 2010 by Global Financial Integrity, Nigeria lost an average of $12.9 billion in illicit financial flows, which ranks the country ninth in the world. According to the same report, between 1980 and 2009, Nigeria’s average illicit financial flows represented over 50 percent of its external debt.

According to the OECD report (and as shown in the infographic above), in terms of people living in extreme poverty, in 2015, Nigeria will be followed by the Democratic Republic of the Congo (for which we do not have data on illicit financial flows), Indonesia (averaged $10.8 billion in illicit financial flows between 2001 and 2010), Bangladesh ($1.4 billion in IFFs), Tanzania ($333 million), and Pakistan ($251 million). Of these, Pakistan and the Democratic Republic of the Congo are notable not only for their high proportions of the global poor, but also for their risk of regional and global conflict.

One of the most dramatic visual aspects of this chart is the number and percent of the world’s people in extreme poverty who will live in Sub-Saharan Africa (those countries displayed in purple in the graphic above). While there are many ways to explain poverty in Sub-Saharan Africa—with a great deal of interdependency between factors—one of those explanations is illicit financial flows. As a recent report by Global Financial Integrity finds, illicit financial flows (i.e. unrecorded flows) were the “main driving force behind the net drain of resources from Africa.”[2] Over a thirty year period of study, IFFs from Africa grew at a much faster rate than recorded transfers; indicating the problem isn’t only bad—it’s getting worse. The GFI report also finds that illicit outflows from Africa were dominated by outflows from Sub-Saharan Africa, especially West and Central Africa.

While we may be surprised by the number of countries from Sub-Saharan Africa that appear in the infographic, we are also surprised by the number of people in extreme poverty who will not live in poor countries. At least half of people in extreme poverty in 2015 will live in fragile states. Yet this fact is coupled with a paradox—according to the OECD report, the poverty picture is changing from “one of poor people living in poor countries (73% of the world’s poor lived in poor countries in 2005) to one of poor people living in middle income countries (65% of the world’s poor in 2010), a quarter of which are fragile.”

While corruption and the resource curse, inadequate transportation infrastructure, political instability, poor maritime geography (i.e. landlocked nations), and poorly drawn colonial borders will continue to contribute to poverty in Africa, we must pay particular attention to capital flows. As the OECD report correctly points out, and as we’ve argued for years, capital and investment are arguably two of the most important drivers of economic growth. Understanding their movement, particularly when they’re unrecorded, will help us change the picture of development for Sub-Saharan Africa, fragile states, and those in extreme poverty now and in the future.