Capital Flight

Foreign Policy has an interesting (if brief) essay by Khadija Sharife on the problem of keeping African money in Africa.  She downplays the standard interpretations of endemic corruption of African elites or the theft of resources from war-torn countries (although she mentions both of these problems.)

Instead, Khadija’s essay focuses on the use of tax havens, mostly in Europe, that facilitate the transfer and dispersal of tax revenues and cash from Africa.  As she writes:

The numbers are staggering. Each year, more than $1 trillion exits developing countries, and more than $140 billion of comes from Africa. That’s almost four times as much as the continent gets in official development aid. Sub-Saharan Africa may be the world’s poorest region, but it’s also its leading net creditor.

She’s right.  Those numbers are staggering.  Staggering and enlightening and depressing.  $140 billion dollars, which by all rights should remain in Africa for spending, investment and savings, is basically disappearing in a massive swap to support the lavish Swiss economy or some accountant on the Channel Islands.

International capital flows are usually beyond my understanding (and the scope of this blog), but even a financial retard like myself can see that this is an untenable situation.  For every dollar in aid that goes into Africa, almost four more are spirited out to various tax havens and corporate accounts.  Generally speaking, I take a fairly libertarian view of government regulation, especially given that the law of unintended consequences seems to apply especially strongly to new financial legislation.  However, in this case, I can’t help but wonder if some readjustment of either the international financial system or local European tax laws might make more of a difference for Africa than all the aid that is currently pumped into the place.

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