International Trade and Capital Flight From Africa: Challenges for Governance

Capital flight constitutes a major constraint to Africa’s efforts to fill the large and growing financing gaps that hold back its progress towards achieving sustainable development goals. The mounting evidence on the unrecorded outflows of capital from Africa has spurred calls for strategies to curb the financial hemorrhage that is afflicting the continent. The existing evidence is still inadequate, however, on four fronts. First, the quantitative evidence is predominantly aggregate and does not furnish adequate country-specific information on the mechanisms of capital flight, its institutional contexts, and the role of domestic and foreign players in facilitating it. Second, the literature has not paid adequate attention to the destinations of wealth accumulated through capital flight and the roles of the banking sector and public institutions in destination jurisdictions. Third, much of the literature conflates the capital flight with the broader concept of illicit financial flows. While all capital flight is illicit owing to its unrecorded transfer – and often, as well, by virtue of the illegal origins of the wealth, and the failure to declare the assets and pay tax on the associated income – not all illicit financial flows are capital flight; for example, payments for smuggled imports are an illicit flow but distinct from capital flight. Fourth, the existing literature has not sufficiently explored the two-way relationship between capital flight and governance in national and international institutions. To help fill these gaps in the literature, the African Development Policy Program at the Political Economy Research Institute has initiated detailed analyses in a project generously supported by the Open Society Foundations and the Friedrich Ebert Foundation. This Working Paper series presents the project’s outputs. Our goal in issuing these reports is to engender informed public participation in decision making on financial regulation. Key findings will be distilled and published in the coming year in an edited volume that is forthcoming from Oxford University Press

Sub-Saharan Africa’s Infrastructure Gap: A Failure of Financial Markets?

This research examines the role of financial market failure in explaining Sub-Saharan Africa’s (SSA) infrastructure gap. The core infrastructure examined are energy, telecommunication and transport. The model includes a nonlinear interaction variable as well as elements of expectation models. The study finds that fixed effects are dominant for all infrastructure except mobile telecommunication facilities in SSA. The dynamic panel regression results indicate that for most of the considered infrastructure, financial sector intermediation to the private sector is most critical. Banking and stock market development are, generally, less important. There is evidence that there is an interaction between most considered infrastructure and financial sector intermediation. JEL Classification: G2, O1, G10. Keywords: Financial markets, Infrastructure gap, Sub-Saharan Africa

Report on Africa's 1st International Colloquium on Asset Stripping, Cape Town, South Africa, 27 and 28 April 2009 : technical report

The phrase “asset stripping” is a euphemism for stolen public money stashed offshore. Estimates of the magnitude of this class of capital flight imply that Africa is a net creditor to the rest of the world. This project seeks to address why office holders behave as “roving bandits” over public resources (the domestic dimension of the problem), and aims to highlight that the international dimension of the problem must be part of the solution. An international colloquium was held in order to generate a multidisciplinary research agenda towards these ends

Infrastructure and Economic Development in Africa: A Review-super- †

We survey the theoretical literature on infrastructure and growth. Then review the empirical evidence globally and within the region. Overall we can conclude that the question is not whether infrastructure matters but precisely how much it matters in different contexts? Ultimately, this is an empirical question that the literature has not yet resolved satisfactorily. Judging by the number of papers that have investigated whether infrastructure matters, we conclude that considerable resources have been expended in the pursuit of this marginally important issue, way beyond what could be the value added from totally resolving the issue. In contrast, the crucial issue--understanding policymaking processes in infrastructure--remains little understood and largely under-researched. Copyright The author 2007. Published by Oxford University Press on behalf of the Centre for the Study of African Economies. All rights reserved. For permissions, please email: [email protected], Oxford University Press.