Taming Capital Flight in Africa

Recently, top financial experts in Africa met in Abuja to deliberate on how Africa could reduce capital flight and stop the loss of capital to the rest of the world. Chinedu Eze writes that their recommendations if implemented, could pull the region out of its current economic quagmire

Recently experts from regional financial institutions in Africa converged at the federal capital territory, Abuja to deliberate on how Nigeria and the rest of Africa could liberate themselves from global financial chains that tend to infringe on the development of the continent.

The experts attended the graduation of the first cohort of the African Development Bank’s Public Financial Management Executive Training Series under its Public Finance Management Academy for Africa (PFMA). The executive training programme was built on the theme: “Enhancing Accountability, Transparency and Curbing Corruption and Illicit Financial Flows in Africa.”

In his remarks, the Director General, African Development Bank Group, Mr. Lamin Barrow, stated that the challenge of combating corruption and financial crimes in Africa is huge.

He referred to the Economic Development in Africa Report 2020, with the theme, “Tackling Illicit Financial Flow for Sustainable Development in Africa,”  by the United Nations Conference on Trade and Development (UNCTAD), which noted that one-sixth of the continent’s aggregate government revenues derive from corporate tax and 10 per cent of that revenue ($6.7 billion) is lost to tax evasion.

Lamin said the report estimated capital flight from Africa at $88.6 billion annually for the period 2013 – 2015, which represents 3.7 per cent of Africa’s GDP; whereas total Official Development Assistance (ODA) and Foreign Direct Investment (FDI) for the same period stood at $48 billion and $59 billion, respectively.

According to Lamin, the report further suggests that between 2000 and 2015, the total illicit capital flight from Africa amounted to $836 billion, which is more than Africa’s total external debt estimated at $770 billion, in 2018.

Lamin regretted that “Africa is therefore a ‘net creditor to the world’. IFFs (Illicit Financial Flows) represents a major drain on capital and revenues on the continent, undermining productive capacity and prospects for achieving the Sustainable Development Goals (SDGs) and the African Union’s Agenda 2063 Goals.”

Lack of Accountability

He said that lack of accountability and transparency, corruption and illicit financial flows (IFFs), create a vicious cycle of fiscal sinking hole in Africa’s public resources.

“As governments lose revenues through IFFs and corruption, they are forced to resort to more borrowing, which funds may also be stolen due to weak Public Financial Management (PFM) systems. Corruption and IFFs, therefore, fuel the debt vulnerabilities witnessed in many African countries.

In his recommendation, he said that to overcome the challenges, sound public financial management must be addressed. He observed that governments in Africa must ensure that revenue mobilization, accountability, transparency, anti-corruption and anti-IFFs institutions are adequately resourced to perform their functions effectively. To this end, he said the capacity and independence of the Supreme Audit Institutions and parliamentary oversight committees should be strengthened, while the voice and watchdog role of the media and civil society is protected.

“Curbing IFFs will require enhanced international coordination and effective enforcement of international standards, such as the Financial Action Task Force (FATF)’s Standards on Anti-Money Laundering and Countering the Financing of Terrorism, Inclusive Framework on Base Erosion and Profit Shifting (BEPS), the Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI), Extractive Industry Transparency Initiatives (EITI) standards, like Publish What You Pay, etc,” he said.

Concerning the training, Lamin said: “African Development Bank Group undertakes various training activities through the African Development Institute (ADI) to help build the capacity of officials of Regional Member Countries. 

“These activities include Executive Training on public finance and debt management under the Public Finance Management Academy for Africa (PFMA), and macroeconomic modelling and forecasting under the Macroeconomic Policy Management Academy for Africa (MEMA).”

According to him, “Since June 2022, the PFMA has been running an 18-month structured Executive Training course covering the public financial management cycle and ecosystem since June 2022. We are pleased that the final training and graduation ceremony for the first cohort is taking place here in Abuja, starting today 11 to 15 December 2023 on the theme‘Enhancing Accountability, Transparency and Curbing Corruption and Illicit Financial Flows in Africa.”

Blocking Leakages and Corruption

In his speech at the event, the Chief Economist and Vice-President, African Development Bank Group, Professor Kevin Chuka Urama, said the training programmes of the bank were complemented by the Bank’s institutional support and program-based operations designed to foster necessary governance reforms needed to curb leakages and corruption, illicit financial and resource flows, and strengthen supreme audit and other oversight functions. Several instruments including Beneficial Ownership Registers and a Public Service Delivery Index (PSDI) are being developed with partners to help implementation and monitoring over time.

He explained that the rational for focusing on the PFM is because Africa is natural resource rich and often cash poor and several studies have attributed this to poor management of public resources – from ineffective mobilisation and use of domestic revenue, unsustainable borrowing and lack of prudence in the use of debt resources, illicit financial and resource flows, resource theft, among other forms of leakages and corruption along the PFM ecosystems in countries. 

“Currently, African countries loose almost $90 billion in illicit financial flows annually, and much more in illicit resource flows and resource theft, poorly implemented fiscal policy incentives, and excessive dependence on commodity exports for foreign exchange earnings.  This exposes countries to highly volatile global market prices and highly vulnerable supply chains,” he said.

Training

Urama said the African Development Executive Training Program of the African Development Bank’s Public Finance Management Academy (PFMA) was approved in June 2022 by the Board of Directors of the Bank Group, adding that PFMA is designed to deliver high-level structured capacity development (training, peer-to-peer learning, technical assistance, and advisory services, institutional support programs, and policy dialogue) to African Countries on public financial management.

“The PFMA is an implementation activity of the African Development Bank Group’s programs to strengthen the capacity of African countries in economic governance and knowledge management to enhance wealth creation, prudential management of public finances to improve the quality of lives for Africans. In 2021, the Bank approved a capacity development strategy, a strategy for economic governance in Africa, a framework for the management of illicit financial flows, and a multi-dimensional action plan for the mitigation of debt distress in Africa.

“In addition, the Bank launched a program to produce a Public Service Delivery Index (PSDI) to provide an independent and standardized index for assessing the delivery of public services by Public Servants. The goal is to work with Partners to establish a prize to incentivize improvements in the management of public resources and deliver improved quality of public services to countries,” Urama said.

In his valedictory speech, Isaac Kurasha from National Treasury, South Africa, who participated in the 18-month Executive Training Series on Public Finance Management in Africa, said the training enables him to understand his roles in public finance links with the roles of tax policy, economic policy, asset liability management, procurement, public private partnership inputs among others.

“I now understand why our National Treasury is structured the way it is. Its structure resembles the public financial management cycle! Now I know. Through the interactions and consultations, I fell in love with a number of divisions’ work and I think I have discovered my next home. Through this training, I have learnt to exercise more due diligence and ensure that resources are allocated where the most return on investment is. I have learnt to pay attention to detail when reviewing monthly expenditure reports from the departments and public entities and with confidence, I have begun to influence where resources can be redirected especially in the era of austerity measures,” Kurasha said.

Lack of Action Implementation

Speaking about lack of implementation of actions, Kurasha said: “Throughout the training programme, we contemplated lack of implementation of actions as one of the weaknesses in our jurisdictions. From this cohort, we should be the game changers. Let us go and influence implementation. No matter the positions we hold, lets go and influence change. No matter the division or unit you work in, go share the knowledge with fellow workmates in the other divisions, ask them whether they are doing anything on the issues that we learnt over the last 22 months. If not, ask how about this. I hope one day the African Development Bank will call us back to share the progress we have made. I look forward to this day to hear the positive contributions we would have made to our countries and societies. To complement the public finance management training, good planning and performance monitoring is key.”

In his speech, Special Adviser to the President on Economic Affairs in the Office of the Vice President of Nigeria, Dr. Tope Fasua, said Nigeria has much to share with other African countries in the areas of public finance and debt management. He disclosed that Nigeria has one of the most advanced legal and institutional frameworks and systems for public finance and debt management on the continent, including a strong ministry of finance and national development, debt management office, revenue authority, central bank, capital market, commercial banks with operations across the continent, an independent supreme audit institution, anti-corruption agencies, legislature and vibrant civil society and media that ensure adequate oversight and accountability over public finances.

“The choice of Abuja, Nigeria for these landmark events underscores the importance the Bank and its partners attach to the issue of capacity development in public financial and debt management on the continent. As the largest economy and most populous country in Africa, Nigeria occupies a very strategic place in the economic development ecosystem of the continent. Public financial and debt management remain on the front burners of the government’s ‘Renewed Hope Agenda’ for economic growth and shared prosperity for all citizens. Key economic policy objectives of the government include optimisation of revenue mobilisation and tax reforms, blocking of leakages in public finances, improving public procurement and spending efficiency, and supporting the doing business environment for private sector investments and job creation,” Fasua said.

Capital flight and round tripping have been a menace that existed in Africa for a long time. In Nigeria, these infractions are literally household names, which many believed that government has the solution to end. That they continue to exist indicates, suspiciously, that government is unwilling to employ stringent measures to put an end to these problems.

As the financial experts suggested, there should be sound public financial management. Governments in Africa must ensure that revenue mobilisation, accountability, transparency, anti-corruption and anti-IFFs institutions are adequately resourced to perform their functions effectively. The various African governments must wake up to this call.