Africa: Rich Presidents Poor Nations

Africa: Rich Presidents Poor Nations
France aids corrupt leaders in Africa to hide their wealth

AFRICANGLOBE – Recently some presidents in Africa have featured in media headlines not for their heroic accomplishments as leaders but for robbing their nations and siphoning their ill-gotten gains to safe havens.

Since 2010, French judges have been investigating illicit wealth accumulation by the presidents of the Republic of Congo, Gabon, and Equatorial Guinea, all of whom are accused of embezzlement of public funds, money laundering, and plundering national wealth.

2 In July 2012, Judge Roger Le Loire issued an arrest warrant against Teodoro Ngema Obiang, nicknamed Teodorin, the son of the president of Equatorial Guinea, on the basis of evidence of illicit wealth accumulation through embezzlement of public resources. The stylish president’s son has amassed a portfolio that includes multi-million-dollar real estate in France, luxury cars, designer watches, and art objects. His personal financial transactions are handled through his forestry company, Somagui Forestal, and bank accounts in offshore centers.

Equatorial Guinea, Gabon, and the Republic of Congo are among the richest countries in Africa with per capita incomes of $8,649 (second), $4,176 (5th), and $1,253 (15th), respectively. They have massive oil reserves, ranking 7th (Gabon), 8th (Congo), and 10th (Equatorial Guinea) in the continent. While their presidents and other members of the political elite are amassing fortunes abroad, the majority of their fellow citizens live in abject poverty, lacking access to basic social services such as decent sanitation, clean drinking water, elementary school, and health care.

Despite Equatorial Guinea’s large oil revenues, a baby born there has less chance of living to his or her fifth birthday than the average African infant. Gabon and Equatorial Guinea rank second and third to last in their rate of immunization against measles, at 55% and 51%, respectively.

The stories of opulence and extravagant lifestyles of leaders of resource-rich African countries illustrate critical leadership failures, where national leaders rob their nations instead of helping to develop them. These pathologies are perpetuated by complicit foreign special interests and a shadow international financial system that enables the perpetrators of financial crime to walk free thanks to banking secrecy.

They are also facilitated by the willful blindness of Western financial institutions and governments that have tolerated this illicit accumulation of wealth over the years.

This article tells a story of poverty in the midst of plenty, a story of elite capture of resources and expropriation of the people by those entrusted to advance national interests. It is a story of endemic grand corruption, well beyond mere bribe taking and opaque management of natural resources. It reflects systematic dysfunction of the judicial system and the regulatory framework, which have been hijacked by the political elite and powerful special economic interests.

The story features both domestic and foreign actors who collude in the capture of rents from natural resources and in the transfer of the proceeds to safe havens. This means that finding a solution to the problem requires looking beyond the natural resource sector and addressing dysfunctions in the entire economic and political system. It requires looking beyond the individual African countries and addressing the complicity of foreign parties, especially resource-exploitation companies that connive with corrupt leaders to embezzle wealth, banks that facilitate the illicit transfer of illicitly acquired funds, and regulators in advanced countries who turn a blind eye on illicit transactions involving African political and economic elites.

The Oil Bonanza In Africa

In the decades before the global financial crisis, resource-rich African countries enjoyed an explosion in their export revenue due to hikes in commodity prices, especially oil. Oil prices have resumed their ascent after the crisis. The oil boom has led to a rapid increase in oil rents collected by the governments of these countries. In 2010, the Republic of Congo collected over 61 percent of GDP in oil rents.

In the same year, the oil rent/GDP ratio exceeded 40 percent in Equatorial Guinea (47%), Gabon (46%), Angola (46%) and Libya (42%). Between 2000 and 2010, oil rents more than doubled in many African oil producing countries (see Table 1). They tripled in Algeria, and went up fivefold in Angola and sixfold in Equatorial Guinea and Sudan.

Table 1: Oil rents and poverty in major African oil exporters (For table see pdf)

As a result of the boom, oil-rich countries posted high economic growth rates over the past decade. Per capita GDP grew annually by 13.5% in Equatorial Guinea and by 7.6% in Angola. The oil bonanza vaulted these countries to middle-income status.3 Ghana has also recently joined the ranks of oil producers, and expected oil discoveries around the continent may further expand the club in the coming years.4 At least at face value, this is good news for Africa.

Underperformers In Development: Behind Aggregate Indicators

Indicators of aggregate economic performance in resource-rich African countries, however, say little about the conditions of ordinary citizens. Average national incomes are much higher in these countries than in many other African countries, but citizens with average incomes are few and far between. While some individuals are indeed extremely rich in these countries, lifting the arithmetic average, the majority of the people have received little from the resource bonanza. Their high poverty rates exceed the African average.

5 In Nigeria, more than two-thirds of the population live below the national poverty line, meaning that they do not have enough income to meet basic daily needs (see Table 1). In the Democratic Republic of Congo, a country plagued by both institutional decay and civil strife, more than seven out of ten citizens are classified as poor.

The oil boom has done little to ameliorate the living conditions of the poor. In Nigeria, the number of poor has risen even as oil rents were increasing (see Figure 1). From 1992 to 2010, the number of poor Nigerians (based on a daily-purchasing-power-adjusted income threshold of $2 per day) increased from 80 million to 130 million, even as oil rents nearly quadrupled from $15 billion to $58 billion (in constant 2010 dollars).

Along with high levels of poverty, resource-rich countries exhibit high levels of inequality. Poverty headcounts are much higher in rural areas than in urban areas, reflecting the preference for cities in public investments and allocation of infrastructure and services. In Cameroon, 55 percent of the rural population is poor compared to 12 percent of urban dwellers. In Sudan, the poverty rate in the countryside is more than twice that in urban areas.

Inequality in access to social services exacerbates the consequences of income inequality and further retards human development. In Gabon and the Republic of Congo, while 95% of the urban population have access to improved water sources, according to official figures, the majority of rural people lack access to clean drinking water (59% in Gabon and 68% in Congo).

An important reason for the inadequate provision of public services is substandard performance in public revenue mobilization. Oil-rich countries collect relatively less taxes than their resource-scarce counterparts (AfDB, OECD, and UNECA 2010; Ndikumana and Abderrahim 2010). It is remarkable that a resource-rich country like Nigeria collects less revenue in relation to its size (9% of GDP in 2008) than a resource-scarce country like Burundi (16.6% of GDP in 2008). The poor performance in tax mobilization is a result of, among other things, corruption in the oil industry, tax evasion, and capital flight.

Part Two