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Africa: Rich Presidents Poor Nations


Capital Flight And Elite Capture Of Africa’s National Resources

Equatorial Guinea's longtime president Teodoro Obiang Nguema Mbasogo
Equatorial Guinea’s longtime president Teodoro Obiang Nguema Mbasogo

Natural resource-rich African countries suffered a severe financial hemorrhage through capital flight over the past decades. Recent estimates suggest that the leakages increased during the resource boom.

From 1970 to 2008, Nigeria lost a staggering $296 billion to capital flight. About $71 billion went ‘missing’ from Angola between 1985 and 2008 (Ndikumana and Boyce 2011). Other oil-exporting countries also suffered substantial capital flight in the last four decades: Côte d’Ivoire ($45 billion), the DRC ($31 billion), Cameroon ($24 billion), the Republic of Congo ($24 billion), and Sudan ($18 billion).

A key source of capital flight is the natural resource sector. The two main mechanisms are outright embezzlement of export revenues by government officials entrusted with the management of public resource exploitation and commercialization, and the under-invoicing of oil exports. In 2002, for example, the IMF reported that as much as $4 billion of Angolan oil sale proceeds had not been accounted for over a period of four years. This missing money finances private wealth accumulation by the political elite and their associates.

A critical issue in natural resource-rich countries is the lack of transparency in the management of resource revenue, and with it the lack of separation between politicians’ personal assets and public assets.

The stories of stolen wealth by government officials repeatedly come back to the same fact: the plunder of public resources in the context of endemic corruption. In Nigeria, some state governors have taken advantage of their autonomy in the federal system to erect financial empires. Former governor James Ibori of Delta State became famous for embezzlement of state funds, money laundering, and bribery. His accomplishments included the diversion of $25 million from state coffers for the purchase of a jet for personal use.

Joshua Dariye, Governor of Plateau State, and Diepreye Alamieyeseigha, Governor of Bayelsa State, similarly embezzled public funds and deposited them in bank accounts abroad. Swiss and Cameroonian authorities are still pursuing the assets of Yves Michel Fotso, the former director of Cameroon Airlines, including $31 million initially appropriated for the purchase of a government jet that subsequently disappeared.

Apart from top political leaders and senior officials, their family members are often also involved in illicit financial flows, often using disguised identities, as in the case of Inge “Collins” Bongo, the first lady of Congo.6 The list goes on and on, and these are only the cases that are reported in the media. The plundering goes much deeper.

The plunder of national resources is not new in African autocracies.

During his three-decade reign, Mobutu of Zaire (now the DRC) built what was referred as a “kleptocracy to end all kleptocracies” (Richburg 1991).7 It appears that he has had many studious disciples across the continent. Mobutu was able to ride on support from Western governments that regarded him as a strategic ally in the fight against communism during the cold war. But the cold war has ended, and African kleptocrats and their accomplices are still with us.

What Can Be Done?

The culprits in African capital flight include not only corrupt leaders but many others who gain from illicit financial flows. These include natural resource exploitation companies, trading partners who facilitate misinvoicing, banks in safe havens, and middlemen and “deal makers” who facilitate transactions. Thus addressing the problem of capital flight and the plunder of natural resources requires a multipronged strategy, involving systemic changes aimed at establishing a culture of transparency in the management of national resources and ending the impunity traditionally enjoyed by politicians and their private associates.

African countries need to pursue strategies to encourage domestic investment and reduce the incentives of private wealth holders to smuggle their assets abroad. These economic measures will reduce the outflow of honestly acquired capital, but they will not address the endemic problems of corruption, embezzlement, and elite capture of national wealth described above, nor are they likely to entice the voluntary repatriation of stolen funds stashed in safe havens. We cannot expect the same politicians who robbed their countries to metamorphose into champions of good governance and accountability.

A key element of the solution to capital flight must therefore be the establishment and consolidation of democratic governance. To be sure, democracy is not a panacea: it can be hijacked by strong interest groups. But it offers a better framework for giving the African people a voice in the management of public resources.

To support the democratic process and public oversight on management of the national economy, it is important to promote open and transparent budgeting processes, especially open disclosure of the sources and utilization of public funds including resource revenues, borrowed funds, and external aid.

It is considered best practice in the business sector to undertake thorough annual audits of companies’ finances and operations. A similar practice needs to be instituted in the management of public finance. In particular, public external debts should be subjected to independent audit to establish their legitimacy and their contribution to national development.

On the basis of these audits, external loans that fail the legitimacy test could be classified as odious and unilaterally repudiated. African countries could learn valuable lessons from the case of Ecuador, which has successfully implemented a systematic debt audit.

The country saw a drastic reduction in its debt burden due to unilateral repudiation of debts that were found to be odious.8 Promoting transparency and accountability would benefit not only African countries but also their donors and lenders, as external resources would be more likely to be used for genuine development purposes, increasing aid effectiveness and reducing the risk of default on debt.

An important element of the strategy against capital flight is a vibrant civil society, especially an independent media. A common feature of most cases of kleptocracy described above is the lack of a free press, which helps shield financial crimes from public scrutiny.

Reforms are also needed at the international level with respect to three key players: banks, multinational corporations (MNCs) engaged in natural resource exploitation and trade, and the host governments of these banks and MNCs. Banks in global financial centers must be obliged to assist in the detection and tracking of illicit financial flows.

They must be required to disclose all suspicious bank transactions, especially those involving “politically exposed persons.”9 This cooperation by banks is critical for the sharing of information among governments, an essential tool in the fight against corruption and capital flight.

Multinational corporations must be held accountable by anti-corruption laws, such as recent legislation in the United States and the United Kingdom that encompasses crimes committed abroad.10 Other foreign governments should follow suit to establish a clean and level playing field in the corporate sector. They should also assist African governments in enforcing these laws on the African soil.

11.In the long run, a stable global financial system founded on transparency and accountability will benefit not only Africa but also the world as a whole.


The authors are grateful to Theresa Owusu-Danso for excellent research assistance. In October 2011, the United States also sought to seize $70 million in assets from Teodoro Nguema Obiang (http://www.bbc.co.uk/news/world-africa-15464988).

With the exception of the Democratic Republic of Congo, all the major oil exporting countries listed in Table 1 belong to the middle-income category.

Uganda has recently discovered oil. Substantial reserves may have also been discovered in Kenya by Tulow Oil PLC, the same company that undertook the successful oil exploration in Uganda.

Unless otherwise stated, the statistics cited in this section are from the World Bank online databases for World Development Indicators (http://data.worldbank.org/indicator) and Poverty and Inequality Data (http://povertydata.worldbank.org/poverty/home/). Cases cited in this paragraph are documented at http://star.worldbank.org/corruption-cases/.

For a detailed study on capital flight from the Congo under Mobutu see also Ndikumana and Boyce (1998 See Boyce and Ndikumana in this issue).

In 1996, the United States established the Suspicious Activity Report (SAR), a discretionary report filed to the Financial Crime Enforcement Network (FinCEN) every time a bank encounters an activity that it considers to be “suspicious.” The enforcement of the provision is hampered by the lack of a clear definition of what is ‘suspicious’ and the fact that it is discretionary.

Key recent legislation includes the U.S. Foreign Corrupt Practices Act (FCPA) (http://www.justice.gov/criminal/fraud/fcpa/) and the UK Bribery Act (http://www.legislation.gov.uk/ukpga/2010/23/pdfs/ukpga_20100023_en.pdf).

For further discussion of how international reforms can assist in the battle against illicit financial flows in extractive resource sectors, see LeBillon (2011).


By: Leonce Ndikumana And James K. Boyce

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