6 November 2012

Africa Warned Over Capital Flight

Photo: Daniel Hayduck/IRIN
Bye Bye money: Africa loses billions that could be used for development.

African countries that are desperately in need of mobilising more resources to finance economic growth should focus on economic stability in order to build investor confidence in their bid to fight capital flight.

Experts who attended the African economic conference in Kigali last week noted that the continent was facing rampant capital outflow, an indication that inventors were losing confidence in the continent.

Whilst the continent's Foreign Direct Investment flows are on the rise, experts noted that there was need to curb capital outflows amidst uncertainties in the global economic situation that is characterised by shrinking foreign aid levels.

They argued that the impact of macroeconomic and political stability needs to be the focus of all African countries if the continent is to improve the social welfare of its people.

Over the last decade, Africa lost $700 billion in private capital outflows, according to the Africa Economic Outlook report released early this year.

"We all want to grow and there are two elements that are critical; investments-domestic or foreign-and trade," said Amb.Claver Gatete, the Governor of the National Bank of Rwanda.

He shared the government's experience in mobilising resources after the 1994 Genocide against the Tutsi, when Rwandans, especially the highly educated ones, either stayed abroad while those in the country sought for greener pastures in other countries.

The Governor said the country focused on initiatives aimed at creating an economy that is favourable for doing business. The reforms paid of when the country's foreign direct investments (FDIs) levels as well as remittances rose substantially.

"As people in charge of balance of payments, we looked at many things that bring in foreign currency and capital," Gatete said.

Rwanda has managed to maintain macroeconomic stability with inflation in single digits and ensured fiscal stability.

Mthuli Ncube, Vice President and Chief Economist at African Development Bank (AfDB) said Africa should also close loopholes in taxation.

Saloum Ndiaye, an economist at the University of Dakar noted that; "Capital flight reduced the resources that could be invested to create wealth in the country of origin."

The situation, he said, exerts pressure on the exchange rate by increasing demand for foreign currencies.

"In most cases, capital flight on the African continent is operated by private actors due to macroeconomic uncertainty."

UNDP considers the situation of capital flight to constitute a major obstacle to the efforts aimed at mobilising domestic resources for national development while providing a barrier to economic growth in the long term.

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