Africa Attempts to Assess the Impact of Capital Flight

SPONSOR WIRE

The time has come for African governments to assess the financial repercussions of capital flight on the continent. This was the view, on Thursday evening, of Ameth Saloum Ndiaye, researcher in economics at the University of Dakar, in Senegal.

This declaration from an expert economist coincides with a recent report issued by the African Development Bank (AfDB). The report, entitled "Economic Perspectives in Africa", was released in 2012. In it, the AfDB asserts that capital flight deprived the continent of over US $700 billion during the preceding decade.

"In the majority of cases, capital flight on the African continent is the work of private operators for reasons of macroeconomic uncertainty," declared Ndiaye, who was speaking at the seventh African Economic Conference in the Rwandan capital.

The United Nations Development Programme (UNDP) now considers the scale of capital flight to be so great that it represents a major obstacle to mobilizing domestic resources for national development, as well as representing a barrier to long-term economic growth.

Poorly developed financial systems are cited as being among the principal causes leading to capital flight. Nevertheless, Ndiaye is convinced that state authorities are sometimes to blame, given the context of bad governance and the poor quality of institutions.

In effect, capital flight reduces the resources that could have been invested in wealth creation in the country of origin. Furthermore, the phenomenon exerts a certain pressure on the exchange rate as it increases demand for foreign currency in order to channel wealth abroad, according to the study conducted by the Senegalese researcher.

The monetary systems of African countries were among the major themes of the seventh African Economic Conference taking place in Kigali, in a climate affected by the instability that the global economy is currently experiencing. That instability poses a risk of negative repercussions on the growth of sub-Saharan Africa.

This world economic crisis is, undoubtedly, the most recent manifestation of a troubled economy.

There is a risk that the whole African continent will be affected by it unless efforts are made to counter potential negative outcomes linked to macroeconomic instability across the continent.

Estimates on the part of expert economists have already shown that the capital flight phenomenon arises from the transfer abroad of a proportion of private domestic savings. Where this situation persists, it contributes to a reduction in savings on the continent.

"Only the tools of national economic policies [in Africa] will be able to reverse the trend [...] That is what could improve people's quality of life," said Ndiaye.

However, the difficult lies in the problems with the banking systems in the majority of African countries where currency crises have clearly been the cause of very serious social and economic costs.

It is still the case that external debt and foreign aid, intended to contribute to funding domestic investment, are sometimes used for the purpose of funding investments in circumstances where the phenomenon of capital flight persists.

In conclusion, the alarm bell sounded by the expert economists is intended to be a wake-up call to the countries of the continent. They are called upon to ensure that capital flight does not cause a reduction in domestic investment and in economic growth.

Copyright © 2012 African Development Bank. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.