7 April 2014

Capital Flight From Africa

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Addis Ababa — Billions of US dollars disappear each year without a trace from developing countries generally, and Africa in particular, ending up in enclaves - so called tax havens or in developed countries. A significant part of this outflow is driven by multinational companies seeking to evade taxes where they operate. Recent research shows that the sum that leaves developing countries each year as unreported financial outflows, referred to as illicit capital flight, amounts to as much as ten times the annual global aid flows, and twice the amount of debt developing countries repay each year.

Capital flight represents a higher burden in Africa than in other regions. Thus, actions to stop illicit capital flight must be taken by decision makers such as senior policy makers in both Africa and in the West if they are to succeed. The issue of capital outflow from Africa and the absorption into western economies, therefore, deserve attention and require concerted effort. Through greater transparency in the global financial system, illicit outflows could be curtailed.

There is also a need for specific measures at country level. Such measures would include the building of legal frameworks better suited to address the problem, awareness-raising about the links between tax evasion, tax revenue and social services, as well as capacity building of tax authorities. Tax administrations in developing countries are often poorly resourced and lacking in staff capacity. Inadequate technology and capacity to collect taxes, as well as the inefficiency and lack of expertise of tax authorities, create loopholes that otherwise could be plugged.

In response to this challenge, the African Economic Research Consortium's (AERC) Senior Policy Seminar (XVI) selected the theme Capital Flight from Africa. This event will be jointly hosted with United Nation Economic Commission for Africa (ECA). AERC senior policy seminars are forums designed specifically to bring together senior policy makers from sub-Saharan African countries to exchange experiences and deliberate on topical issues pertaining to sustainable development of their economies. Participants in these seminars are drawn from the highest levels of government, including the presidency, ministers, governors of central banks, heads of civil services, permanent secretaries and heads of government agencies and parastatals. The two-day seminar that opens on Wednesday 9th April at 9:00am will be heldat the UN Conference Centre, Addis Ababa, Ethiopia.

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