From illicit financial flows to wealth creation for Africans: Some strategic concepts

Aid or development assistance to Africa pales in comparison to the amount of money siphoned out of the region by foreign corporations. These illegal movements of capital have thrived for many years as a result of the flawed belief by African governments that there is no other alternative to the extraction and processing of their natural resources outside of a dependence on the more technologically advanced countries. However, the penetration of the internet across Africa presents a strategic opportunity for African governments to redirect their gaze from the so-called technologically advanced countries to building technologically savvy Africans. The internet has finally loosened the centuries-old grip of the West on technological knowledge, and liberalized learning for all interested persons. African countries will have to adopt approaches that empower small-scale, citizen-based direct participation in the extraction and processing of natural resources.

According to a September 2020 study released by the United Nations Conference on Trade and Development (UNCTAD), Africa suffers a loss of around US$88.56 billion in illegal capital flight every year. This amount is comparable to 3.7% of the continent’s gross domestic product. According to the research, between 2000 and 2015, a total of $836 billion worth of illicitly obtained funds were covertly funneled out of Africa. Now compare this with Africa’s total foreign debt in 2018, which stood at $770 billion, and draw the conclusions yourself.

Corporate robbery often takes the form of illegal movements of money from one country to another and may involve revenues from illegal activities, tax avoidance, abusive profit shifting, and trade misinvoicing, among others. Africa is especially vulnerable to these illegal capital flights for many reasons. The continent’s major trade, which remains the export of raw, primary commodities and natural resources (such as cocoa, coffee, tea, crude oil, and mineral deposits, including gold, bauxite, tantalum, tin, gold, and others), exposes it to the vagaries of multinationals.

In many African countries, trade data demonstrates that exporters routinely under-invoice their goods, which results in persistently under-reported overseas shipments. In Ivory Coast, for example, which is the  leading cocoa producer in the world, partnerships between the domestic elite and foreign firms are characterised by rent-seeking, where the former look the other way for the latter to advance their corrupt interests. In the case of South Africa, mining corporations have been involved in significant capital flight and tax fraud by under-invoicing their shipments. In Angola, capital flight has ensured that the presence of a now much depleted and rapidly diminishing crude oil reserve has only enriched the country’s ruling class and foreign transnational corporations, while the majority of Angolans profit little to nothing.

These examples are evidence that foreign corporations and governments are complicit in capital flight, cutting across many nationalities: China, the United States, European countries, South American countries, etc. In some cases, under-invoicing occurs with the explicit approval of corrupt government agents; yet in many cases, these transnational corporations are able to singlehandedly engage in actions that cheat African countries of billions of dollars in revenue.

Outside of corrupt Africans and multinational corporations, capital flight is also fuelled by a complex web of global enablers, including bankers, accountants, lawyers, and politicians. These parties facilitate the outflow of undeclared profits and shipments from Africa, but they also make it possible for such profits and shipments to be hidden in offshore secret jurisdictions.

Education will be fundamental in combating capital fight in Africa. Many Africans still associate their governments and territories with the colonial administration; so conniving with foreigners to dupe their own governments is conducted according to that thinking pattern. The idea of building statehood as the personal responsibility of every citizen remains alien in the minds of many formerly colonized Africans. Citizen enlightenment at the level of formal, nonformal, and informal education is crucial to transforming this colonial mindset. Citizens must see themselves as gatekeepers, whether they work for the government, run a business, or deal with multinational corporations that do business in their area.

Another important point is that the explosion of information technology has rendered the idea that large-scale multinationals are indispensable when it comes to technological advancement almost redundant in many sectors of operation across Africa. African governments will have to find ways to disengage with as many multinationals as possible while supporting small-scale mining and natural resource prospecting by citizens. In an internet age where it is becoming easier by the day to establish and coordinate a widespread supply market, this task can be achieved quite easily.

Gone are the days when the only route to becoming a manufacturing or processing giant was through the establishment of huge processing factories by governments, wealthy individuals, or multinationals. African governments must now set up structures to make it easier for citizens to establish small-scale mining and natural resource processing units, with the government acting more as a coordinating body. African governments can set the pace in subverting the established routes to becoming industrial giants by “scaling out” (involving the masses) rather than “scaling up” (investing in massive technology and structures). The emphasis will be on building a citizenry base devoted to national advancement, willing to work hard in their chosen fields of endeavour and pay taxes.

Africa’s greatest assets are its citizens. These citizens must be empowered en masse to take charge of the continent’s natural resources. African countries will have to tread uncharted paths to keep the bulk of the continent’s wealth in the hands of its people. Training a crop of citizens with a nation-building mindset is the first step to establishing Africa as a manufacturing giant. This will be followed by or undertaken together with looking away from large-scale extraction and manufacturing enterprises and focusing on encouraging citizens to venture into research and development on basic manufacturing and production mechanisms.

With rapidly increasing internet access and penetration across the region, the time has come for a paradigm shift for Africa as far as natural resource management and processing are concerned. The focus shouldn’t be on traditions and practices brought over from other continents and run on imperialist ethos. Instead, the focus should be on what will help a larger number of Africans use the continent’s natural resources to build stronger and more prosperous communities.

First published by the Pan African Review Magazine.