Dr. Wolassa Kumo
Introduction

Fixed capital has long been considered as an engine of growth both as a factor of production and as an embodiment of technological progress. Countries that had made sustained accumulation of fixed capital were able to achieve higher and sustained economic growth and development while those who had not lagged behind. For instance, economic development in Sub-Saharan Africa has been severely constrained by inadequate saving and investment, among other things. The average annual gross domestic saving rate by 41 sub Saharan African countries during the period 1980-2010 was as little as 14.3% of GDP while the average fixed investment was 20% of GDP for the same period. Therefore, sub-Saharan Africa’s burgeoning debt was not primarily meant to finance investment as the saving- investment gap was only about 6% of GDP during the past three decades.

Sub Saharan Africa’s dismal average economic growth of about 3.8% during the past three decades was therefore a direct consequence of low saving and low investment. The Sub Saharan Africa average saving and investment rates pale in comparison to the saving and investment rates of the newly industrialized and emerging Asian economies, such as China, whose saving and investment rates of over 40% of GDP ensured real economic growth rates of over 10% during the same period, i.e. 1980-2010.

Average annual growth in Africa reached above 5% during the past decade following the commodity price boom since the early 2000s but was dampened by the global economic and financial crises during 2008-2009. Growth rebounded in 2010 and is projected to reach 5.5% in 2011 making sub Saharan Africa the second fastest growing region in the world following Asia.

However, heavy dependence on growth driven by improved commodity terms of trade subjects the sub continent to vagaries of global demand uncertainty. Unless improved commodity terms of trade translates into higher saving and investment, the sustainability of the current improved growth performance will be at stake. Equally important is the continuation of economic and political reforms that are required to enhance the participation of the private sector in economic development, and also improve productivity and investment efficiency.

This brief paper presents an overview of investment efficiency, savings and economic growth in 41 sub Saharan African countries for the past three decades using data from the IMF, World Economic Outlook Data Base, April 2011. Six countries have been excluded from the analysis for lack of consistent time series data. These are Djibouti, Liberia, Mauritania, Sao Tome and Principe, Sudan and Zimbabwe.

Investment Efficiency in Sub Saharan Africa

There are two broad concepts of efficiency: allocative efficiency and technical or production efficiency usually measured by total factor productivity. Some empirical analysts use these broad concepts of efficiency to assess inefficiency in aggregate investment in terms of excess investment demand that captures the deviations of actual investment from the desired investment. These approaches usually use nonparametric methods, such as Data Envelopment Analysis (DEA), as well as, parametric methods including multiple linear or non- linear regression models.

In this brief article, we use a simple approach based on marginal productivity of capital, known commonly as the Incremental Capital Output Ratio (ICOR) to measure investment efficiency in 41 sub Saharan African countries for the period 1980-2010. ICOR is the ratio of investments in some previous period or periods and growth in output in subsequent period or periods measured at constant prices.

Growth in output is not attributed only to investment in fixed capital. It could be due to growth in productivity (partial or total factor productivity), increased use of labour input or improvement in the level of education of the labour force (growth in human capital), and/or improvements in productive capacity utilization. However, changes in fixed investment still explain a significant portion of growth in output particularly in developing countries with limited fixed capital stock and therefore the efficiency with which this input is utilized provides a useful clue about the correlation between the later and economic growth.

The higher the ICOR, the lower is the implied investment efficiency. That is fixed investment is more efficient if fewer dollars are required to generate a unit growth in output. The average ICOR for sub Saharan Africa for the period 1980-2010 was 5.23 and was comparable with the ICOR for of about 5 during the 1980-2003 period. This implies that fixed investment in sub Saharan Africa is pretty efficient and the level of investment efficiency in the sub region is comparable with that of China during the early two decades of its rapid industrialization. This is not only because the sub region is capital scarce but also because there have been marked improvements in business climate and political environment during the past two decades. Therefore, no wonder that foreign direct investment surged in Africa from less than US$15 billion in early 2000s to over US$80 billion in 2007 before the inflow was hit by the global financial and economic crises of 2008-2009.

While average investment efficiency in sub Saharan Africa is high, performance varies from country to country. The 41 countries in sub Saharan Africa can be classified into three groups based on their ICOR performance for the period 1980-2010: (a) those with ICOR value of 1-5, (b) those with 6-9, and (c)) those with ICOR values of above 10.

The majority of the 41 counties (i.e. 25 countries) in the sub region recorded higher investment efficiency during the past three decades. These countries include both the least developed countries with very low fixed capital stock base, as well as, some middle income economies with higher level of capital stock. These best performing countries with ICOR value of 1-5 are: Botswana, Cameroon, Central African Republic, Comoros, DRC, Republic of Congo, Equatorial Guinea, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinean Bissau, Kenya, Malawi, Mali, Mozambique, Namibia, Niger, Nigeria, Rwanda, Seychelles, Togo, Uganda, and Zambia. Most of these countries are not only face extreme capital scarcity but have also shown some progress in opening up their economies during the past 3 decades.

The countries with medium investment efficiency level of ICOR 6-9 include: Benin, Burundi, Cape Verde, Eritrea, Mauritius, Sierra Leone, and Swaziland. Mauritius is among the Upper Middle income countries and top reformers in the sub region. Lower investment efficiency may imply an over investment in the economy where marginal investment needed to generate a unit output was greater during the past three decades than during the earlier years of its economic expansion.

Investment efficiency was the lowest in the following countries during the past three decades: Angola, Chad, Cote d’Ivoire, South Africa and Tanzania. All of these four countries have experienced some form of economic and political upheavals during the past three decades. Preliminary data analyses showed that South Africa’s ICOR was comparable with that of China for the post-Apartheid period, but the number was very high for the pre 1994 period, i.e. 1980-1994 pulling the country’s overall performance significantly down. Investment efficiency was very low during the Apartheid rule in South Africa, due to global isolation and heavy state control over the economy. Thus if we exclude the pre 1994 period South Africa’s investment efficiency will fall within the first group of best performers. Poor performance by Angola, Cote d’Ivoire and Tanzania reflects the continued impacts of civil war and socialist mode of production in the case of the later which contributed to wasteful investment.

Investment required to achieve a minimum growth threshold of 7 percent

While Africa’s growth performance is the second best in the world at present, the continent still lags behind other regions in terms of socioeconomic development. Over 380 million people in Africa today live below poverty line, while youth unemployment is as high as 70% in some countries. Most economies are still heavily dependent on rain fed subsistence agriculture with extremely limited investment on irrigation. Weak economic structure reinforces poverty and poses a major risk to the sustainability of the current growth fuelled by commodity price boom.

African countries will not be able to address this fundamental economic challenge with current growth rates of 5% or less. They should achieve a minimum of 7% annual growth rate individually or collectively for the coming two decades to make a dent on poverty and unemployment. With an average ICOR of 5.23, the sub Saharan Africa region therefore requires a minimum fixed investment of 35% of GDP over the coming two decades collectively or by each country. Given the current actual average regional fixed investment rate of 20% of GDP, the desired investment rate of 35% over the coming two decades seems insurmountable, but not unrealistic. China’s economic growth during the past three decades was fuelled by fixed investment of over 40% of GDP. China’s massive investment was financed by extraordinarily high household and public savings which at times reached 50% of GDP. The major challenge for Africa, in this respect, is a culture of low savings, which we expound in the following section.

Saving-investment gap in Sub Saharan Africa

When domestic household and public savings fall short of the fixed investment needs of a country, this leads to a saving-investment gap. This gap is exacerbated when export earnings of a country fall short of import demand leading to a second, foreign exchange gap. Most developing countries in Sub Saharan Africa are often characterized by both gaps. Except five countries, i.e. Botswana, DRC, Gabon, The Gambia, Namibia, and South Africa, the rest of 41 sub Saharan African countries had an average saving -investment gap ranging from 1% to nearly 30% of GDP during the past three decades.

The saving-investment gap, however, significantly varies across the countries in the sub region. Countries that faced relatively lower saving-investment gaps ranging between 1-5% in the sub region during the period under review include Angola, Cameroon, Central African Republic, Comoros, Republic of Congo, Cote d’Ivoire, Eritrea, Ghana, Kenya, Mali, Nigeria, Swaziland and Uganda. The lower gap by some countries reflects increased savings from oil revenues, while lower gap by others simply mean lower level of investment.

Countries in the sub region with the average saving investment-gap of 6-10% during the stated period include Benin, Burkina Faso, Burundi, Central African republic, Ethiopia, Guinea, Guinea Bissau, Madagascar, Malawi, Mauritius. Niger, Rwanda, Senegal, Sierra Leone, Tanzania and Zambia, while those with average saving-investment gap of above 11% include Cape Verde, Chad, Equatorial Guinea, Lesotho, Mozambique, Seychelles and Togo.

The poor performance of the sub region in terms of the saving-investment gap reflects two major challenges: First, most countries are characterized by low saving and low investment and hence are at the risk of being trapped in vicious circle of poverty if the they do not raise their saving and investment rates immediately; and second if they raise their investment levels without a concomitant increase in domestic savings they may be trapped in vicious cycle of debt which could undermine the value of their investments, provided money borrowed is invested in economic development. Since the recent economic crisis proved that most of the aid pledged by non-African donors is unlikely to be delivered, the only sustainable solution to Africa’s development challenge is aggressive domestic resource mobilization for development. This could be supplemented by foreign direct investments, if the countries in the sub region speed up the current economic and political reforms.

Concluding remarks

Africa is rising. After 5 decades of civil strife and economic stagnation, the first decade of the 21st century shone a new light on the continent. Africa is no more a hopeless dark continent. Like its diamonds in the West, South and at the center, the continent is shining.

It is also shining as a second fastest growing continent in the world. However, there is no time for complacence as Africa is still the least developed continent in the world plagued with high level of poverty, unemployment, political instability and corruption. To sustainably address these fundamental socio economic challenges the region should at least grow by 7% per annum for the coming two decades. However, this is unlikely to be achieved with the current investment rate of 20% and the saving rate of 14% of GDP.

While the return to investment in Africa is high, it is such low levels of investment and saving that are holding the continent back. Given higher returns to investment, Africa’s economic transformation will depend on radical shift in the saving culture of its people, further economic and political reforms, and accelerated fixed investment.

   Dr. Wolassa Kumo
The cradle of mankind, Horn of Africa, remains the land of untold human tragedy. While we still have a vivid memory of the 1984 famine in Ethiopia that killed over a million people, 12 million more people are facing agonizing famine once more. The death of over 29000 Somali infants during the past few months will always remain a scar on the conscience of Somali politicians, the leaders of Horn of Africa and the continent, as well as, the global community. While leaders of these countries bear prime responsibility for such calamities, lack of political will on the part of the international community, particularly the African continent, is ignominious. There is enough food in the world to feed everyone on the planet, but there is no political will to distribute it. It is, nevertheless, recognized that while continued relief aid by the global community can save lives it cannot prevent another famine and is, therefore, paradoxically undesirable.

The current famine is triggered by the most severe drought that hit the region in 60 years, but it is not caused merely by climate changes. The current famine in the region is the result of deeper structural and geopolitical anomalies. First, Somalia, the hardest hit by the current famine, does not have a functioning state, and hence a functioning market. Lack of functioning state and market undermines food security and expose the people to vagaries of nature. Nature just took toll of the already vulnerable people; it did not cause the vulnerability.

Second, economies of the Horn of Africa countries are characterized by severe structural weaknesses. Over 80% of the population in Ethiopia, Eritrea, Somalia, Sudan, Uganda, and Kenya lives off traditional subsistence agriculture. However, no concrete measures have been put in place to improve the productivity of this vital sector by the governments of the respective countries during the past five decades. Subsistence agriculture in Horn of Africa is still today characterized by archaic technology, hand ploughing and oxen driven farming, with insignificant use of mechanization and irrigation technologies. According to IFAD (2011) only 1% of the land in the Horn of Africa region is irrigated, versus 7% in Africa and 38% in Asia. Thus underinvestment in agriculture and in adequate management of natural resources including soil, water and forestry are the main reason behind chronic food insecurity in the region and the recurrent famine we witness in the region today.

Agriculture contributes 44% of GDP and 85% of employment in Ethiopia; 33% of GDP and 80% of employment in Sudan; 21% of GDP and 75% of employment in Kenya; 22% of GDP and 82% of employment in Uganda; 17% of GDP and 80% of employment in Eritrea; and 65% of GDP and 71% of employment in Somalia. Clearly, Horn of Africa’s economy is predominantly agrarian and therefore the least developed economy in the world. Sustained and higher economic development in the sub region therefore depends crucially on the transformation of the predominantly traditional agriculture. The current famine haunting the sub region is therefore the direct consequence of decades of failed agrarian policies pursued by the countries in the sub region.

Key macroeconomic indicators provide further testimony to such failed economic policies. The combined GDP of the 7 Horn of Africa countries in 2010 was US$139 billion, while the total population of the seven countries in the sub region in 2010 was 222 million, with the implied average nominal per capita income of US$626. The sub region contributes 22% of the continent’s total population, but only 9% of the continent’s nominal GDP. The GDP of the 7 Horn of Africa countries is only about 60% of the GDP of Nigeria, itself not a shining economic star.

The much praised fast economic growth during the past decade in Ethiopia and Uganda has not made any dent on the level of underdevelopment and poverty either nationally or in the sub region. The major economic hub in the sub region, Kenya, is plagued with endemic corruption as well as low investment that for decades stifled any economic progress in this otherwise dynamic economy. According to the IMF World Economic Outlook Database (April 2011), Kenya’s average annual real economic growth for the period 2001-2010 was just 4% compared to over 7% recorded by Uganda and Ethiopia. Investment increased to 22 % of GDP in both Ethiopia and Kenya in 2010 slightly lower than Uganda’s 24%, but still falls far short of that needed to fundamentally transform the structure of the economy. In other smaller countries in the sub region, such as Eritrea, investment remains below 10% of GDP while the war-torn Somalia has not seen any meaningful investment in two decades.

Therefore, while undesirable, climate change was not the root cause of the current misery in Horn of Africa. It is the failure of the governments of the region to collectively or individually address the fundamental structural weaknesses in their respective economies and ensure political stability, in the case of war-torn Somalia, during the past decades that are behind the current malaise.

During the past two years most Horn of Africa countries, such as Ethiopia, Sudan, Kenya and Uganda leased large chunks of fertile lands to investors from emerging economies of Asia and the Middles East to produce food for export or biofuel. While the host governments and foreign investors claim that this constitute proper investment in agriculture to ensure food security, civil societies in Africa and the west label it as “Land Grab” that is bound to further undermine food security in the continent. It is premature to conclude, given a relatively short period of time since global land lease began, that land lease contributed to the current worsening food insecurity in the sub region, but the signs are worrying that it may worsen food insecurity in the future. Leasing large portions of fertile land to few foreign conglomerates in countries where 80% of the population live under subsistence farming, does not fundamentally address the structural anomalies of these economies and is therefore bound to fail.

The transformation of traditional agriculture as an engine of growth and development was emphasized by Theodore Schultz (1964), who states that all resources of the traditional type are efficiently allocated, and hence the rate of return to increased investment with the existing states of the art is too low to induce further saving and investment. According to Schultz, therefore, the development of traditional agriculture depends on breaking the established equilibrium. Based on a theory of the price of income streams, he suggests that breaking such established equilibrium requires the introduction of modern inputs in the form of human and material capital, not leasing the most fertile land to foreign conglomerates whose primary concern is food or fuel security at their own homeland. We are not sure to what extent the recent massive land lease arrangements in Africa have been based on economic theories or pragmatism, what we are sure is that they are not the most innovative of the policies to address the structural imbalances in African economies.

Correcting such imbalances in African economies need African solutions; of course, with the right mix of foreign direct investments in all sectors of the economy, while the root causes of the chronic famine in the Horn of Africa can only be addressed by (IFAD, 2011):

•   Protecting and restoring degraded land resources.

•   Improving water management and expanding irrigation

•   Improving animal, plant, and range management practices of small scale farmers to make them less vulnerable to hazards and climate variability

•   Strengthening community-based animal health services.

•   Identifying viable and acceptable alternatives to pastoral livelihoods.

Further, appropriate land use policy including tenure security, and agriculture development centered industrialization strategy are key to ensuring sustainable rural development in the sub region. Horn of Africa is a home for millions of pastoral farmers. As indicated in the last bullet above, recurrent rain failures and drought have made the survival of pastoral communities increasing precarious over the past five decades. It is time for governments of the Horn of Africa countries to act decisively to create a viable alternative livelihood to the pastoralists in the sub region. Governments must mobilise resources both domestically and globally to permanently address the pastoral problems of Horn of Africa. Such supports must be sustained and be backed by provision of other basic services such as education, health, clean water and economic infrastructure. Failing this, the governments of the region and the international community should brace themselves for the worst during the next drought cycle.

   By: Jerry Okungu
Finally, the forces bent on toppling the strongman of Libya have entered Tripoli. With two of his sons reportedly captured by rebels, it is only a matter of time before the rebels lay their hands on the strongman himself.

Gaddafi was Libya and Libya was Gaddafi. Libyan oil money was his personal wealth.

With oil dollars in his pockets, he dazzled and mesmerized fellow heads of state in Africa making many of them literally eat from his palms. Time and time again, he bankrolled almost every AU summit in various capitals when the host country was cash strapped and could not bear the shame of hosting his peers.

When Gaddafi landed in any African country be it South Africa, Ghana, the Gambia, Uganda or Sudan, the colonel was the man of the hour. His entry was always delayed for maximum effect. He would come in dressed in flowing robes befitting his pet dream of becoming the King of Kings. His entourage, consisting of well trained and armed female body guards was equally ruthless; no one dared stand in the King’s way.

In a way King Gaddafi tried his best to imitate the way American presidents behave when they visit Third World countries. For the American presidential security detail, there is hardly any distinction between an African president and an ordinary public spectator. I saw it in Abuja when Clinton arrived there in 2000 on his first state visit soon after Obasanjo was elected the first civilian president in decades. The American Marines were so arrogant and intimidating such that the equally arrogant Nigerian security drew their guns warning that unless they backed down and played second fiddle in security arrangements then they were ready to call off the visit. The Americans backed down.

While on the same trip; Clinton visited Tanzania and specifically Arusha. Why he did so I cannot remember but it must have been some peace memorandum between either warring Sudanese or belligerent Somalis. When he landed, a number of IGAD presidents had gathered to meet him. Some of them were not even allowed to get closer to him, let alone greet him. It was America’s arrogance or was it their insecurity at its best?

A few years ago, I had the privilege to attend a number of AU meetings in Addis Ababa, Accra and Banjul. While in Banjul in 2006, Gaddafi arrived in a plane load full of white stretch limousines manufactured in America. These Limos were all offloaded in Senegal so that the King of Kings would snake his way in to the Gambian capital in style. As the convoy moved along, he stopped at every village market and dished out petro dollars to poor Africans along the way. Meanwhile his team of bodyguards and publicity handlers had combed the city for security detail as they splashed the entire city with Gaddafi’s life-size portraits. Any tourist visiting Banjul at the time could be forgiven for thinking that Gaddafi was the Gambian head of state or better still, he was running for election in that country.

I remember him making a grand entrance later in the day having missed the opening ceremony during the APRM forum when Rwanda and Kenya were being peer-reviewed. Instead of coming to sit in the hall, his aim was to attract media attention and disrupt the proceedings. No head of state raised a finger as far as I can remember.

During the same summit, he refused occupy one of the villas he had built for visiting heads of state on behalf of the Gambian president. Instead, he chose open ground and pitched tent like the Bedouin that he was. The following year, he threw tantrums at the AU Accra Summit over the seating arrangement. He insisted that he must sit alone in an enclosed area, far away from any other head of state. When John Kufuor of Ghana declined to grant him his request, Gaddafi stormed out and went to address university students at one of Accra’s campuses.

Gaddafi’s arrogance knew no limits. When his dream of forming the United States of Africa with him as the first Head of State failed, he hit the roof. This was despite having bribed many heads of state to vote in his favour. When he realized that fellow heads of state were not with him, he gathered traditional leaders across the continent, made them kings and forced them to declare him King of Kings!

Of all fallen despots of the continent, Gaddafi’s fall must have been the most painful of them all for Gaddafi. His pomp and glory could not be matched by Emperor Bokassa, Ben Ali, Hosni Mubarak, Idi Amin, Joseph Mobutu and Sani Abacha before him. He was the mightiest of them all and when his time came, he surely fell from grace to grass. The question to ask is this: Will the King of kings allow his enemies to capture him and try him publicly like his comrade Hosni Mubarak of Egypt or Ben Ali of Tunisia? Or, will he commit suicide like Adolf Hitler? Only time will tell.

   Dr. Wolassa Kumo
Introduction

A Report by the United Nations Development Programme released in May 2011 revealed that the world’s 48 Least Developed Countries (LDCs) of which 33 are in sub Saharan Africa, 14 in Asia and 1 in Latin America and the Caribbean, illegally transferred a net capital of about US$197 billion mainly to the developed world between 1990-2008. During this period, all the 48 LDCs received about US$118 in remittances and about US$94 billion in new loans, Foreign Direct Investments (FDIs) and other related capital inflows while they paid back US$162 billion in debt services leaving them with net capital inflows of US$50 billion. However, this was sharply offset by a gross massive illicit capital flight estimated to be about US$246 billion for the period stated. This could have wiped out the entire LDC debt of about US$155 billion in 2009 with over US$91 billion being saved for investment in economic development.

These illicit financial flows involve the cross boarder transfer of the proceeds of corruption mainly by local kleptocracies; trade in contraband goods and criminal activities by local households and businesses; and tax evasion mainly by multinational corporations.

The Report identifies three major drivers of illicit capital flows from LDCs. Macroeconomic drivers, structural challenges and overall governance. Macroeconomic factors such as high fiscal deficit, high and volatile inflation rates, overvalued real effective exchange rates, negative real interest rates, low real GDP growth and high indebtedness are believed to positively contribute to higher illicit capital flows. So do structural weaknesses such as growing income inequality, increasing trade openness without adequate regulatory oversight, as well as, poor overall governance including corruption, inimical business climate, prevalence of the shadow economy and political instability.

The Report emphasizes further that the illicit capital flows from the LDCs vary both by region and structural characteristics. The following section describes the regional pattern of such flows.

The Regional Pattern of Illicit Capital Flows

Regionally, about 69% of the total illicit capital flows originates from the 33 LDCs in sub Saharan Africa while about 29% originates from the 14 Asian LDCs. Latin America and the Caribbean contribute the remaining 2%. Among the top ten exporters of illicit capital, 6 countries belong to Africa while 4 belong to Asia. One of the poorest countries in Asia, Bangladesh is the world’s top exporter of the illicit capital with the cumulative outflow of US$ 34.8 billion followed closely by Angola, Africa’s second largest oil reducer, with a cumulative outflow of US$34 billion during 1990-2008. This accounted for about 11% and 3.4% of Angola’s and Bangladesh’s GDP during the period respectively.

The Report indicates that trade mispricing accounts for about 65-70% of the illicit capital flows from all LDCs while unrecorded leakages from the balance of payment accounts for the remainder. The Report stresses further that in countries with weak overall governance, i.e. high corruption, and low transparency and accountability, trade mispricing increases with increasing trade volume exacerbating further the illicit capital outflows.

Structural characteristics such as being landlocked or small island nation LDC does not necessary imply higher illicit capital outflows.

Illicit Capital outflows from sub Saharan Africa

The 33 LDCs from the world’s least developed continent, Africa, exported a net illicit capital of US$135 billion to the developed world during 1990-2008 alone. And previous estimates suggest that the African continent as a whole had exported roughly about US$1.8 trillion in illicit capital outflows during the past 50 years while it received roughly about US$ 1 trillion in all forms of international capital inflows. Africa therefore was a net exporter of roughly US$ 0.8 trillion during the past half century. This massive loss of capital to the rest of the world explains why the continent remained the poorest and the least developed region in the world. After over 50 years of decolonization Africa’s resources continue to fuel development in advanced economies, while the owners of the resources on the continent, the broad masses, continue to languish under perpetual poverty.

The six countries in Africa which are among the top ten exporters of illicit capital include: Angola (US$34 billion), Lesotho (US$16.8 billion), Chad (US$15.4 billion), Uganda (US$8.8 billion), Ethiopia (US$8.4 billion), Zambia (US$6.8 billion) and Sudan (US$6.7 billion). It is saddening to observe that a small, land locked country of Lesotho with a total population of about 2 million lost a staggering amount of capital totaling US$16.8 billion in illicit capital outflows during the past 19 years. Equally astonishing is the size of the illegal capital flight from Ethiopia, the country often regarded as one of the poorest countries in the world in terms of per capita income, although the size of its GDP ranks it as the 86th biggest economy in the word.

Ethiopia cannot afford to export US$8.4 billion illegally aboard while the country is unable to feed close to 5 million of its citizens every year bad weather befalls on it.

Angola, Chad, Zambia and Sudan’s size of illicit capital flight is a symptomatic of the natural resource curse and reflect the need for the governments to take urgent actions to improve transparency in their extractive industries.

Other net exporters of illicit capital from sub Saharan Africa include Equatorial Guinea (US$6.5 billion), Liberia (US$5.8 billion), Guinea (US$4.9 billion), Malawi (US$4.2 billion), Djibouti (US$3.9 billion), Mozambique (US$3.8 billion), Madagascar (US$3.7 billion), Congo Democratic Republic (US$3.5 billion), Burkina Faso (US$ 2.9 billion), Tanzania (US$2.3 billion), Sierra Leone (US$2.1 billion), Mali (US$1.7 billion), Gambia (US$1.6 billion), Rwanda (US$1.6 billion), Central African Republic (US$ 1 billion), Niger (US$1 billion), Burundi (US$ 969 million), Guinea Bissau (US$847 million), Togo (US$ 678 million), Mauritania (US$ 428 million), Senegal (US$ 334 million), Benin (US$264 million), Comoros (US$ 154 million), Sao Tome and Principe (US$142 million), and Eritrea (US$118 million).

Equatorial Guinea, one of the largest oil producers in Africa, is in fact not a least developed country in terms of the size of its GDP per capita. With GDP per capita of over US$ 16000, it is the only non-OECD high income country in Africa. However, due to weak overall governance that resulted in illicit capital outflows of over US$6.5 billion over the past 19 years, among other things, nearly 77% of its citizens live under abject poverty. Equatorial Guinea is not even a member of Extractive Industries Transparency Initiative while other countries such as Liberia and Mozambique are making necessary efforts to improve transparency and accountability in the use of revenues from natural resources.

The preceding figures of net illicit capital outflows from the world’s least developed countries partly explain why these countries remained poor. The constant rhetoric of aid and FDI to Africa is nothing more than a cheap political propaganda. Poor countries like Ethiopia and Lesotho have been subsidizing economies of the developed nations for the past 50 years at the expense of millions of their own citizens who go to bed every day without a single meal.

It is now abundantly clear that the west not only cannot save Africa, to use the wise words of Professor William Easterly, but in fact is helping the kleptocraceis to kill the continent’s people by facilitating the robbery of its meager resources.

Concluding remarks

In spite of continued inflows of aid, foreign direct investments and remittances, the least developed countries of the world continue to be the net exporters of capital to the developed world which denies them crucial resources needed to provide jobs, alleviate poverty and enhance economic development. Cross border illicit outflows of proceeds of corruption by African kleptocracies, contraband trade and criminal economic activities by households and businesses and tax evasion by multinational corporations fueled by structural weaknesses, macroeconomic instability and poor overall governance by the least developed countries led to loss of nearly US$ 200 billion in net capital during the past 19 years. This could have wiped out the entire LDC debt stock of about US$155 billion estimated in 2009 leaving billions of net resources for further investment.

Africa is the hardest hit with nearly 70% of the stated net capital loss originating from the LDCs in sub Saharan Africa.

The UNDP report on illicit capital flows shed new light on challenges of underdevelopment in LDCS and particularly in Africa. The fundamental challenge for the LDCs in Africa and elsewhere is to put effective measures in place to improve overall governance including democratization, fighting corruption and improving transparency and accountability in the generation and use of revenues from natural and other resources, promoting inclusive economic growth, ensuring macroeconomic stability and implementing effective mechanism for trade regulation.

The proliferation of free trade areas with neighbors or the west will not bring sustainable development if the bulk of locally mobilized resources continue to be lost in illicit outflows due to unregulated open trade.

Neither will tax holidays for few FDIs. Continued provisions of tax holidays for multinationals would result in double loss of capital if there is no effective mechanism to control tax evasion by those who have already graduated from the incentives.

The developed world would help the LDCs escape from the vicious circle of poverty not by promising more aid, and technical assistance but by closing down the offshore capital safe havens most notably the Swiss Banks which have continued to gladly receive stolen funds from the Africa’s hungry people.

And it is only when Africans stop stealing from their own poor and the west stops aiding and abating the kleptocracies and be part of the process that the least developed countries will ever develop.

References

UNDP: Illicit Financial Flows from the Least Developed Countries: 1990-2008. Discussion paper: May 2011

   By: Crispy Kaheru
When the East African Community (EAC) collapsed in 1977, it did so not just because Kenya demanded for more seats than Uganda and Tanzania in decision-making organs of EAC but because there was generally a lack of integrity, trust and selflessness among the leaders at that time.

With its restoration in 2000, the EAC is making strategic leaps towards political integration.

However the ultimate political integration is going to heavily depend on the extent through which the political leaders in Kenya, Uganda, Tanzania, Rwanda and Burundi seek to fulfill the core values of the regional bloc as opposed to undertaking individual self-seeking projects. While regional cooperation may be important in developing constructive relations between states, it cannot be assumed that pooling resources to provide public goods for populations and creating platforms for dialogue regarding shared interests will automatically follow.

Despite the high hopes raised by the re-ignition of the EAC concept, the region continues to suffer from deep-rooted mutual suspicions, as well as selfishness by some of its contemporary main political actors. The neatly woven suspicion and individualism amongst some of the regional political players might sooner than later pause a greater challenge to regional integration.

   EAC Heads of State – From Left: Uganda’s Museveni, Kenya’s Kibaki, Rwanda’s Kagame, Tanzania’s Kikwete
   and Burundi’s Nkurunziza [ ENLARGE ]

The Kenyan Triton Oil Scandal of 2008/9 that led to the massive fuel shortage in the entire East African region is said to have been engineered by sections of political leadership in Kenya for self vested interests. Without naming names, considerable evidence unraveled after that fuel scandal pointed to key political figures issuing orders to the Triton management to hoard fuel in order to escalate the oil prices beyond the market rates for individual gains. To the best of luck of the proprietors of this fraud, the oil prices more than doubled in Kenya, Uganda and Rwanda for about a month in the later part of 2008.

Similarly, recent media reports have associated the current economic slowdown characterized by the skyrocketing inflation in the region to the artificially triggered fuel prices in Kenya whose brunt is now being intolerably felt by Uganda, Rwanda, and Burundi. Although initial explanations by the Ugandan, Rwandan and Burundian governments dwelt on the insurgency in North Africa and the Arab world, the focus has dramatically shifted to analyzing the costs levied on fuel between Mombasa port and Eldoret. In his swearing in speech, President Museveni last week actually revealed his intentions to start importing crude oil from Sudan as a measure of curbing the soaring prices of fuel. Although Uganda has time immemorial got its fuel from Mombasa, Museveni expressed concern on the costs charged on fuel products to Uganda by the Kenyan authorities.

Of course with the fuel fraud precedence that has been set, I would not be shocked if the economic crisis in East Africa is yet another individually engineered or exacerbated scam to amass quick wealth for just a few politicians who trade in oil at the expense of the ordinary citizens in the region who now cannot even afford one meal a day, due to the unbelievable commodity prices. Yes, this has happened before and it wouldn?t be shocking if the same game is being played by a cabal of cruel, self-minded leaders somewhere in the region.

Such politics of selfish interests will definitely serve to breakdown the foundation of trust between what are essentially supposed to be cooperating countries in the region. Interstate agreements on partnership relations of cooperation are supposed to be built on mutual trust, respect and confidence between the countries’ leaders.

It is imperative to note that regional cooperation, as a middle path between complete self-reliance and complete openness, gives countries increased room to maneuver in pursuing development. Therefore, the only way to maintain regional political stability and social and economic welfare is to have an altruistic attitude in administration rather than leadership that presages selfishness.