Tuesday, June 19, 2012

Africa Losing Money, Labor

No one seems to have any faith in the future of Africa, as evidenced by the mass exodus of capital and skilled labor from the country. One economist reports on the all too common phenomenon of capital flight from Africa as money gained in the country is shifted out to other markets for investment, while the same occurs with the talent pool as skilled Africans inadvertently subsidize the growth of other countries by abandoning their homeland for better-paying jobs. Despite substantial amounts of foreign investment and aid, it is estimated that around $700 billion of this money has been funneled out through capital flight over the last four decades. For more on this continue reading the following article from Economist’s View.

This is from Léonce Ndikumana:

Africa Specializing in Capital Exodus?, by Léonce Ndikumana: Even as Africa faces severe shortages of skilled labor at home, it experiences large and increasing outflows of highly-skilled labor migration to industrialized economies in search of better job opportunities. The investments made in the training of these professionals are losses to African countries but translate into hefty gains for receiving countries.  Thus resource-starved African nations are subsidizing developed countries’ industries and social services. ...
Parallel to this exodus of human capital is the illicit export of financial capital from African countries – or capital flight. This is not a new phenomenon, and it shows no signs of abating.
Over the past four decades, sub-Saharan Africa has lost a staggering $700 billion due to capital flight. In addition to trade misinvoicing, smuggling, and embezzlement of revenues from natural resource exports, a substantial part of the capital flight was financed by external borrowing. We estimate that every year 40 to 60 cents of each borrowed dollar spins out of the revolving door as capital flight, often returning to the same banks that issued the loans. On net basis, Africa is transferring more money to the rest of the world than it is receiving in terms of borrowing and aid. Once again, Africa is net financier to the rest of the world rather than the other way around as commonly perceived. And unlike in the case of human capital exodus, financial capital flight generates absolutely no flows in the reverse direction; it is an unmitigated loss to the continent.
Capital flight, and the burden of servicing the debts that financed it, are partly to blame for the conditions that create the other economic problems faced by the continent...  Illicit financial flows drain scarce public resources that could have been used to finance public services including education and health. It partly explains why there are not enough schools, clinics, and medical equipment; it also explains the poor working conditions for doctors, teachers, and other professionals that force them to seek greener pastures abroad.
Stemming capital flight could substantially bridge the financing gaps faced by African countries. ...
It is clear that Africa’s development pathways, characterized by exodus of human and financial capital, are not sustainable in the long run. Obviously African countries have the primary responsibility to devise and implement strategies to keep capital onshore. But the international community also has an equally important responsibility to root out the perverse incentives and opacity in the financial system that enable and perpetuate the financial hemorrhage faced by the continent. This would enhance the efficiency of donors’ support to Africa’s efforts to boost investments in education, stimulate private sector development, employment creation, and generally improve domestic living and working conditions that are necessary for optimal utilization of skilled human capital on the continent. ...
This article was republished with permission from Economist's View.

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