UNCTAD’s Economic Development in Africa Report 2020 says stopping illicit capital flight could almost cut in half the annual financing gap of $200 billion that the continent faces to achieve the Sustainable Development Goals.
Every year, an estimated $88.6 billion, equivalent to 3.7% of Africa’s GDP, leaves the continent as illicit capital flight, according to Economic Development in Africa Report 2020 [PDF] launched today.
Illicit financial flows (IFFs) are movements of money and assets across borders which are illegal in source, transfer or use, according to the report entitled “Tackling illicit financial flows for sustainable development in Africa.”
It shows that these outflows are nearly as much as the combined total annual inflows of official development assistance, valued at $48 billion, and yearly foreign direct investment, pegged at $54 billion, received by African countries – the average for 2013 to 2015.
“Illicit financial flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions,” said UNCTAD Secretary-General Mukhisa Kituyi.
These outflows include illicit capital flight, tax and commercial practices like mis-invoicing of trade shipments and criminal activities such as illegal markets, corruption or theft.
From 2000 to 2015, the total illicit capital flight from Africa amounted to $836 billion. Compared to Africa’s total external debt stock of $770 billion in 2018, this makes Africa a “net creditor to the world”, the report says.
IFFs related to the export of extractive commodities ($40 billion in 2015) are the largest component of illicit capital flight from Africa. Although estimates of IFFs are large, they likely understate the problem and its impact.
IFFs undermine Africa’s potential to achieve the SDGs
IFFs represent a major drain on capital and revenues in Africa, undermining productive capacity and Africa’s prospects for achieving the Sustainable Development Goals (SDGs).
For example, the report finds that, in African countries with high IFFs, governments spend 25% less than countries with low IFFs on health and 58% less on education. Since women and girls often have less access to health and education, they suffer most from the negative fiscal effects of IFFs.
Africa will not be able to bridge the large financing gap to achieve the SDGs, estimated at $200 billion per year, with existing government revenues and development assistance.
The report finds that tackling capital flight and IFFs represents a large potential source of capital to finance much-needed investments in, for example, infrastructure, education, health, and productive capacity.
For example, in Sierra Leone, which has one of the highest under-five mortality rates on the continent (105 per 1,000 live births in 2018), curbing capital flight and investing a constant share of revenues in public health could save an additional 2,322 of the 258,000 children born in the country annually.
In Africa, IFFs originate mainly from extractive industries and are therefore associated with poor environmental outcomes.
The report shows that curbing illicit capital flight could generate enough capital by 2030 to finance almost 50% of the $2.4 trillion needed by sub-Saharan African countries for climate change adaptation and mitigation.
IFFs are concentrated in high-value, low-weight commodities, especially gold
The report’s analysis also demonstrates that IFFs in Africa are not endemic to specific countries, but rather to certain high-value, low-weight commodities.
Of the estimated $40 billion of IFFs derived from extractive commodities in 2015, 77% were concentrated in the gold supply chain, followed by diamonds (12%) and platinum (6%).
This finding offers new insights for researchers and policymakers studying how to identify and curb IFFs and is relevant to all gold-exporting countries in Africa, for example, despite their differing local conditions.
The report aims to equip African governments with knowledge on how to identify and evaluate risks associated with IFFs, as well as solutions to curb IFFs and redirect the proceeds towards the achievement of national priorities and the SDGs.
It calls for global efforts to promote international cooperation to combat IFFs. It also advocates for strengthening good practices on the return of assets to foster sustainable development and the achievement of the 2030 Agenda for Sustainable Development.
Need to collect better trade data to detect risks related to IFFs
Specific data limitations affected efforts to estimate IFFs. Only 41 out of 54 African countries provide data to the UN International Trade Statistics Database (UN Comtrade) in a continuous manner allowing trade statistics to be compared over time.
The report highlights the importance of collecting more and better trade data to detect risks related to IFFs, increase transparency in extractive industries and tax collection.
The UNCTAD Automated System for Customs Data (ASYCUDA), including its new module for mineral production and export, called MOSES (Mineral Output Statistical Evaluation System), are potential available solutions.
African countries also need to enter automatic exchange of tax information agreements to effectively tackle IFFs.
Africa should improve regional cooperation on IFFs and tax
Although IFFs are a major constraint to domestic resource mobilization in Africa, African governments are not yet sufficiently engaging in the reform of the international taxation system.
Transparency and cooperation between tax administrations globally and within the continent is key to the fight against tax evasion and tax avoidance.
Regarding regional cooperation on taxation within the continent, the African Tax Administration Forum can provide a platform for regional cooperation among African countries.
Regional knowledge networks to enhance national capacities to tackle proceeds of money laundering and recover stolen assets, including within the context of the African Continental Free Trade Area (AfCFTA), are crucial in the fight against corruption and crime-related IFFs, the report says.
Tackling IFFs requires international action
Tax revenues lost to IFFs are especially costly for Africa, where public investments and spending on the SDGs are most lacking. In 2014, Africa lost an estimated $9.6 billion to tax havens, equivalent to 2.5% of total tax revenue.
Tax evasion is at the core of the world's shadow financial system. Commercial IFFs are often linked to tax avoidance or evasion strategies, designed to shift profits to lower-tax jurisdictions.
Due to the lack of domestic transfer pricing rules in most African countries, local judicial authorities lack the tools to challenge tax evasion by multinational enterprises.
But IFFs are not just a national concern in Africa. Nigeria’s President Muhammadu Buhari said: “Illicit financial flows are multidimensional and transnational in character. Like the concept of migration, they have countries of origin and destination, and there are several transit locations. The whole process of mitigating illicit financial flows, therefore, cuts across several jurisdictions.”
Solutions to the problem must involve international tax cooperation and anti-corruption measures. The international community should devote more resources to tackle IFFs, including capacity-building for tax and customs authorities in developing countries.
African countries need to strengthen engagement in international taxation reform, make tax competition consistent with protocols of the AfCFTA and aim for more taxing rights.
Military officers overthrew Mali’s government in a coup d’état on August 18, 2020. Among the more worrying aspects of the coup is the fact that a number of the officers involved had received foreign training, most notably from the United States.
In fact, this was the second time in eight years that US-trained officers in Mali had launched a coup. To paraphrase Oscar Wilde, to lose one civilian government to a coup launched by foreign-trained officers may be regarded as a misfortune; to lose two looks like carelessness.
For many commentators with a strong sense of déjà vu, events in Mali reinforce suspicions of a link between US training and coups d'état.
But does US foreign military training provoke coups d’état? The short answer is we don’t know. Until we know more, we should be sceptical of the blanket claim that it does.
Initial evidence, much cited by journalists, suggests a link.
Researchers Jesse Dillon Savage and Jonathan Caverley find that US foreign military training roughly doubles coup risk in recipient states. They argue, plausibly, that foreign training grants recipients credibility and power within the officer corps, which they can then use to rally officers against shaky civilian governments.
What commentators seldom note, however, is that this analysis is confined to just two US training programmes. Yet the US has some 34 different foreign military training programmes involving partners in almost every country in the world.
Our research finds no relationship between US military training and coups, even when looking at “most similar” programmes to America’s International Military Education and Training programme. Researchers at the RAND Corporation, a US think tank, also analysed the link between US training and military coups in Africa. They too cast doubt on the link between the two.
And in a recent dissertation, post-doctoral fellow Renanah Miles Joyce finds that, on average, US training in Africa reduced military involvement in politics and human rights violations.
Training and coups
There are other reasons to be sceptical of the foreign-training-causes-coups hypothesis. First, it should come as no surprise that Mali’s coup plotters received US training. Between 1999 and 2016, US programmes involved 2.4 million trainees in programmes that cost over $20 billion.
Officers in many countries embark on the security equivalent of global training pilgrimages through a transnational circuit of academies, exercises and manoeuvres. This training is often the key to building a successful career.
Consider the curriculum vitae of Mali’s coup plotters. Early reports suggest that Assimi Goïta, who heads Mali’s junta, spent years training alongside US special forces, regularly participated in US Africa Command’s multinational Flintlock exercises, attended an 18-day seminar in Florida, and studied at the American-German Marshall Centre.
His colleagues, Colonel Malick Diaw and Colonel Sadio Camara, the coup’s purported architects, were allegedly training at the Higher Military College in Moscow before returning to Bamako in the days before the coup.
For their part, German officials admitted that several coup plotters had been trained in France and Germany.
This might, at first glance, suggest a connection between foreign training and coups. But, in our view, it simply points to the ubiquity of foreign training in many modern militaries. In addition, because training seeks to strengthen civil-military relations, it tends to occur in coup-prone countries like Mali. History suggests that coups tend to beget coups.
Foreign training may not have much of an effect at all. At one end of the spectrum, large-scale foreign training in Somalia, Iraq, or Afghanistan has met with failure and frustration. Jahara Matisek, an assistant professor in the Department of Military and Strategic Studies at the US Air Force Academy, has likened these foreign-trained forces to Fabergé eggs, “expensive and easily broken”.
At the other end, many activities are limited to a handful of soldiers and last all of a few days. This makes it hard to conclude that foreign training alone triggers major changes in civil-military relations in recipient countries.
If we cannot make a general claim about the training-coup link, perhaps a link can be found in certain situations. For example, the kinds of training that are undertaken, and how training intersects with local political conditions.
Some argue that training focuses too much on technical and tactical expertise to the detriment of democratic norms and military professionalism.
Yet, precisely because improving civilian control of the military is a key objective, these democratic norms feature prominently in curricula. The trouble seems to be that it is difficult to transplant norms, as the US and European Union are learning to their detriment, after years of effort and tens of millions of dollars trying to reform Mali’s security sector.
It’s also the case that norms of military professionalism are ambiguous and open to abuse. As Professor Risa Brooks argues, norms of professionalism in the US are not stopping American military personnel from involvement in politics. And Professor Sharan Grewal provides evidence that US officers’ increasing politicisation rubs off on their foreign trainees.
In the search for more effective security partners, the US and its allies have increasingly focused on elite units, including the special forces unit commanded by Mali’s Colonel Goïta. While this intensive, long-term training can transmit skills, it’s also at risk of encouraging the formation of praetorian guards that threaten democratically elected civilian governments.
Such training may indeed create a dangerous nucleus of discipline, competence and power at the centre of an otherwise dysfunctional state. In other cases, as in Mali’s neighbour Chad, foreign training of the authoritarian regime’s elite forces may help to help defend the regime against coups.
We have heard a lot about foreign trainees in coups. We need to know a lot more about training in the coups that do not happen.
Nigeria’s long-awaited oil reform bill would privatise the Nigerian National Petroleum Company (NNPC), amend changes to deepwater royalties made late last year and scrap key regulatory agencies in favour of new bodies, a copy of the bill seen by Reuters showed.
President Muhammadu Buhari has sent the bill to the Senate, two sources told Reuters. It, along with the House of Representatives must sign off on it before it can become law. Nigeria is Africa’s largest crude exporter.
The legislation has been in the works for the past 20 years and looks to revise laws governing Nigeria’s oil and gas exploration not fully updated since the 1960s because of the contentious nature of any change to oil taxes, terms and revenue-sharing.
The bill proposes turning the NNPC into a limited liability corporation into which the ministers of finance and petroleum would transfer NNPC assets.
The government would then pay cash for shares of the company and it would operate as a commercial entity without access to state funds.
The changes would in theory make it easier for the struggling company to raise funds.
The legislation would also amend controversial changes to deep offshore royalties made late last year by cutting the royalty for offshore fields producing less than 15,000 barrels per day (bpd) to 7.5% from 10%.
It would also change a price-based royalty so that it kicked in when oil prices climbed above $50 per barrel, rather than $35.
Institutions and individuals who invest money usually do so with the asset manager’s help, a company that manages their investments and makes a profit for both sides. These firms make well-timed investment decisions on behalf of their clients to grow their portfolio and finances.
According to data presented by StockApps, the world’s five largest asset management companies hold $22.5trn in assets, more than the GDP of the United States. With more than $7.3trn in assets under management or one-third of that value, BlackRock represents the leading asset manager globally.
Total Assets Under Management of BlackRock Surged 57% in Five Years
Asset management companies work with several investors, which enables them to reduce the risk, diversify their clients’ portfolios, and provide access to higher-value options with better capital appreciation prospects. In many cases, they make money by charging fees based on the number of assets they manage, although some companies charge flat fees. These firms usually also provide other services than asset management, which generates only a part of their revenue.
The world’s largest asset manager, BlackRock, has become one of the leading players on the financial market over the last 25 years. It serves individual investors, companies, governments, and foundations through 70 offices all around the world. BlackRock also tops the list of largest Exchange Traded Fund (ETF) providers in the United States and has played a huge role in advising the US government during the financial crisis.
In 2015, the total value of assets under BlackRock’s management amounted to $4.6trn, revealed the company’s annual report. During the last five years, this figure surged by 57% to $7.3trn in 2020. Besides leading in the value of managed assets, the New York-based financial giant also witnessed a steady market cap growth in 2020. In September, the total value of BlackRock stocks hit $83.6bn, a 22% jump year-over-year.
With $5.7trn in total assets under management, the Vanguard Group ranked as the second-largest asset manager globally. The US financial company, with 20 locations worldwide and 17,600 employees, is also the second-largest provider of exchange traded funds and the largest provider of mutual funds in the world.
Eight of the top 10 Asset Management Firms are US Companies
UBS Group represents the third-largest asset manager globally, with more than $3.5trn in assets under management. The Swiss financial corporation and the country’s largest bank announced a net profit of $1.23 billion for the second quarter of 2020, an 11% drop year-over-year mostly caused by the continued credit losses amid the coronavirus crisis.
However, higher trading activity continued to support the bank’s earnings between March and June. The Group’s quarterly earnings also revealed an operating income of $7.4bn, compared to $7.5bn a year ago. Statistics show the Swiss lender lost $1.6bn in market capitalization in 2020, with the total value of stocks falling from $45.6bn in December 2019 to over $44bn this month.
State Street Global Advisors and Fidelity Investments ranked as the fourth and fifth largest asset managers globally, with $3.05trn and $2.92trn in total assets under management.
Analyzed by geography, the US asset managers lead on the global list of the most successful companies, with eight of the top 10 asset management firms from the United States. Statistics also show the world’s largest banks like JP Morgan Chase, Goldman Sachs, and Bank of America were not among the top five asset managers in terms of managed assets.