Starving for Capital in Sub-Saharan Africa

Sub-Saharan Africa's appalling poverty and living conditions have been exposed repeatedly through television and the Internet. But these agonizing pictures represent only the symptoms of an underlying - and largely unreported - malady: capital flight.

Capital flight stems from myriad causes: debt servicing, the awarding to foreign firms of almost all contracts financed by multilateral lenders (and exemptions from taxes and duties on these goods and services), unfavorable terms of trade, speculation, free transfer of benefits, foreign exchange reserves held in foreign accounts, and domestic private capital funneled abroad. According to the UN Industrial Development Organization (UNIDO), every dollar that flows into the region generates an outflow of $1.06.

Most of this hemorrhage is debt-fueled: approximately 80 cents on every dollar that flows into the region from foreign loans flows out again in the same year. This implies active complicity between creditors (the OECD countries and their financial institutions, especially the IMF and the World Bank) and borrowers (African governments). Capital flight provides creditors with the resources they need to finance additional loans to the countries from which these resources originated in the first place - a scheme known as "round-tipping" or "back-to-back" loans.

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