Johannesburg - Africa is bleeding money to such an extent
that a new book argues the world's poorest continent is a net creditor to the
rest of the world and should not have to pay its "odious debts".
Debt forgiveness for Africa has long been an activist battle
cry popularised by celebrity voices such as Bono, and the concept of odious
debt - incurred by rulers but bringing no benefit to the people - is not new.
Authors Leonce Ndikumana and James K Boyce bring the issue
up to date with the latest data, and make an argument that capital flight and
debt are interlocked.
And drawing on legal precedents the authors, economists at
the University of Massachusetts, make the case that the region should not be
accountable for squandered or pillaged loans - which takes the debate beyond
simple debt relief.
What is needed, they say, is an impartial international
institution to adjudicate disputes over such debt.
Their broad numbers are in line with other estimates such as
those crunched by watchdog Global Financial Integrity, but they also attempt to
measure what was lost because of missed investment opportunities.
The book estimates that from 1970 to 2008, the 33
sub-Saharan countries for which good data is available lost over $700bn to
If this capital was invested abroad and earned interest at
going market rates, the authors calculate that the accumulated loss over the
four decades was $944bn.
By way of eye-popping contrast, they say the total gross
domestic product of all sub-Saharan Africa in 2008 stood at $99bn - so what the
region lost was almost the size of its entire economy.
"These sums far surpass the same countries' combined
external debts, which stood at $177bn in 2008. This means that sub-Saharan
Africa is a net creditor to the rest of the world," the book asserts.
Capital has flowed out through a number of channels.
Trade misinvoicing is one common way to spirit money
offshore which can be measured through publicly available direction of trade
data compiled by the International Monetary Fund. With exports, under-invoicing
is used, for imports over-invoicing.
As an example of how it could work, a company or official
could say a piece of imported equipment costs $100m when in fact it was
exported with an 80m price tag.
The importer can also score if the government makes scarce
foreign exchange available at favourable rates.
Capital flight has also danced to the tune of debt.
The authors write that for "every dollar of foreign
loans to sub-Saharan Africa, roughly 60 cents have flowed back out as capital
flight every year". This means in their view that over half of the
region's debt is "odious".
Capital flight can be linked to foreign borrowing in a
number of ways. Loans from creditors abroad can be diverted from public to
private accounts via kickbacks, ghost projects or outright theft and then parked
in tax havens.
Capital seepage can generate demand for replacement funds -
as the country is being starved of cash - creating a revolving door of money
gushing in and gushing out.
Other examples include debt-driven capital flight. This
occurs when the influx of money from lenders pushes up the value of the
But as the stock of debt grows and markets realise money
must flow out to repay it, the currency depreciates. The flight capitalist
profits by moving money offshore while the currency is artificially inflated,
and can also score when it devalues.
Regardless, if the debt is odious it should not have to be
repaid, the authors argue.
Among other precedents they say this was laid down in 1923,
when an arbitrator declared Costa Rica did not have to repay debt to the Royal
Bank of Canada because it had been lent to the military dictatorship which
previously ruled there.
The authors say a debt can be considered odious if it is
incurred without the consent of the people, if it was not used for public
benefit and if creditors knew these factors.
That will sound like a familiar scenario to many an
impoverished slum dweller in Kinshasa, Luanda and Johannesburg.