When the money goes west

If the ill-gotten gains of the corrupt elite went into, say, mobile-phone companies at home, it wouldn’t be so bad. But the funds always go overseas.

With his lowly army origins, taste for excess and contempt for democracy, Gnassingbe Eyadema, president of the West African nation of Togo, was in many ways a cliche of the African Big Man. The way he died was as stereotypical as the way he lived. The former legionnaire expired on a plane flying him to a clinic in Israel that was due to treat him for a heart condition, treatment that no hospital in Togo – after 38 years of Eyadema’s rule – was capable of providing.

The tendency of members of Africa’s spoilt elite to gasp away their last moments in midair, heading for foreign clinics offering the kind of healthcare not available at home, highlights something very important about the continent. There is no dispute that Africa’s ruling elite steal from the public purse – and that is damaging enough in itself. But the issue is what that privileged group then does with its stolen proceeds. If untrammelled corruption is bad enough, untrammelled corruption together with systemic capital flight makes for a truly disastrous combination.

Had Eyadema, like his Asian equivalents, invested his ill-gotten gains at home – acquiring a stake in a mobile telephone company, perhaps, or setting up a top-notch private clinic – he might conceivably have created jobs, given the economy a boost and sent out a message to nervous foreign investors that Togo was a country deserving of serious attention.

But that is not what African elites do. From east to west, the pattern is drearily repetitive. Keep just enough at home to rig the next election/pay off the army/build a garish palace (complete with Olympic-sized swimming pool and helicopter on the lawn). Stow the rest in offshore bank accounts in Uncle Binzi’s name, buy flats in the most expensive districts of Brussels, Paris and London – the kids, after all, will need a base in between terms at Eton and Harrow – and set up a handful of offshore companies. Whatever you do, get the money out of the country and never bring it back.

Those who have spent their careers puzzling over Africa’s failure to match Asia’s growth rates, given comparable economic indicators in the 1950s, attribute the growing divide in part to the way a tiny group relentlessly cannibalises the system that sustains it, consuming the very industries, agricultural sectors or aid flows on which its prosperity is based.

What you see in Africa is pure rent extraction, while what you see in Asia is the buying of a service,” says Martin Wolf, a former World Bank man who now writes on economics for the Financial Times. “In Africa, the corrupt remove resource wealth and provide nothing in return. In Asia, regimes like Suharto’s [in Indonesia] would take a cut on everything, but the service would be delivered. While that extracts a price from the economy, it’s far more beneficial.”

Jeremy Pope, one of the founder members of Transparency International, a non-governmental organisation that publishes a much-cited global corruption index, defines the African model as a “lootocracy”. “You don’t find it anywhere else in the world. Even in Latin America, the leaders don’t steal everything that moves and shift it offshore.”

It is virtually impossible to quantify the burden on the African economy. In 1999, the Economist estimated that African leaders had stowed $20bn in Swiss bank accounts. Investigations in Kenya after President Daniel arap Moi left office indicated that, at the very least, $1bn had been sent overseas by former officials. University of Massachusetts researchers have estimated that from 1970 to 1996, capital flight from 30 sub-Saharan countries totalled $187bn, outstripping those same nations’ external debt.

So is Britain, which is spearheading a drive for G8 nations to grant total debt relief and increase aid quotas, right to want simply to increase the flow of funds to African nations? What accounts for the corrupt spending patterns?

The relatively recent development of the nation state in Africa (late 19th century) certainly plays a role. In most African states, there is little discussion of political ideology – how far the state should intervene, the balance between public and private sector, government obligations versus individual rights. Instead, there are furious debates over which particular ethnic group is “eating,” or should get to “eat,” at the national trough.

“Before you can have a conflict of interest, you have to have a public interest,” says Pope. “The first question has to be: do these guys believe in the nation state, or is it no more than a collection of competing tribal interests? At the moment, whenever there is a government reshuffle in Africa, it always seems to be a question of which tribes control which ministries. There’s no expectation that anyone will act in the overall national interest.”

The post-colonial years produced the formation of elites that looked to an expanding state sector, rather than the market, as a source of enrichment. While corporate magnates and the titled aristocracy are the wealthiest people in western societies, in Africa the rich tend to be retired generals and policemen, former permanent secretaries and one-time government ministers.

The “Africanisation” of foreign-owned industries and prime agricultural land by post-independence black leaders exacerbated the problem. Across Africa, ex-army officers and schoolteachers with no business training or understanding of economics suddenly found themselves in control of assets they had no idea how to manage. It was only natural these leaders should seek financial advice from the most successful entrepreneurs in town. And in Africa, the entrepreneurs tend to be of foreign extraction: the Lebanese in West Africa, the Asians in East Africa. Excluded from politics, dreading the confiscation of assets, they feel little loyalty towards the African states in which they live, and their offshore investments reflect their unease. They passed these distrustful instincts on to their new black business partners.

“It’s our own fault,” a Tanzanian anti-corruption campaigner says. “Africanisation was our biggest blunder. We didn’t allow those communities a stake in our society, and they repaid the favour by teaching our leaders how to hide their money abroad.”

Africa’s history of political instability has also played its part. Presidents who knew they could be overturned at any moment rushed to steal as much as they could in the time available to them. In Nigeria, the post-independence elite initially invested their new-found wealth domestically, only to see those assets appropriated by incoming administrations. The likes of the late General Sani Abacha, who sent an estimated $4bn abroad, were careful not to repeat the mistake. “The thinking is always: ‘I am certain to be probed once I leave power, so I had better put everything abroad’,” says a Nigerian banker.

That corrosive instability extended throughout the ruling hierarchy. African leaders constantly reshuffled their cabinets in an attempt to spread patronage and prevent the formation of power bases that might nurture rivals. Zaire’s Mobutu Sese Seko was a great practitioner of this tactic, appointing no fewer than 51 governments, each containing 40 ministers on average, between 1965 and 1990. Having registered how little time his successor had spent in his post, the silent mantra of every incoming minister and permanent secretary became “eat while you can”.

The syndrome gains a destructive momentum. Once private investors and foreign donors register that a corrupt African elite would no more invest their own money at home than they would deign to fly economy class, they also tend to steer clear of the country in question. Development becomes a charade, economic output shrivels and the impact of official theft becomes ever more damaging, the golden goose more gaunt.

Anti-corruption campaigners pin their hopes on the emergence of a savvy new generation of urban Africans – known as the “dot-coms” in Kenya – whose members attended American and European business schools. These young men and women, the thinking goes, will not look to the state for future employment, are less likely to be swayed by tribal loyalties and are less ready than their forefathers to attribute automatic value to western symbols of prestige, whether a Swiss bank account or a flat in Knightsbridge.

“The phenomenon of capital flight is essentially born out of an inferiority complex,” says a Kenyan business journalist. “For that inferiority complex to disappear, you need at least one generation of stability and market-based success. It is destined to fade as society changes, and the agent for change will be the emerging urban middle class.”

Until that generation seizes the reins of power, any development programme that fails to tackle what the Nigerian president Olusegun Obasanjo has described as “a bigger threat to Africa’s development than Aids” risks being doomed from the outset.

Michela Wrong is a New Statesman columnist and author of “I Didn’t Do It for You: how the world betrayed a small African nation,” published in January by Fourth Estate.

Michela Wrong, New Statesman, March 14, 2005

Full Story: New Statesman [PDFver here]

Categories: Africa, Corruption, Odious Debts

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