Corruption, in the form of kick backs, bribes, and tax evasion, are sapping away some 62.5 billion dollars worth of money a year in Africa. This outflow of money is taxing already strapped African governments, many of which are desperate for revenue.
At first glance 62.5 billion dollars might not seem like a lot, and for a booming Asian nation or a large, rich country like the United States, such an amount would probably not raise an alarm. However, for many Africa economies the potential tax revenue from that pool of money, along with its potential impact should it be invested in the local economy, is substantial.
Voss Capital is betting on a housing market boom
The Voss Value Fund was up 4.09% net for the second quarter, while the Voss Value Offshore Fund was up 3.93%. The Russell 2000 returned 25.42%, the Russell 2000 Value returned 18.24%, and the S&P 500 gained 20.54%. In July, the funds did much better with a return of 15.25% for the Voss Value Fund Read More
Africa’s illicit illegal outflows have been on the rise over the last decade amid a commodities boom. Outflows peaked in 2007 at just more than 100 billion dollars amid record high oil and commodity prices. While Africa is rich in natural resources, the size and scope of the illicit outflows suggests that much of the wealth ends in private bank accounts.
This suggests that should African economies grow, illegal capital outflows will only increase. This puts African governments in a sort of odd paradox. If the economy grows but much of the money is siphoned overseas, does this really benefit African nations?
Unfortunately, local African judicial systems have shown little willingness or desire to fight the corruption. In most countries the judicial system is likely all but powerless against the powerful and corrupt military, police, and government officials who are engaged in corruption. Abroad, however, courts in the United States and Europe have been pressing charges against corrupt corporations and individuals.
With aid from Western countries shrinking amid high debt burdens and a stagnant economy, the risk of declining revenues for African governments will only increase. In turn, this will cause cuts to social welfare programs and security forces. Tensions may rise and governments will find themselves strapped for the resources necessary to head off revolutions and civil wars.
Not all is lost. Numerous Western countries have been seeing a rise in illegal capital flows as people try to shield their money from taxes and the prying eyes of governments. As a result, many powerful nations, such as the United States, have been pushing for a more transparent financial system. Even the famed vaults of Switzerland have been forced to open their books.
There is a possibility that African nations may eventually benefit from this growing trend towards more international banking cooperation. This, in turn, could provide African nations with more of the necessary tools needed to fight and curb corruption. Of course, with weak judicial systems found in many African countries, it’s possible that corruption will merely be kept local.
Either way, if unstable African nations do not figure out a way to curb corruption and direct more benefits of economic growth to the people, unrest and civil war may once again become rampant. For a continent that has suffered so much through modern history, this would be down right tragic.