SSA corporate governance must improve to stop capital flight

If the political and business leaders fail to address these fundamental challenges then capital flight, which according to one expert has risen to $700bn over the last decade, will continue and international investment in the many huge regional infrastructure projects underway and currently in the pipeline will dry up. Risk management and corporate governance it seems has risen to the fore at the early stages of development in the SSA region rather than at the end as experienced by the mature economies of Europe and the US. This offers risk managers a great chance to establish a firm position of influence as the region’s economic story really takes off. But there remains plenty of work to do at a political and social level before the much discussed opportunities are realised, recognised experts who took part in the seventh African Economic Conference earlier this month in Kigali, Rwanda, an event that is organised every year by the Economic Commission for Africa (ECA), the African Development Bank (AfDB) and the United Nations Development Programme (UNDP). Speakers at the high profile event therefore urged African leaders to push through bold economic reforms to help ensure that growth is sustainable and growth and human development is boosted along with tax coffers. Participants agreed that good governance and fair competition will help Africa meet its sustainable development agenda. “Carefully calibrated government support can help fulfill Africa’s economic potential, reducing political risks and bolstering financial accountability to open new markets,” stated the African Development Bank which helped organise the meeting.hideAfrica is the world’s second-fastest growing region. Rwandan President Paul Kagame told delegates that, in this era of economic uncertainty, the world has high expectations for the African continent. Mr Kagame noted that according to the African Economic Outlook 2012 report published earlier this year, economic growth across the African continent is expected to rebound from 3.4% in 2011, accelerate to 4.5% in 2012 and then again to 4.8% in 2013. “Some countries have even done better than these statistics depict. And because some countries from other continents show signs of economic stagnation, commentators have been inclined to think that this is Africa’s time,” said Mr Kagame. But as the ADB pointed out in its summary of the key findings of the event the continent’s poverty rates have remained ‘stubbornly high’. Progress on health, education and job creation has also been too slow to accommodate its fast-growing population, added the bank. “These challenges are likely to become more difficult to tackle in the current global economic environment,” commented the bank. “Rich countries are very much concentrated on their own immediate problems to fix,” said Donald Kaberuka, President of the African Development Bank. “As we can see from the trade and climate negotiations, there is limited appetite for the multilateral solutions, so we need to trade our way out of poverty and deal with the impact of climate change.” During the closing press conference, Mthuli Ncube, Chief Economist and Vice President of the African Development Bank, added: “Africa can have a brighter future, and has the potential to become the next emerging market by the end of this decade if political, social protection, quality education, private sector and regional integration are implemented.” Mr Ncube said that investment in infrastructure will promote regional integration and trade and help to create an environment that is ‘more conducive’ to economic growth, the development of markets and hopefully also pave the way for an acceleration in human development. But human development has to be a policy focus and not just a hoped-for side effect of growth, added others. “Deliberate policy measures and targeted investments are needed to make growth not just fast, but also inclusive and sustainable,” said UNDP Administrator Helen Clark, who opened the conference along with Mr Kaberuka on October 30. “The rising tide is capable of lifting every boat,” she added. Another big theme of the conference was the need to use natural resources to create economic benefits for ordinary citizens. Speakers said that African countries can raise money by negotiating international contracts from a position of strength and use the proceeds from land and mineral deals to invest in rural infrastructure, diversify the economy and boost human capital. “If politically the leadership is right, there is no doubt that leadership will focus on inclusion in almost everything it does,” said the former President of Nigeria, Olusegun Obasanjo. If Africa’s leaders fail to ensure that economic growth is more balanced then ultimately they will have to deal with rising levels of social and political unrest that will accelerate capital flight and depress investment. Ameth Saloum Ndiaye, Researcher in Economics at the University of Dakar in Senegal, said that the time really has come for African governments to assess the real financial repercussions of capital flight on the continent. Mr Ndiaye’s comments followed the recent publication of a report by the AfDB entitled Economic Perspectives in Africa that claims that capital flight deprived the continent of over US$700bn over the last 10 years. “In the majority of cases, capital flight on the African continent is the work of private operators for reasons of macroeconomic uncertainty,” said Mr Ndiaye. UNDP believes that the scale of capital flight from Africa represents a ‘major obstacle’ to the mobilisation of domestic resources for national development. At the same time it represents a barrier to long-term economic growth, said the United Nations body that co-organised the event. Poorly developed financial systems are believed to be one of the main causes of capital flight. But Mr Ndiaye told delegates at the conference that he is convinced that poorly-run state authorities with bad governance standards are also to blame. Mr Ndiaye reportedly added that capital flight also exerts ‘pressure’ on the victim country’s exchange rate because it increases demand for foreign currency that is needed to channel wealth abroad.

SSA corporate governance must improve to stop capital flight

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