Africa Specializing in Capital Exodus?

Léonce Ndikumana

Even as Africa faces severe shortages of skilled labor at home, it experiences large and increasing outflows of highly-skilled labor migration to industrialized economies in search of better job opportunities. The investments made in the training of these professionals are losses to African countries but translate into hefty gains for receiving countries.  Thus resource-starved African nations are subsidizing developed countries’ industries and social services.

A recent study by Canadian scholars estimates that South Africa alone may have lost up to $1.4 billion due to the export of medical doctors to Australia, Canada, the United Kingdom and the United States.[1] In turn, the UK may have gained up to $2.7 billion from the services of doctors from the nine sub-Saharan countries surveyed in the study.[2] Some observers argue that the remittances sent home by migrant doctors are a form of returns to investment in their education; some even claim that the sending African countries receive official development aid from the host countries that contributes to financing the training of doctors, among other things. However, these inflows fade in comparison to the losses due to migration of skilled health care professionals. The same holds for other professional areas beside the medical field. In general, there is a net transfer from Africa, making the continent a ‘net financier’ of the rest of the world.

Parallel to this exodus of human capital is the illicit export of financial capital from African countries – or capital flight. This is not a new phenomenon, and it shows no signs of abating.

Over the past four decades, sub-Saharan Africa has lost a staggering $700 billion due to capital flight. In addition to trade misinvoicing, smuggling, and embezzlement of revenues from natural resource exports, a substantial part of the capital flight was financed by external borrowing. We estimate that every year 40 to 60 cents of each borrowed dollar spins out of the revolving door as capital flight, often returning to the same banks that issued the loans. On net basis, Africa is transferring more money to the rest of the world than it is receiving in terms of borrowing and aid. Once again, Africa is net financier to the rest of the world rather than the other way around as commonly perceived. And unlike in the case of human capital exodus, financial capital flight generates absolutely no flows in the reverse direction; it is an unmitigated loss to the continent.

Capital flight, and the burden of servicing the debts that financed it, are partly to blame for the conditions that create the other economic problems faced by the continent, including the brain hemorrhage.  Illicit financial flows drain scarce public resources that could have been used to finance public services including education and health. It partly explains why there are not enough schools, clinics, and medical equipment; it also explains the poor working conditions for doctors, teachers, and other professionals that force them to seek greener pastures abroad.

Stemming capital flight could substantially bridge the financing gaps faced by African countries. Doing so could allow African countries to achieve manifold increases in school enrollment. The annual illicit outflows of capital could allow an increase in primary school enrollment by a multiple of 19 in the Democratic Republic of Congo, 9 in the Republic of Congo, 6 in Angola, and 5 in Nigeria and Gabon.[3] These are all very rich countries in natural resources that have failed to take advantage of this natural-resource bonanza to achieve high standards in social development.

It is clear that Africa’s development pathways, characterized by exodus of human and financial capital, are not sustainable in the long run. Obviously African countries have the primary responsibility to devise and implement strategies to keep capital onshore. But the international community also has an equally important responsibility to root out the perverse incentives and opacity in the financial system that enable and perpetuate the financial hemorrhage faced by the continent. This would enhance the efficiency of donors’ support to Africa’s efforts to boost investments in education, stimulate private sector development, employment creation, and generally improve domestic living and working conditions that are necessary for optimal utilization of skilled human capital on the continent.

In the meantime, African countries will gain from establishing mechanisms to leverage the investment capital and technical expertise of their Diasporas. Indeed, it is estimated that African governments can mobilize billions of dollars annually by selling bonds to their migrant nationals, banking on the latter’s ‘patriotic bond’.

[1] Mills, E.J. et al (2011) “The financial cost of doctors emigrating from sub-Saharan Africa: human capital analysis.” British Medical Journal, 24 November 2011.

[2] The study surveyed the following countries: Ethiopia, Kenya, Malawi, Nigeria, South Africa, Tanzania, Uganda, Zambia, Zimbabwe.

[3] These estimates are obtained using the public expenditure per student (% of GDP per capita) and GDP per capita data from the World Bank Development Indicators (complemented by the UNESCO database for some countries), and the data on capital flight from Ndikumana and Boyce (2011), Africa Odious Debts: How Foreign Loans and Capital Flight Bled a Continent. London, Zed Books.

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