Cautious Optimism in the Battle Against Kleptocracy

On Sunday, US Attorney General Eric Holder delivered a promissory gem to the leaders gathered in Uganda, the pearl of Africa. It was not a pledge of more foreign aid for the continent – which has tripled since 2000 – but it could bring billions of dollars to Africa:

“ I’m pleased to announce that the U.S. Department of Justice is launching a new Kleptocracy Asset Recovery Initiative aimed at combating large-scale foreign official corruption and recovering public funds for their intended – and proper – use: for the people of our nations. We’re assembling a team of prosecutors who will focus exclusively on this work and build upon efforts already underway to deter corruption, hold offenders accountable, and protect public resources.”

Government promises, as both Americans and Africans know, are often broken, but this announcement calls for (cautious) optimism.

The seizures of assets in recent years of many high-profile, corrupt leaders – Nigeria’s Mr. Abacha, the Philippines’ Mr. Marcos and Peru’s Mr. Fujimori – have all involved assets held in Swiss banks. In all three cases, a World Bank report points out, official cooperation and the goodwill of the Swiss government was critical for repatriating the assets. Holder’s words, if translated into concrete action could have a huge impact: GFI research estimates that the US banks holds almost nine times the amount of private, non-resident deposits of their Swiss counterparts. Undoubtedly, Africa’s kleptocrats – the crooked leaders who take advantage of their power to expand their own wealth – have tucked away portions of their stolen loot in America’s banks.

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The Corruption Tango

“No nation with which I am familiar has descended so deeply into this suffocating abyss [of corruption] as Nigeria.” -Raymond Baker

Africa’s most populous nation, recently welcomed home Nuhu Ribadu, its respected former corruption czar, after an 18 month exile in Britain. Ribadu ran Nigeria’s Economic and Financial Crimes Commission (EFCC) from 2003 to 2007 before deciding to leave the country, fearing for his life. He uncovered vast corruption, initiating over a thousand cases and winning an impressive share of convictions. In one case, he investigated the inspector general of the police service, seizing $150 million in assets and securing a six-month prison sentence for his former boss. In another, a governor was found to have siphoned three quarters of the state’s revenue into his own pockets.

Such examples illustrate the general perception of the level of corruption in Nigeria – the big men in government stealing much of the nation’s wealth. When asked which sectors they considered most affected by corruption, 63% of Nigerians answered political parties. Only 5% of respondents answered the business or private sector.

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Taxes and Transparency: The Way Forward for Africa

While Asia and Latin America have seen dramatic reductions in poverty over the last several decades, Africa remains as poor, by some accounts even poorer, than fifty years ago. Indeed, of the 26 countries classified with “low human development” by the UN Development Program, all but two are in Sub-Saharan Africa. For decades, billions of dollars in foreign aid have been channeled to the continent, but have had little effect on alleviating poverty. Building strong institutions, solid infrastructure and a vibrant private sector requires things far more intangible than simply dollars. But let us not kid ourselves: dollars will be needed – and a whole lot of them, to get Africa on the track to prosperity.

The recently published 2010 African Economic Outlook by of the OECD and African Development Bank, focuses on an important facet of finance for development: taxation. According to the report, tax revenue accounts for about 22% of Africa’s GDP, compared to 35% for OECD countries. Further, in Africa’s lower-income countries, taxation accounts for only 15% of GDP. This means that without enough tax revenue these African governments are not able to provide or maintain even the most basic of public
goods and services needed to develop.

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