Capital flight: An epidemic that must be stopped

Recent news stories, past reports and current anecdotal evidence suggest the flight of capital from Nigeria is reaching epidemic proportions. Nigeria is fast becoming a net exporter of students, patients and financial capital.

Last week, news about Nigerian millionaires, the freezing of stolen assets, the flying habits of wealthy Nigerians and the top 12 wealthiest Nigerians caught our attention: most of the wealth reported is offshore.

According to one the reports, 26 percent ($21.32bn) of the $82bn of Nigeria’s 15,700 millionaires is held offshore.

Another story said that Abacha’s $458m loot, seized by the US government, were in banks based in the Channel Islands. The BBC report on Nigeria’s jet set said the private jets owned by wealthy Nigerians are registered in the Channel Islands.

Jersey, Guernsey, Alderney and Sark, self-governing Crown dependencies (former colonies of the UK) make up the Channel Islands. They are the places plenty of prosperous Africans prefer to keep their money.

Places like the Channel Islands are referred to as tax havens or secrecy jurisdictions because they encourage, support and facilitate illicit financial flows. The City of London, itself a tax haven, has economic ties with the Channel Islands.

A 2006 Chatham House report: Nigeria-related financial Crime and its Links with Britain noted that “Britain’s Financial Services Authority estimated that at least $1.3bn of Abacha related loot passed through British financial institutions.”

Thanks to the lax rules of secrecy jurisdictions the late Sani Abacha was able to steal an estimated $5bn from Nigeria, with the assistance of bankers, lawyers, accountants, government officials and spurious businesspeople.

Oxfam, an NGO, says secrecy jurisdictions “facilitate the plunder of public funds by corrupt elites in poor countries, which can represent a major barrier to economic and social development.”

No country in the world has sustained its economic progress without capital accumulation i.e. savings. To think Nigeria can consume its way to industrial development without conserving capital is delusionary.

Licit and illicit financial outflows from Nigeria exceed the $21bn remitted from abroad in 2012 and the $7bn in foreign direct investments in 2013. Nigerian nouveaux riches spend £250m a year on property in London: Hyde Park, Knightsbridge, Chelsea, Belgravia and Mayfair. An article “The Nigerians are coming”, by Tatler, a British magazine, notes that “[Nigerians] are buying up swathes of north-west London”.

We do not resent what individual Nigerians decide to with their money. Some of the UK investments are in student residences in Liverpool, Birmingham, Sheffield and Leeds; it’s estimated that Nigerians spend £300m annually at British universities and schools.

However, we fear that the dubious source of some of this wealth and the uncouth manner with which it is displayed at home and abroad does not bode well in the face of a teeming unemployed youth population. Between 2011 and 2015 it’s expected that 11.7m youths will enter the labour market.

We need institutional innovation and self-conscious domestic policies that incentivize unlisted companies to list on the stock exchange. A developed capital market and respect for property rights are some of the institutions that will, in addition to a sound monetary system and prudent management of public money, promote capital accumulation.

Nigeria needs a stable socio-political and thriving business environment.

We need businesses with high-growth potentials and daring industrialists not kobo-kobo enterprises and fly-by-night businessmen (Dangote’s $9bn investment in a petrochemical plant and refinery is expected to generate 85,000 direct and indirect jobs). Nigeria has to harness her wealth: natural resources, labour and capital augmented with technical progress and education to promote high levels of employment and sustainable socioeconomic development.

We urge President Goodluck Jonathan, his economic team, opposition political parties and well meaning Nigerians to rethink how to arrest capital flight. The fast-spreading ripple effect of ostentatious lifestyles, the outbreak of inequality, and the alarming incidence of poverty amid plenty is producing rent-seekers rather than entrepreneurs.