– 3.5 billion lost in 2010 alone
By Asrat Seyoum
Ethiopian Reporter (Addis Ababa) – A recent report indicated that from 2001 up to 2010 an estimated capital of USD 15 billion flew out of Ethiopia to foreign markets via both illicit and licit ways, a problem which appears to be gaining greater attention in the whole continent in recent years. Since 2009, reports about capital flight and illicit financial transactions, especially from those developing nations’ economies that need the financial resource more than the others, is raising alert levels, it would seem. And Ethiopia seems to be at center of this discussions as the massive capital flight starts to rob the scarce finances.
According to the updated figures, over the course of 30 years between 1970 and 2010, Ethiopia has lost 24 billion dollars to the foreign market.
However, the largest flow was registered after 2000, of which 2010 alone accounted for USD 3.5 billion (an amount in excess of the forex reserve of the nation as of November 2011) of outflow followed by the year 2002 where an overwhelming USD 3.1 billion capital was lost from the country. Furthermore, closeup of the time series data presented in the report indicates that only few years in the 30-years data accounted for the largest outflow.
For instance, the flow can be seen picking up in 2001 with USD 2.5 billion to be followed by the years 2002, 2003 2004, 2007, 2009 and 2010 each registering above USD 1.4 billion annual capital outflow.
Nevertheless, the report period spans over the three regimes, starting with the Emperor’s last four years. Next to the decade 2001-2010, the highest outflow was recorded in the decade 1981-1990, a period under the Derg.
In 1982 USD 2.8 billion flew out of Ethiopia, largest amount to be recorded until then. However, 1981, 85 and 87 saw an outpour of 1.5, 1.3 and 1.9 billion dollar from the then economy making it the second decade that witnessed the largest escape of capital.
Overall, 33 Sub-Saharan African (SSA) countries lost a total of 814 billion dollars to the rest of the world within the thirty years, out of which 72 percent (591 billion) was from the oil-producing SSA countries. The capital outpour seems to have coincided with the picking of oil revenue in SSA, and Nigeria appears to be by the largest loser with 311.4 billion leaking out of the country in the report period.
Another interesting fact in the report is that the capital outflow was seen to exceed the amount of official development aid (659 billion) and foreign direct investment (306 billion) that came to the region at the time. More interesting is that the region turned out to be a net “lender” to the rest of world as the liabilities of the region stood at USD 189 billion way below the flight.
The study also differs from the other studies conducted on capital flightas it tried to incorporate the effect of trade mis-invoicing and remittance that did not appear in the official accounts of the country. The document also deals extensively with effect of trade mis-invoicing vis-a-vis export and import mis-invoicing. According to the report, a deliberate move by exporters to under-invoice the export proceedings and over-invoicing by importers is the major instrument for leaking capital. Meanwhile, the reverse mis-invoicing in both import and export (export over-invoicing and import under-invoicing) will tend to inject capital back to the economy, the research says.
In this regard, the data for Ethiopia suggests that the country did not loose capital from mis-invoicing; rather it gained some 7.1 billion injection back to the economy, a condition consistent with export over-invoicing or import under-invoicing (the latter case being more likely). And also some 6 billion dollars was estimated to be remitted back to Ethiopia, which did not appear in the official Balance of Payment records of the nation.
The study conducted by Political Economy Research Institute of the University of Massachusetts, explains that capital flight figures estimated by previous studies were significantly understated because they did not take into consideration the effect of trade mis-invoicing and remittance. Previous estimates, which basically relayed on the difference that was seen between the official capital inflow and out flow dubbed the ‘residue’ method, wrongly disregard unofficial flows (remittance and mis-invoicing) that appears to be highly significant in countries of SSA region, report noted.