According to the African Union, the International Monetary Fund and the Organization for Economic Co-operation and Development, anywhere from $50 billion to $150 billion are funneled out of Africa every year through tax dodges, illicit financial dealings and questionably legal offshore accounts. This is money that could be used to fund education, health care and infrastructure for a continent in desperate need of all three. Former South African President Thabo Mbeki said in a recent report that over the past 50 years Africa has lost as much in illicit financial outflows as it has received in official development aid.
Yet when a consortium of international news organizations revealed that at least 17 former and current high-ranking officials from Africa could be linked to secretive offshore accounts brokered by Panamanian law firm Mossack Fonseca, the news was met with a collective shrug on the continent.
The findings were part of what is now known as the Panama Papers, a trove of leaked documents that links political and business leaders around the world to secretive offshore accounts that could be (though not necessarily are) used to hide funds, launder money or dodge taxes. While protesters demanded a premier’s resignation in Iceland and an outraged media called for further investigations in the U.K. and Pakistan, revelations about missing oil revenues in Uganda, secretive activity around Sierra Leonean diamond mines and suspiciously wealthy civil servants in Kenya raised hardly a murmur. An estimated 30% of Africa’s wealth is held offshore, according to U.S. economist Gabriel Zucman. So why aren’t people more angry?
John Enders, a policy fellow at the South Africa Institute of Race Relations and the former head of Good Governance Africa, a Johannesburg-based research and advocacy organization, does not find the lack of outrage surprising. “In many African countries citizens have become inured to impunity and a lack of accountability,” he says. “Cases of corruption, even when exposed, mostly go unpunished. So because the revelations aren’t that surprising, people are less motivated to react to them.” A case in point might be South Africa’s President Jacob Zuma, who openly spent some $16 million in public funds to refurbish his personal residence with a pool, a chicken coop and an amphitheater, ostensibly in the name of security upgrades. The country’s constitutional court has ruled that he must pay back some of the money, but he remains in power.
Socking a couple of million dollars away in an offshore account doesn’t quite resonate in the same way. Offshore accounts do have legitimate uses, allows Enders, especially in Africa where political volatility can make it much riskier to keep money at home than it is in the West. Still, he says, they are also a good way to evade taxes and launder money made through corrupt deals. “I strongly suspect that most of the people implicated in this leak chose to use the expensive and circuitous route of using offshore accounts and shell companies because they had something to hide. Why not just use a domestic account or a transparent offshore investment?”
Politics may be one reason. For those living in a dictatorship that has the ability to seize property on a whim, even anonymous offshore accounts make a lot of sense, says Frans Cronje, head of South Africa’s Institute of Race Relations, a liberal think tank promoting investment and economic growth. Businesspeople aligned with the political opposition in an authoritarian country may legitimately fear that assets could be frozen, or confiscated, under the pretext of ‘national security’ during a political crackdown. “In many cases these people are putting their money in Western countries where their money is safe, it can earn a return, and it can’t be seized by the next regime to come into power,” says Cronje. Zimbabwe, where President Robert Mugabe and allied forces forcibly seized white owned farms without compensation as part of his Fast-Track Land Reform Program in 2000, provides a searing example of how the lack of strong laws protecting property rights might make entrepreneurs squeamish about investing at home.
Those same autocratic regimes also quash the kind of independent journalism that investigates questionable financial dealings, another reason why coverage of the leaks in some African nations has been muted. In the Democratic Republic of the Congo, where the President’s twin sister has been linked with several offshore accounts and shell companies, the government has warned journalists away from publishing the names of Congolese politicians mentioned in the leaked documents. “You have to be very careful [before] naming names, because you may end up in court,” government spokesman Lambert Mende told journalists at a press conference. Rwanda’s former intelligence chief, Emmanuel Ndahiro, also emerged in the Panama Papers leak, but no domestic newspapers followed up, according to a search conducted by the Globe and Mail. In a country where government critics are poorly tolerated, journalists are less likely to ask the hard questions.
Cronje divides the names coming out of the Panama leaks into two categories: politicians stealing taxpayer money and going to great lengths to hide their ill-gotten gains, and those who are legitimately protecting their assets. The first category deserves the scrutiny that the leaks have drawn elsewhere. For the second, however, the response shouldn’t be a government crackdown on offshore accounts so much as encouragement to make investing at home worthwhile. “If you run your countries as free and open societies with high growth market economies, and have adequate protections for property, then people have a reason to invest in their own country.” And a reason to stop sending their capital abroad.
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