International Trade and Capital Flight from Africa: Challenges for Governance

Part of PERI’s Working Paper Series on Capital Flight from Africa
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Poor governance is a binding constraint in the fight against capital flight and other illicit financial flows from Africa. Capital flight, in turn, undermines the efficacy of foreign aid as a tool for development. To further the goal of combating capital flight, and thus to enhance aid effectiveness, this paper examines the double-edged role of governance. The paper focuses specifically on the governance of international trade and trade-related financial transactions. It demonstrates that the sword of governance has been wielded to cut predominantly one way—to facilitate capital flight—in African countries. It argues that an important part of ‘getting governance right’ is to redress existing practices in the management and oversight of international trade data that create wide scope for transgressors and institutionalized malpractices. The goal of the paper is to identify and understand how political, social, and economic arrangements facilitate corruption in general, and capital flight in particular by making it difficult to detect. The paper uses examples from primary commodities trade to illustrate the rules of the game of international trade that shape capital flight and its tributaries.