Savings, Capital Flight, and African Development

Historically, countries that have achieved and sustained high growth rates over long periods are those that were able to maintain high domestic saving rates, enabling strong and sustained domestic investment. In the case of African countries, domestic saving has remained low, leading to high investment-saving gaps and increased dependence on external capital. A key reason is the inadequate performance in domestic saving mobilization in the public sector and in the private sector. But an important factor that has been overlooked is the leakage of resources through capital flight. This paper analyses the linkages between capital flight and domestic saving in the case of African countries. The analysis suggests that strategies aimed at stemming capital flight should be an important part of any plan to increase domestic saving. The paper discusses policies for raising saving and preventing capital flight which are derived from the analysis of the drivers of capital flight and domestic savings. In particular, it emphasizes two sets of strategies: incentives-based and institutions-based strategies. It concludes that emphasis should primarily be on the latter.