Introduction

The International Consortium of Investigative Journalists’ (ICIJ) review of the Pandora Papers, a leak of millions of legal and financial documents, reveals how nearly 50 officials from 18 African countries owned offshore entities, often anonymously, in tax havens like the British Virgin Islands (BVI), Bahamas, Panama, Seychelles and Mauritius. Notably this group includes three long-serving African presidents: Denis Sassou-Nguesso of the Republic of the Congo, Uhuru Kenyatta of Kenya, and Ali Bongo of Gabon. Sassou-Nguesso and his family set up a shell company in the BVI in 1998 to hold their assets including the rights to diamond mining in the Congo. In March 2024, US authorities accused his daughter Claudia Lemboumba Sassou-Nguesso of embezzlement through inflating government contracts and then laundering funds through shell companies and the purchase of a New York City apartment worth over $7 million. His son Denis-Christel has been accused of embezzling over $50 million and US authorities tried to seize his luxury apartment in Miami in 2020 (Sadek 2024).  The ICIJ’s investigation found that Kenyatta and his family worked with a Swiss private bank to hide assets worth at least $30 million from public scrutiny. The Kenyatta family set up an anonymous foundation in Panama in 2003 to evade taxes as well as various shell companies in the BVI to hold an investment portfolio including high-end properties in London (Fitzgibbon 2021). The Bongo family which ruled Gabon from 1967 to 2023, is notoriously corrupt, with US and French authorities seizing high-end properties in Washington DC, Paris and Nice and freezing multiple bank accounts liked to them (Reddy 2023).

In 2021, the wealth of the top ten percent of sub-Saharan Africans was 351 times greater than that of the bottom half, a figure second only to Latin America among world regions (Chancel et al. 2022). Yet, these news stories about corruption and recent research on capital flight suggest that wealth inequality in Africa could be even higher than these estimates. Approximately $2.4 trillion[1] in assets (Ndikumana and Boyce 2021) is “stashed abroad,” not included in official figures of national wealth. This raises a crucial question: To what extent is wealth inequality in Africa understated due to assets illicitly held abroad?

Accurately estimating wealth inequality is important. Wealth inequality is both a cause and effect of fundamental political, economic, and social structures. Without accurate data, it becomes impossible to analyze the factors driving inequality, devise policies to reduce it, or assess the potential trade-offs of such policies. While both capital flight and inequality in Africa have garnered increased research attention in recent years, few attempts have been made to study their intersection. This essay aims to improve wealth inequality estimates by incorporating undeclared assets held by wealthy Africans abroad into the stock of national wealth. Drawing on capital flight data from Ndikumana and Boyce (2021) for 30 African countries from 1970 to 2018, and national wealth and inequality data from the World Inequality Database (WID), this essay estimate “capital flight-adjusted” shares for the top ten percent and bottom half of the wealth distribution for 2018.

Assuming the entire capital flight stock belongs to the top ten percent, the bottom half's average share falls from 12.5 to 9.1 percent of national wealth, while the top ten's share rises from an average of 66.7 to 75.6 percent. This is an upper bound on the increase of wealth at the top since it is impossible to know with certainty what share of undeclared wealth abroad is owned by the top ten percent. Even if the top ten percent own only half of the estimated capital flight stock, this brief analysis still implies that wealth inequality in much of Africa, already quite high by global standards, is substantially understated. These findings suggest that policies effectively stemming capital flight could also significantly reduce wealth inequality.

Data

Capital flight is difficult to measure because by definition these are financial flows that are purposefully obscured. This essay relies on Ndikumana and Boyce (2021) who estimate capital flight as the discrepancy between sources and uses of foreign exchange as recorded in the official Balance of Payments (BOP) plus trade misinvoicing (Henry 2012; Ajayi and Ndikumana 2017; Ndikumana and Boyce 2021). For most countries in this study, the relevant BOP and trade data are available starting in 1970, but for some—notably South Africa—the time series begins much later (see Ndikumana and Boyce 2021 for details). The study period ends in 2018. Total capital flight ranges from less than $5 billion in Burkina Faso and Botswana to more than $500 billion in Nigeria (Figure 3). This translates to 10 percent of 2018 GDP for Burkina Faso and over 700 percent for the Republic of Congo, with an average of 157 percent for the 30 countries in the study (Figure 4). Over this period, capital flight exceeded inflows like foreign aid and foreign direct investment to Africa. The capital flight stock surpasses the total value of Africa's external debt, making the continent a net creditor to the rest of the world, not a borrower. Moreover, much of this capital flight consists of external debt contracted by governments that is then quickly embezzled and stashed abroad by corrupt politicians and officials (Ndikumana and Boyce 2011).

Wealth inequality data for much of Africa is recent, part of a commendable effort by the World Inequality Lab (Chancel and Piketty 2021; Chancel et al. 2022) to create harmonized international data on wealth inequality despite significant challenges with availability and quality. Africa and Latin America are the only two major world regions where the share of wealth owned by the top ten percent exceeds that of the world as a whole (Figure 1). Among Africa's major regions, South Africa is the most unequal, with the top ten percent owning more than 60 percent of national wealth. Central Africa also surpasses the 60 percent threshold, while North and West Africa are the least unequal by this measure, with the top ten percent share less than half of national wealth (Figure 2). At the national level in 2018, the top ten percent share varied from 0.58 in Mauritania, Algeria, and Tunisia to 0.87 in South Africa, with an average of 0.668.

Results

For the majority of African countries in the study, the estimates of capital flight stock would add significantly to the top ten percent's share (Figure 5). For the wealthiest African countries—South Africa, Nigeria, and Egypt—the stock of capital flight is relatively small compared to the top ten percent's share of reported national wealth. For the Seychelles, the capital flight stock of $5 billion far outstrips national wealth of $1.5 billion. As a small island nation with 120,000 residents, it is unlikely that these foreign assets are owned by its residents; instead, they likely belong to people from other countries. The case of the Seychelles demonstrates the difficulty in tracing capital flight as money travels through a convoluted chain of shell companies based in an archipelago of tax havens operated by a sophisticated network of Western banks and law firms (Zucman 2015; UNCTAD 2020; Ndikumana and Boyce 2023; Reddy 2023; Fitzgibbon 2021; Sadek 2024).[2]

Assuming that the capital flight stock belongs to the top ten percent, adding it to estimates of national wealth increases their share of wealth by about 9 percentage points (pp) for the average country in the study, or a 14 percent increase from a high base (Figure 6). Given the uncertainty surrounding the extent of capital flight, the value of wealth abroad, and its ownership distribution, these figures should be treated as an upper bound of the capital flight-adjusted top ten percent share. Adding the capital flight stock to national wealth has the smallest effect (less than 4 pp) in the wealthiest countries—South Africa, Nigeria, Egypt—and countries where the capital flight stock is smallest—Botswana and Burkina Faso. The biggest effect (over 13 pp) is observed in commodity exporters with relatively low levels of reported wealth and a recent history of political instability and authoritarianism—Sudan, DR Congo, Republic of Congo, Sierra Leone, Côte d'Ivoire, and Gabon.

The impact of adding capital flight stock is substantial, even given the already high levels of wealth inequality. The average 9 pp increase for the top ten percent's share is larger than one standard deviation, 8 pp. Even if the top ten percent own only half of the capital flight stock, these preliminary results suggest that wealth levels at the top of the distribution in Africa are underestimated.

It is safer to assume that only a negligible amount of the undeclared assets held by Africans abroad is owned by those in the bottom half of the wealth distribution. Adding the capital flight stock to national wealth estimates decreases the bottom half's share significantly in the 30 countries studied (Figure 7). The average decrease is 3.6pp, from 12.5 to 8.9 percent, nearly 29 percent. The decrease ranges from less than 1 pp in Botswana, Burkina Faso, and South Africa to nearly 8 pp in Gabon and 7 pp in the Republic of Congo. This drop is larger than the standard deviation of 3 pp for the bottom half’s share. Accounting for capital flight substantially increases wealth inequality in most countries studied, possibly increasing the top ten’s share by more than a standard deviation and lowering the bottom half’s share by a similar relative magnitude.

Conclusion

This essay examines the extent to which wealth inequality in Africa is underestimated due to capital flight. Accurate measures of inequality are necessary for researchers to better understand its drivers and for policymakers to address it effectively. Approximately $2.4 trillion in undeclared foreign assets is held by Africans from 30 countries as of 2018. Adding this stock of foreign assets to estimates of national wealth significantly alters our understanding of wealth distribution in Africa, decreasing the bottom half's average share from 12.5 percent of national wealth to 9.1 percent. Adding all of the capital flight stock to the top ten percent's share would increase it from an average of 66.7 percent to 75.6 percent. Even if the top ten percent own only half of the capital flight stock, this preliminary analysis still suggests that wealth inequality in much of Africa, already quite high by global standards, is substantially understated.

Given the significant impact of capital flight on wealth inequality, in addition to its other important effects on growth, investment, and poverty (Nkurunziza 2014; Ndikumana 2014), African governments should prioritize action to curtail it. As part of Sustainable Development Goal 16.4, governments worldwide have committed to "significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organized crime" by 2030.

To stem capital flight, African governments should consider good governance reforms, global taxation initiatives and capital controls. Governments could devote more resources to the effective prosecution of embezzlement, graft, and money laundering (UNCTAD 2020). To reduce trade misinvoicing, governments could improve the collection and sharing of trade data. To slow down the "revolving door" between external debt and capital flight, governments could enhance fiscal transparency, including conducting regular audits of external debt (Ndikumana 2017). To combat tax evasion, African governments can lead global efforts for global asset registry, automatic exchange of financial information, beneficial ownership of assets, and a unitary tax on corporations.[3] Carefully designed capital controls were effective in stemming capital flight from Chile, Brazil, and Mexico in the 1990s and could work in Africa today (Ndikumana and Boyce 2014).

The potential gains of repatriation are large. If only 25 percent of the capital flight stock were repatriated and invested, it could boost the investment-to-GDP ratio by 10 pp (Fofack and Ndikumana 2010). Accordingly, African governments should also intensify international legal efforts to repatriate illegally acquired funds stashed abroad. For funds that were legally acquired but illegally transferred abroad, governments can incentivize repatriation through the same policies that promote domestic investment. However, just as the current system of tax havens is enabled by Western governments and banks, curtailing capital flight and repatriating the wealth abroad will also require their cooperation (Fofack and Ndikumana 2010).

As this brief analysis confirms, accounting for wealth stashed abroad means wealth inequality within Africa is underestimated. The presence of a large stock of unrecorded foreign assets owned by Africans also implies that wealth inequality between Africa and the rest of the world is overestimated. “The global dialogue on development financing must,” therefore, “move from increasing aid to Africa to preventing the illicit export of African capital. A more productive model of global partnership with Africa is one that helps the continent raise more domestic resources and keep its capital onshore” (Ndikumana 2017, 1). Instead of begging or borrowing more from governments, investors, and philanthropies in the Global North, African governments could finance many necessary public investments with the money its top leaders and their friends have stashed abroad.

References

Ajayi, S. Ibi, and Leonce Ndikumana, eds. 2017. Capital Flight from Africa: Causes, Effects, and Policy Issues. Oxford: Oxford University Press.

Chancel, Lucas, and Thomas Piketty. 2021. “Global Income Inequality, 1820–2020: The Persistence and Mutation of Extreme Inequality.” Journal of the European Economic Association 19 (6): 3025–62. https://doi.org/10.1093/jeea/jvab047.

Chancel, Lucas, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman. 2022. “World Inequality Report 2022.” World Inequality Lab.

Fitzgibbon, Will. 2021. “As Kenyan President Mounted Anti-Corruption Comeback, His Family’s Secret Fortune Expanded Offshore - ICIJ.” International Consortium of Investigative Journalists, October 3, 2021, sec. Investigations. https://www.icij.org/investigations/pandora-papers/kenya-uhuru-kenyatta-family-offshore-wealth/.

Fofack, Hippolyte, and Léonce Ndikumana. 2010. “Capital Flight Repatriation: Investigation of Its Potential Gains for Sub‐Saharan African Countries*.” African Development Review 22 (1): 4–22. https://doi.org/10.1111/j.1467-8268.2009.00226.x.

Henry, James. 2012. “The Price of Offshore Revisited: New Estimates for Missing Global Wealth, Income, Inequality and Lost Taxes.” Tax Justice Network.

Ndikumana, Léonce. 2014. “Fuite des capitaux et paradis fiscaux : impact sur l’investissement et la croissance en Afrique:” Revue d’économie du développement Vol. 22 (2): 113–41. https://doi.org/10.3917/edd.282.0113.

———. 2017. “Curtailing Capital Flight from Africa.” International Policy Analysis. Friedrich Ebert Stiftung.

Ndikumana, Léonce, and James K. Boyce. 2011. Africa’s Odious Debts. Zed Books.

———. 2014. “Strategies for Addressing Capital Flight.” In Capital Flight from Africa, edited by S. Ibi Ajayi and Léonce Ndikumana, 393–417. Oxford University Press. https://doi.org/10.1093/acprof:oso/9780198718550.003.0016.

———. 2021. “Capital Flight from Africa 1970-2018: New Estimates with Updated Trade Misinvoicing Methodology.” PERI Working Papers, Capital Flight from Africa, .

———, eds. 2023. On the Trail of Capital Flight from Africa: The Takers and the Enablers. Oxford, New York: Oxford University Press.

Nkurunziza, Janvier D. 2014. “Capital Flight and Poverty Reduction in Africa.” In Capital Flight from Africa, edited by S. Ibi Ajayi and Léonce Ndikumana, 81–110. Oxford University Press. https://doi.org/10.1093/acprof:oso/9780198718550.003.0004.

Reddy, Micah. 2023. “Gabon’s Bongo Family Enriched Itself over 56 Years of Kleptocratic Rule, Spreading Its Wealth across the World - ICIJ.” International Consortium of Investigative Journalists, September 5, 2023, sec. Latest News. https://www.icij.org/investigations/pandora-papers/gabons-bongo-family-enriched-itself-over-56-years-of-kleptocratic-rule-spreading-its-wealth-across-the-world/.

Sadek, Nicole. 2024. “US Prosecutors Push to Seize Apartment Tied to Congolese President in Luxury Trump Complex - ICIJ.” International Consortium of Investigative Journalists, April 9, 2024, sec. Latest News. https://www.icij.org/investigations/pandora-papers/us-prosecutors-push-to-seize-apartment-tied-to-congolese-president-in-luxury-trump-complex/.

UNCTAD, ed. 2020. Tackling Illicit Financial Flows for Sustainable Development in Africa. Economic Development in Africa Report 2020. Geneva: United Nations.

Zucman, Gabriel. 2015. The Hidden Wealth of Nations: The Scourge of Tax Havens. University of Chicago Press. https://doi.org/10.7208/chicago/9780226245560.001.0001.

 

[1] $ = constant 2018 US dollars

[2] A clear outlier, I drop Seychelles from the analysis on capital flight-adjusted wealth inequality and it is excluded from Figures 6 and 7.

[3] Transfer pricing, where corporations manipulate prices of goods traded internationally among subsidiaries to book profits in the lowest tax jurisdiction is another form of illicit financial flows.  It not captured by the method of estimating capital flight adopted in this study since it the invoice has the same on both sides of the shipment.

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