A new report from Global Financial Integrity details massive capital flows out of the poorest countries of the world and examines how the structural characteristics of Least Developed Countries could be facilitating the cross-border transfer of illicit funds.
Compare and contrast this with recent reports in the UK press that the collective wealth of the country's 1000 richest people rose 30% in 2009-10 in the wake of the economic crisis.
Key findings of Illicit Financial Flows from the Least Developed Countries: 1990-2008 include:
- Illicit flows divert resources needed for poverty alleviation and economic development
- Approximately US$197 billion flowed out of the 48 poorest developing countries and into mainly developed countries, on a net basis over the period 1990-2008
- The top ten exporters of illicit capital account for 63 percent of total outflows, while the top 20 account for nearly 83 percent
- Based on available data, African LDCs accounted for 69 percent of total illicit flows, followed by Asia (29 percent) and Latin America (2 percent)
- Trade mispricing accounts for the bulk (65-70 percent) of illicit outflows from LDCs, and the propensity for mispricing has increased along with increasing external trade
GFI notes that approximately 60% of global trade is conducted by multi-national corporations, and half that amount is between subsidiaries of a parent company. They quote OECD, who argue that “intra-group transactions are not subject to the same market forces as transactions between unrelated parties operating on the free market, there is a huge potential for profit shifting via under or over pricing of intra-group transactions.”
In other words, multinationals are dictating the terms by which capital flows in and out of the world's poorest countries, and they have fixed these flows to ensure that in practice a developing country will derive little or no revenues from the FDI attracted to its territory. World trade on these terms represents no more than a global transfer of resources from the very poor to the very rich; as Nicholas Shaxon has revealed, corporations do not get taxed adequately in rich national jurisdictions either.
It seems to go without saying that until this is halted and reversed, we will not achieve sustainable development, either in the west, or across the world.