Illegal Ethiopian Capital Flight Skyrocketed In 2009 To US$3.26 Billion

By Sarah Freitas

Sarah Freitas is an Economist at Global Financial Integrity in Washington, DC and a co-author of "Illicit Financial Flows from Developing Countries over the Decade Ending 2009," a December 2011 report from GFI. 

A forthcoming report by Global Financial Integrity finds that Ethiopia lost US$11.7 billion in illicit financial outflows from 2000-2009

A Market in Harar, Ethiopia. flickr / A. Davey

An upcoming report by Global Financial Integrity finds that Ethiopia, which has a per-capita GDP of just US$365,lost US$11.7 billion to illicit financial outflows between 2000 and 2009.  More worrying is that the study shows Ethiopia’s losses due to illicit capital flows are on the rise.  In 2009, illicit money leaving the economy totaled US$3.26 billion, which is double the amount in each of the two previous years.

The report, titled Illicit Financial Flows from Developing Countries over the Decade Ending 2009, shows that the vast majority of the rise in illicit financial flows is a result of increased corruption, kickbacks, and bribery while the remainder stems from trade mispricing.

Ethiopia is one of the poorest countries on earth.  Plagued by famine, war, and political oppression, 38.9% of Ethiopians live in poverty, and life expectancy in 2009 was just 58 years.   In 2008, Ethiopia received US$829 million in official development assistance, but this was swamped by the massive illicit outflows.  The scope of Ethiopia’s capital flight is so severe that our conservative US$3.26 billion estimate greatly exceeds the US$2 billionvalue of Ethiopia’s total exports in 2009.

The people of Ethiopia are being bled dry.  No matter how hard they try to fight their way out of absolute destitution and poverty, they will be swimming upstream against the current of illicit capital leakage.  The global shadow financial system happily absorbs money that corrupt public officials, tax evaders, and abusive multi-national corporations siphon away from the Ethiopian people.

What can be done?  The first step the international community should take is to hamper the ability of corrupt and tax-evading Ethiopians to launder their money in the global financial system.  This could be accomplished by establishing a global system of automatic exchange of tax information. In this way, Ethiopian authorities could much more easily track the bank accounts their tax evaders have established around the world. Furthermore, the G20 governments could push for an end to shell companies by calling for beneficial owners of all companies, trusts and foundations to be known to government authorities.  This would make it far more difficult for the corrupt and the criminal to hide their ill-gotten gains behind a wall of corporate secrecy.

These two measures would immediately curtail the flow of billions of dollars leaving the country each year.  And, by preventing the flow of so much money, countless lives will benefit.

Editorial Note: Later this month, Global Financial Integrity will release its new report, Illicit Financial Flows from Developing Countries over the Decade Ending 2009, measuring illicit financial flows out of 160 different developing countries.  Revealing more data from the upcoming report, Ms. Freitas wrote last week that Syria lost US$23.6 billion in illicit financial outflows from 2000-2009. Sign up here to receive notices when new GFI reports are released.

Image License: This photo has Some Rights Reserved by A. Davey

05,December 2011

Global Financial Integrity.