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Africa: Investment for Whom?

AfricaFocus Bulletin
August 11, 2014 (140811)
(Reposted from sources cited below)

Editor's Note

"While governance remains an issue for many African countries, structural deficiencies in the U.S. financial system are just as responsible for driving the outflow of illicit capital. ... The burden for curtailing these illicit flows must be shared equally by policymakers in the U.S. and in Africa for this partnership to be effective." - Global Financial Integrity

As predicted, the principal emphasis of the U.S.-Africa Leaders Summit held last week in Washington, was on trade and investment, although a wide range of other issues were mentioned in the official statement by the chair (there was no joint communique). There were announcements of more than $10 billion of investments in agriculture, and more than $26 billion in the Power Africa initiative, as well as over $14 billion in other new private sector deals. But, as is customary, there was no consideration of whether any and all investment is actually beneficial to development.

Although other topics were covered both in official events and in a number of independently organized events, the outcome of these conversations is impossible to analyze from the scattered media coverage available.

The official statement by the chair of the U.S.-Africa Leaders Summit is available at

For a short article quoting African entrepreneur and philanthropist Mo Ibrahim on the Summit, see "I'm uncomfortable, frankly, with the hype about Africa. We went from one extreme ... to, like, Africa now is the best thing after sliced bread."

Among alternative events, the Washington Post featured coverage of the Empowered Africa Dialogue, organized by the US-Africa Network and co-sponsored by AfricaFocus Bulletin, Oxfam, ActionAid USA, and other organizations. See

On August 9, the Washington Post editorialized: "Sadly, the summit dealt little with human rights improvements that would sustain Africa's growth. ... Those who wanted to discuss human rights, such as Oxfam and the NAACP, had to create their own alternative Empowered Africa summit a few blocks away." (

This AfricaFocus Bulletin contains two short articles relevant to a deeper evaluation of some aspects of U.S. trade and investment in Africa: (1) a statement from Global Financial Integrity calling for the U.S. as well as Africa to take responsibility for curbing illicit financial flows, and (2) a commentary by the director of Equatorial Guinea Justice on the glaring abuses by the government of that country in the exploitation of oil wealth.

For an additional commentary on the case of Equatorial Guinea, see Lisa Misol, Senior researcher, Human Rights Watch "The Business of Selling Equatorial Guinea to Investors" Huffington Post, August 8, 2014

For talking points and previous AfricaFocus Bulletins on the economy and on illicit financial flows in particular, visit and

++++++++++++++++++++++end editor's note+++++++++++++++++

GFI Welcomes New U.S.-Africa Partnership to Combat Illicit Finance

August 6, 2014 / direct URL:

Working Group Must Address Trade Misinvoicing and Role of U.S. Business and Government in Facilitating Illicit Finance to Be Truly Effective, Warns GFI

Illicit Financial Flows Drain US$55.6bn Annually from African Continent, Sapping GDP, Undermining Development, and Fueling Crime, Corruption, and Tax Evasion

Washington, DC - Global Financial Integrity (GFI) welcomed the announcement from the White House and African leaders today regarding the establishment of a bilateral U.S.-Africa Partnership to Combat Illicit Finance, but the Washington-DC based research and advocacy organization cautioned that any effective partnership must be sure to address deficiencies in both the U.S. and in Africa that facilitate the hemorrhage of illicit capital from Africa.

"We welcome the move by President Obama and certain African leaders to form this partnership on curbing illicit financial flows from African economies," said GFI President Raymond Baker, who also serves on the UN High Level Panel on Illicit Financial Flows from Africa. "Illicit financial flows are by far the most damaging economic problem facing Africa. By announcing the creation of the U.S.-Africa Partnership to Combat Illicit Finance, President Obama and African leaders have taken the first step towards tackling the most pernicious global development challenge of our time."

GFI research estimates that illicit financial outflows cost African (both North and Sub-Saharan African) economies US$55.6 billion per year from 2002-2011 (the most recent decade for which comprehensive data is available), fueling crime, corruption, and tax evasion. Indeed, GFI's latest global analysis found that these illicit outflows sapped 5.7 percent of GDP from Sub-Saharan Africa over the last decade, more than any other region in the developing world. Perhaps most alarmingly, outflows from Sub-Saharan Africa were found to be growing at an average inflation-adjusted rate of more than 20 percent per year, underscoring the urgency with which policymakers should address illicit financial flows.

The problem with illicit outflows from Africa is so severe that a May 2013 joint report from GFI and the African Development Bank found that, after adjusting all recorded flows of money to and from the continent (e.g. debt, investment, exports, imports, foreign aid, remittances, etc.) for illicit financial outflows, between 1980 and 2009, Africa was a net creditor to the rest of the world by up to US$1.4 trillion.

Trade Misinvoicing at the Heart of Illicit Outflows

According to GFI's research, most of the illicit outflows from Africa--US$35.4 billion of the US$55.6 billion leaving the continent each year--occur through the fraudulent over- and under-invoicing of trade transactions, a trade-based money laundering technique known as "trade misinvoicing." As GFI noted in a May 2014 study, trade misinvoicing is undermining billions of dollars of investment and domestic resource mobilization in at least a number of African countries. The organization emphasized the importance of ensuring that the new U.S.-Africa partnership prioritizes the curtailment of trade misinvoicing.

"The misinvoicing of ordinary trade transactions is the most widely used method for transferring dirty money across international borders, and it accounts for the vast majority of illicit financial flows from Africa," said Heather Lowe, GFI's legal counsel and director of government affairs. "While it is easy to place the blame for this on corrupt officials or transnational crime networks, the truth of the matter is that the bulk of these fraudulent trade transactions are conducted by normal companies, many of them major U.S. and European companies."

Ms. Lowe continued: "Just yesterday, President Obama announced the Doing Business in Africa Campaign, a U.S. government initiative focused on boosting trade between U.S. and African companies, without a signal mention of the elephant in the room: trade misinvoicing. Increasing trade is important to boosting economic growth across Africa, but only if the trade is done honestly and at fair market values. The single most important step that wealthy nations like the U.S. can take to help African economies curtail illicit flows is to trade legitimately and honestly with Africa. While this topic was not addressed at the U.S.-Africa Business Forum yesterday, it must be on the table as the U.S.-Africa Partnership to Combat Illicit Finance commences its work."

U.S. Must Clean Up Its Own Backyard

GFI further emphasized the need to address the role of the U.S. financial system as a major facilitator of such outflows.

"For every country losing money illicitly, there is another country absorbing it. Illicit financial outflows are facilitated by financial opacity in tax havens and in major economies like the United States," said GFI Policy Counsel Joshua Simmons. "Indeed, the United States is the second easiest country in the world--after Kenya--for a criminal, kleptocrat, or terrorist to incorporate an anonymous company to launder their ill-gotten-gains with impunity."

"While governance remains an issue for many African countries, structural deficiencies in the U.S. financial system are just as responsible for driving the outflow of illicit capital. This initiative cannot place the onus entirely on the shoulders of African governments. The burden for curtailing these illicit flows must be shared equally by policymakers in the U.S. and in Africa for this partnership to be effective," added Mr. Simmons.

Equatorial Guinea: Oiling the Wheels of Justice

By Tutu Alicante, Executive Director, EG Justice (

Institute for Security Studies (ISS;

August 6, 2014

When the president of Equatorial Guinea arrived in Washington on Monday, he would have been celebrating more than the chance to join some 50 other African heads of state for President Barack Obama's United States (US)-Africa Leaders Summit. This week also marks his 35th anniversary in power, and reinforces his status as the world's longest-serving non-royal head of state.

On 3 August 1979, Teodoro Obiang Nguema Mbasogo seized power from his uncle and mentor, Francisco Macías Nguema, who used to hang dissidents from the capital's few street lamps, and who was executed by firing squad.

As graphic accounts of ongoing torture published by Human Rights Watch demonstrate, Obiang has followed in his uncle's footsteps in more ways than one.

How does such a figure manage to stay in power for such a long time - and manage to win every election with more than 95% of the vote? And why is he included among the leaders selected as being 'in good standing' with the US government, rather than being excluded like the heads of Zimbabwe, Eritrea and Sudan?

In the mid-1990s, oil was discovered off the coast of the capital city, Malabo, by an American company: so much that the central African country is now the third-largest producer of oil and gas in sub-Saharan Africa, with US oil firms playing a major role. Conservative estimates put the country's oil production at close to 318 000 barrels per day, which translates into billions of dollars a year.

Such great wealth has allowed for lavish purchases by the Obiang family, including mansions in the US and many other countries, a collection of Ferraris, Rolls-Royces and Lamborghinis, multiple private jets and a cadre of elite Moroccan and Israeli militia who serve as a private presidential security force.

In addition, Obiang's eldest son and presumptive heir to the presidential office, Teodoro Nguema Obiang Mangue, has amassed one of the world's finest collections of Michael Jackson memorabilia, including the original red-and-black 'Thriller jacket,' as well as his crystal-studded 'Bad Tour' glove.

Despite a per capita gross domestic product on par with Italy, twothirds of the population in Equatorial Guinea lives below the poverty line. Average life expectancy is 53 years. Clean drinking water and adequate plumbing are scarce and child-mortality rates remain alarmingly high.

Whereas Obiang has repeatedly stated that corruption is impossible under his leadership, Equatorial Guinea ranked 45 out of 52 countries in the 2013 Ibrahim Index of African Governance, and 163 out of 177 on Transparency International's Corruption Perceptions Index.

Even more tellingly, corruption and money laundering investigations by the US Justice Department and French police have provided a trove of details on the unexplainable wealth and ostentatious lifestyle of Obiang's eldest son. The son claims to have immunity from prosecution because his father placed him in senior posts, most recently as second vice-president of the country.

This cannot be what Obama had in mind when he themed the summit 'Investing in the Next Generation.'

While in Washington, Obiang and his fellow African heads of state will court closer ties with the US government and private sector representatives who are interested in participating in Africa's current 'economic boom.

'The Corporate Council on Africa offered its members an invitationonly dinner with Obiang, and joined law firm Greenberg Traurig LLP in co-sponsoring a day-long forum to highlight investment opportunities in Equatorial Guinea.

Interested investors had best hurry: experts believe Equatorial Guinea's oil reserves will run dry within the next two decades. The same applies to anyone who would like to see average Equatoguineans have an opportunity to benefit from their country's natural wealth.

Businesspeople who might not hesitate to invest in countries with serious human rights problems should be forewarned: they don't want to wind up like the Italian construction company executive Roberto Berardi, who has been locked up in a prison in Bata for 18 months and tortured to prevent him from testifying to the US Justice Department about alleged corruption in the ruling family.

The US government can do a lot to promote greater transparency and justice in Equatorial Guinea. To begin with, it should press for the rule of law by denouncing torture and pushing for a total overhaul of the country's judicial system, which is currently under presidential control. It should also insist on concrete steps from the government of Equatorial Guinea before it reapplies for candidacy to the Extractive Industries Transparency Initiative (EITI), to ensure protection and support for independent civil society organisations to carry out accountability work without reprisal.

It also should build on the Justice Department's deep investigation into high-level corruption, money-laundering and bank fraud by the Obiang family and seize all their US-based assets - not only the Malibu mansion that it has pursued since 2011. It should also expand the Magnitsky Act to prevent all global autocrats, not just Russians, from using US banking and business institutions to hide ill-gotten assets.

Equatorial Guinea's next presidential elections are currently scheduled for 2016, but there is little hope that they will provide an opportunity for citizens to exercise their rights freely.

The international community, starting with leaders at this week's summit, should commit to supporting transparent and credible elections in Equatorial Guinea. They should do this by brokering negotiations between the Obiang regime and the opposition, insisting that it create an election monitoring body not controlled by the ruling party, and supporting credible and independent electionmonitoring efforts.

It might also be suggested to Obiang - as US State Secretary John Kerry recently did to the Democratic Republic of Congo's President Joseph Kabila - that he not seek re-election. Finally, leaders - both in government and civil society - should support the creation and protection of free and independent media in the country.

On his first presidential visit to Africa in 2008, President Obama declared that, 'Africa doesn't need strongmen; it needs strong institutions.' With this historic summit, dedicated to forging new economic ties and finding solutions for the continent's burgeoning youth demographic, the Obama administration owes it to the people of Equatorial Guinea to take steps to build strong institutions and ensure the next generation doesn't arrive to bare coffers.

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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