(Ecofin Agency) - • Africa loses over $587 billion annually to capital flight, driven by corruption and illicit flows
• External capital inflows totaled just $190.7 billion, far below the continent’s needs
• AfDB calls for transparency and a reassessment of Africa’s risk profile

During the African Development Bank’s presentation of its 2025 economic outlook for Africa, Professor Kevin Chika Urama, the institution’s Chief Economist and Vice President, revealed a concerning trend. According to 2022 data, the continent loses more than $587 billion each year due to capital flight, even though it is in dire need of financial resources to support infrastructure and economic development.

These lost funds stem from several sources. A major factor is how Africa is perceived in terms of investment risk. Because the risk is seen as higher than it actually is, the continent ends up paying an extra $79 billion in premiums. This misjudged perception discourages investors and inflates the cost of borrowing.

Another source of capital loss is illicit financial flows. These involve practices such as price manipulation in international transactions and other illegal activities, which cost Africa around $90 billion per year. However, the most significant losses come from two other sources: corruption and profit shifting.

Corruption drains an estimated $148 billion from the continent annually. But the largest share of capital loss, up to $275 billion, comes from multinational corporations that transfer profits out of Africa through irregular means. These unauthorized profit transfers represent the biggest source of capital flight from African economies.

In contrast, Africa receives only $190.7 billion in capital inflows each year. This includes foreign direct investment, debt financing, remittances from the diaspora, and official development assistance. This imbalance shows that the continent, despite often being described as heavily indebted, is actually a net lender to the rest of the world.

The gap between what Africa receives and what it loses is especially troubling given the continent’s urgent development needs. Professor Urama noted that in 2023, external financing sources such as foreign direct investment, remittances, and development aid all declined. The only area that saw an increase was portfolio investment, which is less stable and not as beneficial for long-term development.

The current financial flows are far from sufficient. With better resource mobilization, African countries could strengthen their economic independence, reduce their reliance on imports, and improve their trade balances. They could also limit inflation caused by external market shocks, cut debt servicing costs, and build greater resilience to climate change.

Despite these stakes, the role of multinational corporations in reducing Africa’s tax base is often overlooked. Official analyses frequently blame weak tax administrations for the low levels of public revenue in African countries. However, few highlight how much taxable income is lost through corporate tax avoidance strategies.

Organizations like the Tax Justice Network have been sounding the alarm on this issue for decades. They show how an opaque global financial system enables the erosion of African tax bases by making it easy for corporations to move profits out of the continent, often without detection.

To address this problem, African governments have adopted several global reforms promoted by the Organization for Economic Cooperation and Development. These include country-level accounting rules that require multinationals to report their profits and tax payments for each country in which they operate. This is the first pillar of the reform. The second pillar introduces a global minimum corporate tax.

However, these measures have not been effective so far. Even the G20 countries, which led the push for these reforms, are struggling to enforce them with meaningful results. The tools are in place, but they are not delivering the intended impact.

Professor Urama stressed the need for stronger financial transparency at both national and international levels. He also called for a new assessment of the risk associated with investing in Africa. According to AfDB data, the continent has the lowest rate of default on infrastructure-related debt in the world. The default rate is just 1.9 percent, compared to 12.4 percent in Eastern Europe and 4.6 percent in Western Europe.

This data directly contradicts the widespread belief that Africa is a high-risk investment destination. Correcting this misperception is essential if the continent is to attract the capital it needs.

Until these systemic issues are resolved, Africa will continue to lose the very resources that could empower its future. It remains locked in a financial paradox: rich in potential, yet drained of the capital it needs to unlock it.