Described by John Christensen, director of the Tax Justice Network, as "probably the most important book on Africa in recent years", Africa's Odious Debts exposes the dirty underbelly of the global banking industry, and the connivance of Western powers, which allows so many Africans to endure poverty. Unlike others who have described a thoroughly rotten system of usury, much of it linked to criminal enterprise, authors Leonce Ndikumana and James K Boyce not only discuss the mechanisms that underpin the misappropriation and flight of capital from Africa but provide data on the extent of this problem. It makes for sobering reading.
Fellow professors of economics at the University of Massachusetts in the US, Ndikumana and Boyce draw upon over a decade of research and update the relationship between foreign loans, official development assistance and capital flight. They begin, in chapter one, by providing examples that illustrate the role of major foreign commercial banks both, on the one hand, as lenders of funds that are subsequently misappropriated and, with the other hand, serving as deposit takers and safe havens for those loans.
This is called the 'revolving door' of capital flight. But amazingly, sometimes there is no need of even of a door! James Henry, the former chief economist at the international consulting firm McKinsey & Co is quoted by the authors as observing that in some cases "borrowed funds were deposited directly into private accounts in the same foreign banks that initiated the loan, the entire cycle completed with a few bookkeeping entries".
Ndikumana and Boyce also draw on an interesting parallel between foreign loans to Africa and in the US mortgage markets that led to the sub-prime credit crisis and financial meltdown. For just as there is ample evidence that many US banks lent irresponsibly to 'sub-prime' clients, perhaps knowing that the debt would be sold on to other institutions, so to did many bankers lend to Africa recklessly. These lenders to Africa were only intent on earning the upfront fees and commissions that accompanied such transactions, not the likelihood of repayment.
Chapter two is perhaps this book's greatest strength. Others may have described the revolving door of capital flight, but here for the first time is laid out in comprehensible and professional detail the statistical detective work that the authors carried out to actually measure the amount of the loss to Africa. This...