AfDB backs sovereign funds for resource-rich nations

Tue Oct 1, 2013 9:44pm IST

* Says Africa must curb illicit capital flight

* Oil-rich Nigeria, Angola have set up sovereign funds

By Fumbuka Ng'wanakilala

DAR ES SALAAM, Oct 1 (Reuters) - Resource-rich countries should curb illicit financial outflows and set up sovereign wealth funds to manage windfall revenues from hydrocarbon and mineral exports, a senior African Development Bank (AfDB) official said on Monday.

Steve Kayizzi-Mugerwa, development research director at AfDB, said African countries could finance most of their development needs through their own resources without depending on external debt if they properly managed their wealth.

Oil-rich Nigeria and Angola are among African countries that have set up funds to manage their windfall revenues.

Tanzania, east Africa's second largest economy, has made big offshore natural gas discoveries and its government said last year that it also planned to set up a sovereign wealth fund to ring-fence future earnings from its hydrocarbon wealth.

Some African countries have sought advice from Norway, considered to have the most transparent and efficient such fund, and one that is awash with oil money.

"The irony of Africa being richly endowed with natural resources but continuing to depend on external support for the provision of basic services is beginning to dawn on many African countries," said Kayizzi-Mugerwa at a financial transparency conference in Tanzania's commercial capital, Dar es Salaam.

"Resource-rich countries should set up well-functioning sovereign wealth funds ... that in theory represent some self-insurance against capital flight that should favour autonomy in macroeconomic policy."

Activists said at the meeting that Africa's development was being hampered by illicit financial outflows to the West.

"Of the roughly $1 trillion that leaves developing countries in illicit financial flows each year, almost half - a staggering $500 billion - comes out of Africa," said Semkae Kilonzo, coordinator of Policy Forum, a network of over 100 Tanzanian civil society organisations.

"These proceeds of crime, corruption, and tax evasion represent an unacceptable drain on developing economies that is equivalent to eight times the size of global foreign aid."

Tanzania, Africa's No. 4 gold producer, has become a focal point for financial transparency campaigners following big discoveries of natural gas, uranium and coal.

Zitto Kabwe, who chairs Tanzania's parliamentary accounts committee (PAC), said multinational corporations were shifting profits to tax havens from resource-rich African countries.

Tanzania was losing about $1.25 billion a year, and his committee has launched an investigation to establish the extent of illicit financial transfers in the country, he said. (Editing by James Macharia and Catherine Evans)