At first glance it appears true
that the country is being deprived of a significant amount of capital, which,
presumably, could be well used to improve the conditions for all in the
country, probably most notably for the poor. However, in most of the developing
countries of the world, which are the ones to complain most vocally about the
problem, the amount of capital lost to them in this way is a small fraction of
the sums lost to Government-sponsored corruption and fraud, to sheer
incompetence in the implementation of measures designed to ‘boost the economy’
which are, in reality, no more than ways to feather the nests of those
promoting them, and to the costs of implementing abjectly poor economic
policies, which are the real reasons those countries are home to so many poor.
The complaints are, in reality, only another way of blaming ‘White Monopoly
Capital’ for the problems caused by the Governments in those countries, a way
at pointing fingers at others to distract attention from their own failings.
This does not mean to say that
the flight of capital, illegal or otherwise is not real, nor that the funds so
exported could not have been used by those taking them for the ultimate benefit
of the mass of people in the country. Those statements are true, although one may
question how the amount was determined. In fact, it is almost certainly
significantly greater than the R54,48 billion claimed. However, the correct way
to approach this problem is not to demand more legislation or more
tightly-imposed legislation. As is always the case in matters such as this, the
people drafting the legislation and then enforcing it probably do not number
more than a few thousand, and they are poorly funded and poorly experienced to
boot, while those doing the exporting of funds number in their millions, and
have access to tens of billions of Rands to plan and execute their moves. In
addition, those advising the legislators and enforcers do so with a clear eye
to their own benefit, which is almost never aligned with those aims seemingly espoused
by the writer. A fight against the illicit export of capital is ultimately
doomed to at least partial failure. If the flight of capital from the country
is to be combatted, it is necessary to understand why it occurs.
There are probably two main reasons
why funds are exported illicitly.
The first reason is that the
funds were gained illicitly in the first place, and so are exported, or not
repatriated, to avoid having evidence of the illicit activities within the
reach of the law enforcement agencies, if those bodies could ever be induced to
carry out their lawful duties against the perpetrators. If you were planning to
steal R254 000 000 from the State, it would require a remarkably low
level of intelligence to leave the evidence in plain sight, at Nkandla, for
instance, or an absolute assurance that the Minister of Police would be subject
to inducement to lie to Parliament about the evidence. If you were planning to
take a huge bribe, about $20 000 000, from a munitions supplier as an
inducement to grant a contract of supply amounting, ultimately, to $5,4
billion, you would be much more inclined to direct that the funds be paid into
your personal bank account in Geneva, where they would, hopefully, remain
hidden from the investigative authorities in your own country as well as that
of the supplier, discounting as unlikely the possibility that a slightly
inebriated representative of the bribing company would brag to drinking
companions about his role in making the deposit, or that, as a result of that
bragging, the Police in the foreign country would investigate and find a
written note of the negotiations for that and other similar bribes.
There is persuasive evidence that
at least one of the many crooked Presidents of developing countries has been deeply
involved in nefarious activities of this nature, and any determined
investigation of their involvement in business activities such as those
illustrated will certainly raise many questions that need to be answered, by,
unfortunately, those who are also compromised in this way. It is remarkable how
few sitting Presidents and Ministers of State have been imprisoned for conduct
of this nature, but, given the rumors, it is almost certain that their actions
represent a multiple of the amount of R54 billion spirited away illicitly. There
are methods of countering this reason for illicit flow of funds already in
place: They must simply be applied vigourously and with determination, by
people who are not dependent for their jobs on the goodwill of those in power
who may benefit from the perversion of those methods.
The second reason why funds are
lost to the country is much more profound. The funds are mostly derived from
business activities that, in their essence, are mostly honest and, in most
cases, result in the legitimate generation of economic activity and jobs. The
money is, in all conscience, the property of the person or company that
conducted that activity and would not otherwise be subject to censure. If it
were not exported, it would be subject to taxation in that country, and
thereafter to the rules and laws of BBEEE, to levies and limitations, to an
obligation to service the wishes of all ‘stakeholders’, most of whom are
rewarded for whatever contribution they may have made in the earning of that
wealth by land taxes, by high wages gained by means of union blackmail and by
the payment of an unreasonably high level of taxes and levies, and, ultimately,
to further taxation when the residue is distributed to the shareholders of its
legitimate owners. And therein lies the real source of the problem. The modern
State, as represented by the Governments of developing countries have an
absolute conviction that they are the owners of the wealth of the countries,
disregarding the people who generate that wealth as inconvenient necessities in
the generation of the wealth. The entrepreneurs who invest capital, time,
ingenuity and risk do not share this socialist-Marxist view, and feel that they
are entitled to retain a greater proportion of the profit they create, often in
spite of the actions of the Government, and a greater proportion of control
over how those profits should be applied. By virtue of the fact that they are
in a small minority, at best, in the voting process to decide who will form the
Government that will decide the rules, they do not believe that they can
possibly get a fair deal from the State, and so take steps to protect what they
can of the total of the wealth that they create.
The limits of what these
entrepreneurs are prepared to tolerate are stretched a little by the amounts
that they are able to move to a place where they can have better control of the
fruits of their creation, and so those entrepreneurs are willing to retain
their investment in the country. Where the opportunities do not exist to
stretch those limits to an acceptable extent, the entrepreneurs and investors
will take the obvious step of departing altogether from that State, a step
which, although small each time, will ultimately have a disastrous effect on
the State. Without the capital they invest, the skills they are able to muster
and the activities they create, the countries they leave will increasingly take
on the hue that is Zimbabwe. That is the simple set of facts that need to be
understood by any analyst willing to forego the socialist-Marxist line of
belief, and understand that capitalism is significantly more good than bad.
Capitalism does have bad facets, but it also has significant good ones too, and
the art of good government is to enhance the good and minimize the bad by means
that do not throw the good baby out with the bad bathwater. Unfortunately,
those elected by the (relatively) poor majority feel that they have been given
a mandate to exploit the productive minority which makes up the bulk of real
economic activity in order to appease the vocal majority while, incidentally,
skimming off enough to make their own efforts sufficiently rewarding to remain
in the ‘demanding’ positions required to rule the country. As in the case of
Robin Hood, they steal from the rich to give to the poor, mainly because the
poor have nothing to steal.
All nice theory, you might say,
but is it true? The short answer is that cases abound to demonstrate that the
theory is correct. Switzerland and Hong Kong have been strong economies for
years, in which the owners of capital felt safe, protected from the
depredations of the semi-dictatorships that abound in Africa. No entrepreneur
in those countries would wish to take the risk of large-scale illicit export of
capital, simply because they feel that the amount taken from them by those
countries is in an acceptable proportion to the value of what those countries
provide to them. The same applies to a somewhat lesser extent in Germany,
Britain and the United States (in the immediate past), in the Nordic countries
and in Singapore. It does not apply in most African developing countries, not
at all in Zimbabwe and, to a rapidly increasing extent, not in South Africa.
Zimbabwe has passed the point of earning the trust of entrepreneurs, with the result
that there is practically no significant entrepreneurial activity there, and
what little there is would abscond in an instant if a possibility to do so
existed. In South Africa, the level of investment by foreignors has dropped
alarmingly, albeit predictably, and there are continuous complaints by
Government that the local companies are ‘sitting on piles of cash’, which could
work wonders in increasing employment if it were to be invested in the economy.
And all the while, those companies are taking active steps to move their
activities outside of South Africa while not increasing, or even actively
running down their exposure in the country. The simple fact is that the
investors do not trust the South African Government to give them a fair deal.
They know that they will be subjected to increasing levels and forms of
taxation, both direct and indirect (by Eskom increasing its tariffs, for
example, and by an increase in the already unjust BBEEE regulations, which seek
to punish White Monopoly Capital for its productiveness, rather than harnessing
the brains behind that capital, which is only partly White, in the interests of
increasing the economic activity for the entire population), and that the
Government will continue blithely along the route that has been proven over the
duration of ANC rule to be bringing the country to destitution. The recent
Ratings Agencies downgrades of South African securities was not the result of
an illicit export of capital: it was a direct result of policies that sideline
the productive areas of the economy while promoting those activities that are
destructive of capital and wealth, such as the continuing subsidy of the
terminally-incapable rule by ANC cadres of State-owned entities, supporting the
economically-ineffective SAA, PRASA, Sanral, and all their sister companies, and
demanding ever more from the wealth creators while pursuing insane policies
such as enhanced BBEEE.
It is essential to understand
that those who might be persuaded to undertake an illicit transfer of funds are
more intelligent as a group than those trying to stop them, that they are, by
their very nature, disposed to analyse all possible avenues to increase their
net profit, to undertake acceptable risks to do so, and to apply their
resources in the best possible way. They will always find a way to avoid the
nets that Governments set for them, until the effort is no longer worth the
reward, when they will move entirely away from the country, taking their
skills, their capital, their business genius and their drive with them.
The cure for the flight of illicit
funds from the country? Simple. Understand that the creators of wealth are the
owners of that wealth. Give the owners of those funds a reason to keep them in
the country, to invest them in the productive activities that created them in
the first case. Abandon every policy that aims to move wealth from the
producers of wealth to the consumers of wealth, allowing them the opportunity
to build the wealth of the nation as a whole. Give tax advantages to every
entity, human or corporate, that generates economic advantage, and that converts
the onus of supporting the indigent to one that creates income-earning
opportunities for those people. Turn the economy around from one that takes
from the rich to give to the poor (with a small indulgence to the masters of
this process) to one that harnesses the energies and ingenuity of all in
driving the economy to the heights of which it is capable.
And most of all, relegate to the
garbage heap of history those socialist-Marxist views that make capitalists
evil and the poor noble.
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