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consultant: data analysis on capital flight and illicit financial flows

How to finance the MDGs has emerged as one of the most significant challenges since adoption of the Monterrey Consensus on Financing for Development in 2002. To a large extent, the development discourse has focused on how to increase the quantity and quality of external financial resources into developing countries (e.g. through increases in ODA, policies to attract FDI etc.). However, it is now widely recognised that capital flight (licit and illicit financial flows) is also important to the financing for development policy agenda. It is estimated that Africa alone has lost some USD 700 billion over the period 1970-2008 due to capital flight.
More importantly, capital flight affects human development progress. This occurs through several channels. First it can reduce domestic investment resulting in slower economic growth which in turn may slow poverty reduction efforts. Second, capital flight has been associated with odious debt, the repayment of which reduces the resources governments have available to invest in development. Third, capital flight increases inequality given that it allows a rich elite to acquire and hide assets abroad. Finally, capital flight is associated with poor governance.
Capital flight is complex and difficult to define. Most definitions stress risk and portfolio factors as its main motivations. They refer to capital flight as large legal or illegal outflows of financial resources due to high political or economic instability in the originating country or higher returns on investment in the destination country. A broader definition views capital flight as the flow of any productive resources from poor to rich countries. Yet another definition refers to capital flight as the difference (or residual) between all the resources entering into a country and the recorded outflows in a given year.
Most of these definitions miss an important component of the capital flight problem; financial outflows which result from the illegal appropriation of resources through theft, plundering of public resources, corruption and trade mispricing. This money is intended to disappear from any record in the country of origin, and earnings on the stock of flight capital outside of a country do not normally return to the country of origin. The term commonly used to describe this form of capital flight is ‘illicit financial flows’ which represents money that is illegally earned, transferred, or utilised. If it breaks laws in its origin, movement, or use it merits the label (Global Financial Integrity 2010).
Tax evasion, through practices such as trade mispricing is widespread and is widely considered one of the most important drivers behind illicit capital fight. Some estimates hold tax evasion (through trade mispricing) responsible for around 65 percent of illegal capital flight from the developing world. Capital flight is, in turn, facilitated in turn by tax havens (or secrecy jurisdictions) which provide a multitude of corporate and commercial financial services to non-residents.
If flight capital was saved and invested in originating countries’ domestic economies with the same level of productivity as that of actual investment, it would increase income per capita. It is also estimated that if only a quarter of the stock of flight capital was repatriated to the continent for investment, Sub-Saharan Africa’s ratio of domestic investment to GDP would increase markedly. Income growth resulting from these additional investments would reduce poverty and help foster human development. Given its human development mandate, this is thus an important area for UNDP to assume an active role.
In 2011, UNDP – in partnership with Global Financial Integrity, a think-tank on financial transparency issues – undertook a research study into the magnitude of illicit financial flows from the 48 Least Developed Countries (LDCs). It revealed that capital flight through trade mispricing alone amounted to USD 26.3 billion in 2008 from the 48 LDCs, roughly equivalent to the amount received in the same year in official development aid. This amounted to 4.8 percent of LDCs’ GDP, on average, although there were wide variations among countries. The report generated significant political interest in a number of countries, especially in Sub-Saharan Africa.
UNDP then initiated an e-consultation on illicit financial flows which brought together UNDP country offices, government stakeholders, UN agencies, academics and NGOs in order to inform UNDP country offices about this issue as well as assess the level of interest and demand for UNDP to undertake more work in this area. The e-consultation demonstrated a strong demand (and need) for more in-depth country level analysis on the main drivers and dynamics of capital flight in different contexts with a particular focus on the LDCs. Only through more in-depth country level analysis and understanding could appropriate measures on how to address the problem be developed.
In this context, UNDP is initiating a series of country level case studies on capital flight with a special focus on illicit financial flows. The aim of each country case study will be to explore the main drivers of and dynamics behind capital flight (both licit and illicit capital flight) at the country level. These studies will aim to inform a longer-term programme of support by UNDP to national stakeholders on this issue and will provide a solid analytical basis on which discussions with national governments and other stakeholders on measures to address these issues can take place.
Specifically, the project will be divided into four key components:
  • Preparation and publication of data sets and accompanying methodology to guide the case studies on capital flight and illicit financial flows from seven (7) developing countries: Cote d’Ivoire, Guinea, Sierra Leone, Tanzania, Zambia, Bolivia, and Cambodia. This work will be carried out by an international consultant who will liaise closely with a UNDP task team.
  • Preparation and publication of in-depth country case studies. Each case study will use the data sets provided by the international consultant as a base and will explore and explain capital flight and illicit financial flows in a particular country’s context, and will also provide policy recommendations on ways to address the problem. This work will be carried out by a local consultant/researcher with a deep knowledge of the country, preferably someone based in (or very near) the country under study. S/he will work closely with UNDP’s task team and the international consultant to develop the case study. S/he will use the data sets on capital flight provided by UNDP and will also use the country study template provided by UNDP.
  • Organisation of country-level workshop/multi-stakeholder consultation on the findings of the study and next steps. On conclusion of the case-study in question, UNDP will organise a national level meeting to discuss the report with key stakeholders at the national level. Both the local and international consultants should be available to participate actively in these meetings.
  • Working on the country case studies to produce articles for publication in an edited volume or a special issue of a development journal. This work will be carried out by the international consultant in collaboration with the UNDP task team.
Note: Information in the background section of this note was drawn from the upcoming African Economic Outlook Report (AEO) 2012, to be published in May 2012.

Duties and Responsibilities

These Terms of Reference (ToR) are for an international consultant/researcher to prepare background quantitative data research as to the scale of capital flight (both licit and illicit) in 7 developing countries, namely: Cote d’Ivoire, Guinea, Sierra Leone, Tanzania, Zambia, Bolivia and Cambodia.
Specifically, the international consultant will have three main responsibilities:
  • Provide clear data on capital flight for the 7 countries specified by UNDP, as well as accompanying explanatory and analytical texts (see below for further elaboration)
  • Form part of UNDP’s core task team which will guide country level studies
  • Provide on-going guidance and support to local researchers
  • Work with UNDP and local researchers to ensure quality control in the case studies and help bring the final studies to standard.
It would also be highly desirable for the international consultant to participate in the national level meetings once the country case studies are concluded, to the extent possible.
As regards the data analysis component of the project, the international consultant will be required to:
  • Provide clear data on capital flight and illicit financial flows for the time series 1970 to 2010 for each country (i.e. 7 countries)
  • Explain the methodology used to calculate these values in a clear and understandable way, indicating what is included/excluded from the calculations presented (and why)
  • Provide short texts (and charts as appropriate) for each country which flag some of the major trends which are evident from the calculations, as well as fluctuations in the data which may require further investigation at the country level by the local researcher.
As regards the task team component of the project, the international consultant will be required to:
  • Work with a core team at UNDP to develop case study ‘templates’, which will serve a research methodology for local researchers to follow as they conduct country case studies
  • Work with a core team at UNDP to provide on-going guidance and support to country-level researchers (principally by telephone and email)
  • Work with a core team at UNDP to monitor on-going country-level workWork with a core team at UNDP and the local researchers to bring final studies up to standard.

Competencies

  • Thorough knowledge of issues related to capital flight, governance, anti-corruption and related fields.
  • Knowledge of and experience in quantitative data analysis as it relates to capital flight.
  • Strong background in economics or international finance.
  • Strong analytical skills.
  • Ability to analyse and present complex data in a clear and understandable format.
  • Ability to engage with and proactively offer support and advice to local researchers on the data provided and the methodology used.
  • Ability to work independently, against tight deadlines.

Required Skills and Experience

Education:

  • Masters’ degree, preferably in economics or finance

Experience:

  • At least 5 years relevant professional experience
  • Experience developing analytical reports or other knowledge products on capital flight or a closely related subject

Language:

  • Fluency in English and French required.

UNDP is committed to achieving workforce diversity in terms of gender, nationality and culture. Individuals from minority groups, indigenous groups and persons with disabilities are equally encouraged to apply. All applications will be treated with the strictest confidence.