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:
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:
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:
As regards the task team component of the project, the international consultant will be required to:
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Competencies | |
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Required Skills and Experience | |
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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. |
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