Using the data on the countries in the sample covered by this study, and assuming that a moderate 5% tax is levied on the repatriated capital and used to increase funding for education, we find that the average ratio of education expenditures to GDP would increase from 3.5% to 4.7% for the sample (Table A2). For some countries, the ratio would double as a result of increased funding from capital repatriation. This is the case for Burundi, Congo DR, Nigeria, Rwanda, Sao Tome & Principe, Sierra Leone and Zambia. These substantial increases in education funding would ultimately allow countries to achieve much higher growth rates. Capital flight repatriation as a source of funding for human capital accumulation has clear advantages relative to funding through external assistance as it avoids aid dependence and the associated conditionalities.

# **V. Conclusions and Policy Recommendations**

This paper has argued that repatriation of capital flight should take a much more prominent place in the debates about mobilization of resources to increase financing for economic development in African countries. The obvious argument for repatriation is based on a simple moral principle: a large proportion of capital held abroad by Africans was obtained through embezzlement of national resources and fraudulent use of borrowed funds [Ndikumana and Boyce (1998), Fofack (2009)].<sup>18</sup> Therefore those funds belong legitimately to the population of African countries and must be repatriated.

The other argument is based on economics principles: instead of continuing to rely on debt-generating resources and other forms of financing that are usually associated with binding direct and indirect commitments, African countries would be much better off tapping the stocks of funds held in Western financial centers in the form of capital flight. This source of financing, unlike aid and debt, does not imply any commitments of future payments to be shouldered by current and future generations. Moreover, a sizable amount of resources can be mobilized in the short run to finance the massive investments critically needed under the “big push” model.

This paper has provided some illustration of the magnitude of potential benefits from capital flight repatriation through domestic investment and education. Using a representative sample of SSA countries, the analysis shows that based on the stock of capital flight as of 2004, and taking into account the empirical linkage between investment and saving, the analysis established that if only 25 percent of the stock of capital flight was repatriated to source countries in SSA, and channeled through the economy as savings, the average investment to GDP ratio in this sample would increase from 18.5% to 29.6%. This would propel SSA on the top of other developing countries in terms of domestic investment.<sup>19</sup> These positive effects through domestic investment would eventually launch African countries on a path of higher economic growth, increasing the pace of poverty reduction. This would be achieved while keeping African countries free of the burden associated with external borrowing and other debtgenerating forms of external financing on which African countries have relied in the past. The gains from repatriation also vastly dominate the potential gains from debt relief, the most lauded source of non-debt generating external financing over the recent years.

> **18** For illustration on this argument, see of the Congo under former president Mobutu, see Ndikumana and Boyce(1998) and Fofack (2009) for the dynamic linkages between capital flight and external debt in Sub-Saharan Africa.

> 19 This will go a long way to break the vicious circle of chronically low investment rates, which are believed to have undermined growth prospects during most of the Structural Adjustment era in SSA [Akyuz (2001) and Bayraktar and Fofack (2007)].

**17**