# I. **Introduction**

In the _Handbook of Development Economics_ , Cardoso and Dornbusch (1989) summarized the challenges of resource mobilization in support of economic growth and development in low-income countries facing debt overhang and plummeting credit ratings as follows: “Commercial banks are unlikely to provide much development finance in years to come. Bond markets, likewise, will be closed for countries with poor debt experience. Efforts to develop private capital flows to debtor countries must therefore, focus on other mechanisms.” Decades later, Cardoso & Dornbusch’s assessment and recommendation still hold and could greatly inform the growth process in the post-HIPC Completion Point era in SubSaharan Africa.

In addition to their poor credit ratings, the majority of Highly Indebted Poor Countries in Sub-Saharan Africa face major challenges that are further compounded by the steadily declining level of international development assistance [World Bank (2006)].<sup>2</sup> To enhance the impact of debt relief granted under the HIPC initiative,<sup>3</sup> there is one possible route that is still unexplored, and yet could generate the massive inflows of capital in support of a ‘big push’ to accelerate growth: the repatriation of flight capital. Indeed, the hundreds of billions of dollars of capital flight from SSA represent a sizable amount of untapped resources with tremendous potential for economic growth and development if repatriated to source countries.

According to most recent estimates, the cumulative stock of capital flight— the voluntary exits of private residents’ capital either for a safe haven or for investments made in foreign currency—from Sub-Saharan Africa amounts to USD 606.7 billion over the three decades spanning 1970-2004 [Ndikumana and Boyce (2008)].<sup>4</sup> The high level of capital flight poses serious challenges for domestic resources mobilization in support of investment and growth in the Africa. These challenges are even more important because the region is confronted with acute shortage of capital and is increasingly marginalized in the global distribution of private capital flows, which remains heavily skewed and tilted towards OECD and emerging market economies [World Bank (2006)].<sup>5</sup> These challenges are also exacerbated by the absence or relatively low level of ‘ _additionality_ ’ of resources within the HIPC framework.

The absence of a ‘big push’ in the form of large capital inflows supporting the expansion of productive investment, and as a complement to the HIPC initiative is a common problem in stabilization programs implemented in most developing countries. In the aftermath of these programs, most countries often lack the resources needed to operate at the level of investment required to attain robust and sustained growth rates; and when capital does come, it is usually in the form of balance of payments support directed toward highly liquid domestic assets and final consumptions, rather than in physical capital

> 2 In fact, since 2005, official development assistance has been declining steadily, and even took a negative value in net terms, reflecting net capital outflows from developing countries [World Bank (2006)].

> 3 Debt reduction granted to the first batch of 18 countries which became eligible to the HIPC Completion Point under the MDRI for concessional lending granted either through the IDA window or the African Development Bank facility is extended over a four decades, spanning the period 2006-2045. For further details see World Bank (2006).

> 4 Capital flight is sometimes measured as errors and omissions in the balance of payments and often refers to illicitly acquired resources. However, the estimated cumulative stock cited here is based on an elaborate methodology that is described in detail in Ndikumana and Boyce (2008).

> **5** The Global Development Finance Report published in 2006, highlighted the increasingly skewed distribution of capital movements at the global level, with the Sub-Saharan African region largely marginalized from the path of global capital flows and receiving the lowest share of FDI.

**2**