The magnitude and determinants of capital flight burden : a case study of Namibia, 1990 - 2005
Thesis (MDF)--Stellenbosch University, 2006.
Capital flight is a serious problem for Namibia as well as other countries. If not addressed, it will continue to impede national investment, macro-economic management and economic growth. These issues are particularly pertinent to Africa in view of it is high incidence of capital flight in the presence of foreign exchange constraints, limited foreign capital flows, external indebtedness and high dependence on overseas development assistance. The purpose of the study is to determine the magnitude and determinants of the capital flight burden in Namibia for the period 1990-2005. The study consists of a literature review, identifying an appropriate model for the capital flight burden in Namibia, data collection, and estimating and testing of the model using secondary data from Namibia. The study adopts two approaches to measure the extent of capital flight from Namibia: the residual approach and the Morgan Guaranty Trust method which is modified from the residual method of calculating capital flight. The residual method is an indirect approach based on a comparison between sources of capital inflows with the uses of these inflows. This approach was changed by Morgan Guaranty to include an additional item, the change in short-term foreign assets of the domestic banking system. The estimates from the study indicate capital reversal from Namibia over the IS-year period, averaging U$88.2 million using the residual method and U$200.4 million using the Morgan Guaranty method. The findings, although different from the picture on the ground, create a very good base for future research on capital flight in Namibia, which tends to be more uniformly related to portfolio diversification. The results from the three main model variants are unequivocal and indicate that an increase in aid and concessional grants tends to reduce the capital flight burden, while on the other hand the burden is seriously increased by depreciation of the Namibian dollar and an increase in inflation. These results have important implications for the Central Bank and the Treasury in tenns of strategic economic policy reforms.