Every year has its own ups and downs for policy makers. As pleasant as it had been for Sub-Saharan Africa, especially in economic fronts, 2011 had witnessed widespread instability around the world. From political upheavals in North Africa and Middle East to sovereign debt crisis in Europe, mounting uncertainty was typical of each day of the year.

Diffusing fear caught many volatile countries in Africa with states expanding safety nets and renewing social contracts, sometimes beyond their means. It led to generous social services, public sector reforms and relative political restraint in some countries. In others, it created hostile states opting for preeminent attack on dissent and popular protest.

Skyrocketing prices, widening inequality and rampant unemployment underpinned the popular uprisings that had infected even the developed world. The Occupy Wall Street movement in the United States (US) has even evolved into the Occupy Class Room academic debate by the end of the year. Varying breeds of occupy movements had been witnessed across the world primarily driven by economic inequality.

Absorbing the negative externalities of the unstable world was a real challenge for countries like Ethiopia. Social spheres were marked with fear, scepticism and insecurity. Political stability was far from certain. 

In a not-happy ending of the year, global researches on illicit finance exposed that poor countries are bleeding with massive capital flight. No different was Ethiopia with a loss estimated to range from eight billion dollars to 11 billion dollars. It was definitely not a good news for the government that was sarcastic about the instability in the different parts of the world.

A recent study by the Global Financial Integrity (GFI), a US based think tank, calculated a gross illicit capital flight of 11.4 billion dollars between 2000 and 2009 from Ethiopia. Annual capital flight has reached 3.6 billion dollars, in 2010. This is in tandem with the calculation by the United Nations Development Program (UNDP) that projected an illicit capital outflow of 8.5 billion dollars between 1990 and 2008.

Indeed, Ethiopia is not the only country that faces the challenge. Poor countries like Chad, Gambia and Malawi also witnessed an illicit outflow of capital in a range of 9.5pc to 27pc of their gross domestic product (GDP), as compared to 3.57pc of GDP for Ethiopia. Even then, the problem lingers as a major economic hitch involving money as big as 53pc of the budget of the nation for 2011/12.

To its credit, the government has institutionalized the fight against illicit finance by establishing the Financial Intelligence Centre (FIC). It has also put in place legislations incriminating money laundering, terrorist financing, and corruption. However, no coordinated law enforcement prevails because the centre remained heavily understaffed; it never had more than four staffs.

For critics, it is all symbolic. In an economy with a GDP size of 31.9 billion dollars, at constant price, in 2010, it is preposterous to have a financial intelligence centre with no feasible structure, four staffs and petite budget. It shows the utter ignorance of the government in the fight against illicit financing.

It would have been easy for the Revolutionary Democrats to categorise the results of the GFI as mere neoliberal propaganda had it not been in congruence with the findings of the UNDP, a credible global agency. Neither would it be a feasible strategy to downplay the problem since it means a lot for a capital strapped economy.

Trade mispricing stands as the major way for the capital flight. By UNDP standards, it contributes from 60pc to 70pc of the gross outflow at any point in time. Bribes and kickbacks constitute the remaining 30pc of the outflow. No doubt that it is as structural as it relates to macroeconomic stability and governance.

An increasing illicit capital outflow partly relates to the growing political uncertainty in the country. Policy monopoly and legislative surprises left little space for alternative voices. State unpredictability eroded confidence so much so that people prefer to take their riches away by all means possible.

An ever narrowing political space, a dominant ruling party and poor systemic resilience has escalated the uncertainty. Complemented with the spill over effects of an unstable world, such a latent structural volatility has incentivized outflows. It is like a bank run wherein depositors rush to take out their money with all prophesies forecasting a gloomy future.

A large share of the outflow is contributed by export under-invoicing and import over-invoicing. Rapid economic growth could have vividly contributed to the problem since it expanded external trade relations. Yet, it could not compensate for the undeveloped regulatory capacity of the government.

Ethiopian customs valuation has a lag time of three months that creates a huge opportunity for price manipulation and pegging. Poor integration of the system with international valuation frameworks is no less opportunistic for embezzlers. Added up, these systemic loopholes have reduced the cost of illicit transactions.

Apparently, the financial system of the country remained relatively isolated from the global financial system. This has made tracing illicit flows very costly, if ever possible. It is certain that the inability of the system is fortunate for fraudsters.

Although isolation could pay off by protecting the local economy from eventual shocks like popular uprisings or financial crises, its cost is immense if measured by the opportunity cost of capital outflows. Some researches show that the opportunity cost could range from three per cent to five per cent, in least developed countries (LDCs) like Ethiopia. Converted into jobs, the loss deprives thousands of citizens of opportunities for upward mobility, gainful jobs and empowerment.

Although enhanced communication of domestic financial regulators with multilateral financial institutions could have offered a lot in the fight against illicit finance, cooperation stands insignificant. Aside problems of capacity and infrastructure, a rather cynical attitude towards collaboration excluded meaningful efforts. In a way, it is an extension of the poor political resolve of the government.

Apparently, fighting against illicit financial outflows could not happen in vain. It calls for a comprehensive approach that embraces both local and international factors.

At the local front, creating predictable political environment is of high demand. There would be no reason that people would prefer to take their hard-earned riches away if they could be certain about the future. Creating conducive environment for dissenting voices will ease the tension in the political environment and ensure citizens that their voices matter.

Transforming the policy environment towards a competitive one will also be imperative. It is only if the market of ideas is let free to operate under the forces of demand and supply that confidence could be sustained. Doing so might not be easy in an environment where fear and skepticism reigns but it has to be started somewhere, anyway.

Linking the custom valuation system of the nation with the global system of trade regulation will also be essential. Adopting cutting-edge technologies that could provide instant updating of prices will reduce the operational space of fraudsters. It could also help reduce the practice of trade mispricing.

Integrating the financial system of the nation with the global system will also help to trace illicit flows. Aside availing sources of capital for developmental projects, it would mainstream transparency in external trade transactions. Certainly, this will discourage illicit transactions.

So far as corruption and bribing contribute significantly to the gross outflows, the fight against corruption has to cross borders. It needs to focus on the big fishes that are bleeding the nation. Creating strong collaboration with international organization might reduce the burden on local authorities.

Beyond all, though, the Revolutionary Democrats have to demonstrate their determination to fight illicit capital outflows through strengthening the capability of the FIC. As the problem is a real threat for the very system that they aspire to build, they need to wake up as early as possible to fight it. They ought to display full political commitment to mainstream predictability, ensure systemic integration and put in place the necessary institutional capacity.

There would be no more important agenda than savouring the developmental future of the nation by fighting illicit capital flow. It is only then that 2012 could be different from 2011.