The flow of money, it seems, defies the laws of physics. Despite endless promises of a fairer distribution of wealth, money has actually been gushing upstream towards a greater concentration of wealth, not downstream. This has been an irreversible trend to levels now unseen in history, with eight billionaires owning the same as half of the world's population put together.
This may seem an ironic twist in the story of money that politicians and governments around the world tell in compelling ways. The moral imperative, which politicians across the spectrum advocate (but don't always prioritise), is a more equal distribution of wealth, yet the reality is that this universal moral good is probably the most neglected in practice.
This is obvious when we look at the global perspective. What the poor receive through money trickling down via financial channels such as foreign aid and punishing loans from the International Monetary Fund and World Bank is minuscule compared to the vast sums that are extracted in affluent Western capitals. That is the conclusion of the US-based Global Financial Integrity (GFI) and the Centre for Applied Research at the Norwegian School of Economics. In a recent report, the GFI, which carries out research on money flow and advises governments, concludes that since the early 1980s, developing countries have largely seen a negative net transfer of resources and wealth.
Though this may not come as a great surprise, the amount involved is quite staggering. The sustained and significant outflows from the developing countries since the eighties have topped $16.3 trillion. To put it another way, the outflow of wealth from developing nations over the intervening period equals the GDP of the United States of America.
In its analysis, the GFI tallied up all transfers between the different regions of the world, taking into consideration official development assistance, loans, repayments, debt cancellation, foreign direct investment, portfolio investment, remittances, contributions from religious and charitable organisations, and recorded and unrecorded trade flows. The analysis concludes that since the early 1980s, Net Resource Transfer (NRT) for all developing countries has been mostly large and negative, indicating sustained and significant outflows from the developing world.
What this means is that our widely held views about foreign aid are simply wrong. What the rich nations give with one hand they receive many times over on the other. Some have drawn the conclusion that the reality of money transfer means that the development narrative has it backwards: rich countries aren't developing poor countries; the poor countries are developing the rich.
Where does this money go? GFI data, which is taken from the online Balance of Payments database at the IMF, shows that the largest amount of outflow from developing countries has been in the form of illicit transfers; $13.4 trillion, in fact, draining resources from those countries and depriving the populations of poor and developing nations of much-needed investment.
The same trend is being played out in the Middle East and North Africa. The MENA region as a whole has seen $3.2 trillion worth of negative resource transfer. The data does not include Iran and the UAE; the authors told me that this is because the Emirates does not report data to the online Balance of Payments database at the IMF.
Unsurprisingly, the countries with the largest NRT are the energy rich Gulf monarchies with $2.8 trillion, 88 per cent of the total net resource being transferred out of the region. Saudi Arabia alone accounts for 46 per cent of resource transfer. A large chunk of this is in the US, where the kingdom has almost a trillion dollars in US assets. The oil rich state is also believed to own $117 billion of US debt, making it America's 13th largest foreign debt holder.
Kuwait and Qatar also have a notably high flow of transfer out of the country. Kuwait is the Middle East's largest and the world's seventh largest foreign investor, according to the World Investment Report of 2015, released by the United Nations. Wealthy Gulf countries are also buying up huge swathes of London's prime real estate and are believed to make up a tenth of all buyers in exclusive parts of the British capital.
High profile and lucrative purchases of global brands make up only a minor proportion of money and resources flowing out of the MENA region. The report also notes that vast sums of money also flow out illicitly. We can speculate that this money includes tax havens scattered across the globe as was revealed in the Panama Papers leak last year.
Of the 140 politicians and world leaders who were said to have questionable offshore holdings, there were a number of prominent Arab leaders from Iraq, Syria, Jordan, Qatar and the UAE, as well as the current Saudi monarch. According to reports about the leaked documents, "Sheikh Khalifa, President of the United Arab Emirates, was the beneficial owner of at least 30 companies established in the British Virgin Islands by the corporate service provider, Mossack Fonseca, through which he held commercial and residential properties in pricey areas of London such as Kensington and Mayfair, worth at least $1.7 billion."
According to the data, a small number of countries in the MENA region showed positive net resource transfer, notably Egypt and Jordan. Both countries are amongst the highest recipients of foreign aid in the world. Egypt, in particular, has been receiving $1.3 billion annually from the US alone since it was ramped up after the country signed a peace treaty with Israel in 1978. Many of these countries also have high remittances from overseas, which is the source of one of the largest financial inflows to developing countries. Overall global remittances totalled $582 billion in 2015, according to the World Economic Forum.
Egypt also has one of the highest number of citizens working abroad, with an enormous labour emigration to the oil-producing Arab states since 1970. In 2014, it was the world's 6th largest recipient of remittances, totalling $20 billion. According to figures published in 2013 by Migration Policy Centre, 4.3 million Egyptians were living abroad at the time. The vast majority — 86 per cent — were expatriates in Arab countries. In 2015 alone, Egypt received $7.57 billion in remittances from the 1.3 million Egyptians working in Saudi Arabia.
The bigger picture, of course, is that globally, the myth about money pouring into poor regions of the world pales in comparison to the money that flows out. The trend has considerable adverse effects, warn the report's authors. "There is perhaps no greater driver of inequality within developing countries," they say, "than the combination of illicit financial flows and offshore tax havens. These mechanisms and facilitating entities benefit the rich '1 per cent' and harm the middle class and poor."
The recommendation is for policymakers and economists to take a different view on development assistance. It is argued that it is not enough to stimulate foreign direct investment as a way to promote economic growth in developing countries, without factoring in the adverse impact of capital flight on development and the harmful role it plays when money is drained using offshore tax havens. There really does need to be a rethink about foreign aid in the Middle East.
The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.