Lack of domestic revenue crippling African economies

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Timo Shihepo

Windhoek - African countries must prioritise domestic revenue mobilisation to triple growth if the continent is to meet its development goals and targets.

This was one of the main points concluded at the end of the2019 Economic Commission for Africa (ECA) Conference of Ministers held in Morocco last week.

Africa is running out of time to achieve the United Nations’ 2030 global goals (Sustainable Development Goals), and the African Union Agenda of 2063.

In order to meet these goals, the conference concluded that Africa needs to build more resilient economies if it is to have the resources to meet its development goals and targets over the next few decades.

Information from the conference shows that an increase of 12-20% in tax collection can raise up to US$400 billion and go a long way in filling the US$600 billion financing gap Africa faces. But that will also require fiscal prudence to strengthen a social compact between government and its people.

The ministers urged the digitalisation of African economies, as the continent is currently losing an estimated US$50 billion from illicit financial flows.

Although the conference agreed that digitalisation provides an opportunity to raise taxes as well as greater transparency and better governance, the delegates were also cautious about its challenges, in terms of what to tax and where to tax, making it ever easier to shift profits.

The ECA executive secretary, Vera Songwe, highlighted the fact that although Africa is still growing, with GPD growth expected to increase to 3.4% in 2020 from 3.2% this year, it needs to triple for the continent to realise its goals.

Delegates heard how African countries can grow their economies faster by boosting investment from 25% of GDP currently to 30-35%, thereby improving productivity substantially, if the continent is to achieve Agenda 2063 and the UN 2030 Agenda.

The weeklong conference brought together policymakers, who were also urged to fast-track the digitalisation of their economies as a means of improving efficiencies, creating jobs and modernising systems and institutions.

The African Continental Free Trade Area (AfCFTA) was also a key topic of discussion with the initiative now on the brink of operationalisation.

Morocco’s minister of economy and finance, Mohamed Benchaaboun, said the AfCFTA is a great opportunity to accelerate what has been done bilaterally with some African countries.

“This will help bring growth to a higher level in a co-development approach. On the trading block that could be one of the largest in the world,” he said.

The ECA ministers’ conference brings together African ministers of finance, planning and economic development or their representatives. This year it was held under the theme - Fiscal policy, trade and the private sector in the digital era: A strategy for Africa.

The discussions placed emphasis on how and why African countries should take full advantage of the opportunities offered by digitalisation, to accelerate growth to double digits by 2030.

The ECA flagship publication - Economic Report on Africa 2019 - was also launched during the conference.

Among other issues, the detailed report revealed that debt levels remained high, as African countries increased their borrowing to ease fiscal pressures most of which have been precipitated by the narrowing of revenue streams that has gone on since the commodity price shocks of 2014.

The report also examined the relationship between fiscal policy and debt sustainability in Africa.

“Digital identification can broaden the tax base by making it easier to identify and track taxpayers and helping taxpayers meet their tax obligations. By improving tax assessments and administration, it enhances the government’s capacity to mobilise additional resources. Digital ID systems yield gains in efficiency and convenience that could result in savings to taxpayers and government of up to US$50 billion a year by 2020,” the report read.

The African Union Commission’s commissioner for human resources, science and technology, Sara Anyang Agbor, summed up the need for a new approach with her call to action.

“How do we move from here…let us commit to regional coordination mechanism and not end up as graveyard of conferences and seminars. Let’s measure where we are and fill in the potholes. We need to challenge ourselves so that our deliberations translate into concrete actions,” Agbor said.

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