Africa’s domestic resource mobilisation efforts still facing numerous challenges

Africa’s efforts and initiatives to domestically mobilise resources for financing its development and economic transformation goals remain a substantial challenge.

In the last decade, Africa has lost an estimated USD 60.3 billion; 4 per cent of the continent’s GDP, to illicit financial outflows, which are higher than its remittance inflows.

Analysts note that much of Africa’s development financing will not suffice to meet the sustainable development goals (SDGs) Agenda 2063 ambitions unless resources are domestically mobilised.

The continent’s greatest impediment to mobilising domestic resources, according to the recently launched 2015 Africa Capacity Report (ACR) on Domestic Resource mobilisation by the Africa Capacity Building Foundation (ACBF), is the lack of capacity of robust institutions, human resource and service delivery outcomes in the collection and allocation of resources to productive economic activities.

The report highlights that preferential treatment to foreign investors, because as many as 92 per cent of African countries have tax exemptions to investors, contribute to resource leakages and hamper resource mobilisation in the continent.

Hitherto, Africa has in the last five years enjoyed an average economic growth of 5 per cent largely attributed to the boom in global commodity prices, increased global demand and investments.

DEVELOPMENT AGENDA

However, the recent volatile economic and global environment means the age of the continent relying on foreign direct investments and official development assistance (ODA) will be short lived thus mopping up domestic resources for achieving Africa’s development goals will “not be a choice, or a necessity, but an imperative” as noted by the ACBF Executive Secretary, Emmanuel Nnadozie during the ACR 2015 launch in Nairobi.

Why should Africa care to domestically mobilise resources? Most African countries do not get financial resources from domestic savings.

In fact, African countries have for a long time financed their development agenda through overseas development assistance (ODA) and as figures indicate, financial inflows to Africa significantly declined in 2014.

The African Development Bank (AFDB) estimates that total external flows to Africa in 2014 were at USD 181 Billion (Sh18.4 trillion) - 6 per cent lower than in 2013.

Global interest rates are on the rise. Global commodity prices also subdued especially with decline in oil prices and weakened demand for commodities. This means external borrowing will imminently become more costly and demand for commodities, especially from African resource-rich countries, is projected to decrease.

Additionally, many African countries have below average tax to GDP ratios, which indicates the availability of tax revenues to a country in relation to the size of the economy.

Economists caution of Africa going back to the debt trap if it does not mobilise its resources domestically. The imperative for the African continent to increase its efforts to domestically mobilise resources to finance development agendas could not have come at a better time.

Global economic dynamics are changing as developed countries reduce their assistance to the continent and interest rates are imminent to increase.

For African countries, raising financial resources domestically will be cheaper if institutional, human and financial capacities are enhanced.