Africa Gears for Domestic Resource Mobilisation

Published on 8th June 2009

It has been a difficult period for Africa after several years of positive and encouraging growth. Indeed, the global economic and financial crisis began just as it seemed that the worst was over with regard to the food and fuel crisis. After growing at an average of nearly 6% over the preceding half decade, Africa’s average growth rate is expected to decline by up to four percentage points this year. 

Export earnings are similarly expected to decline by up to $251 billion in 2009 and $277 billion in 2010 for the continent as a whole while forecasts show that remittances and private capital flows into Sub-Saharan Africa will fall by between one to two billion dollars in 2009. Official development assistance, trade finance, foreign direct investment and other capital flows are also expected to continue to decline this year. 

The drying up of these important sources of development finance has implications for achieving the MDGs in Africa as it will impact negatively on funding of health, education, gender, infrastructure and nutrition programmes with serious consequences for poverty reduction efforts. The crisis will also compound unemployment with the number of jobless likely to increase by 3 million in 2009. The social impact of the crisis will be particularly hard felt in this continent because we have few mechanisms in place to cushion its effects on ordinary people such as unemployment benefits or social safety nets. 

Africa has already responded admirably to the crisis. Our Finance Ministers and Central Bank Governors met in Tunis in November last year to ensure a coordinated response. They drew up a roadmap to ensure that Africa has necessary resources for its development, while maintaining its record of improved economic management and enabling its voice to be better heard within the framework of the international financial system. 

As Africa grapples with the fall-out of the financial crisis, it is imperative that we explore policy options to make up for expected short-falls in development finance. While seeking to obtain as much external financial support as it can get, Africa must also look inward to the policy options available to it to increase domestic resources for development. 

As things stand, domestic savings in most African countries fall far short of their investment requirements and fiscal policy is an important tool through which to make up the difference. Till now, it has been constrained by a pro-cyclical tendency, issues of creditworthiness and policy conditionalities. A key challenge is the identification of options and sharing of best practices to overcome these constraints so that fiscal policy can help bring about the structural transformation that will ensure a better resource base. 

The quality of governance is similarly important because it is a determinant of better economic management especially in the context of raising revenues and their expenditure. Good and effective governance is essential to preventing tax evasion and tax avoidance and also in ensuring accountability in the use of resources raised. It is also important to remain alert to the dangers of social unrest as experience teaches that economic hardship and the scramble for increasingly scarce resources may undermine recent and hard won peace and security gains. Moreover, our states require the capacity to better manage their economies both when they are growing and also when they are facing crisis. An integral part of our response to the crisis should therefore be to strengthen human and institutional capacities in the economic sphere. 

Africa’s existing commitment to regional integration must be used to ensure that it has a strong and credible voice in various international processes relating to reform of the international financial architecture, tackling climate change and improving trade opportunities. Similarly, transboundary cooperation must be further prioritized to enable Africa to become more competitive. Resources are needed for transport infrastructure such as roads, rail, air, and port services which need to be built, rehabilitated or expanded and for electricity grids and oil and gas pipelines that will enhance the security and reliability of energy supplies. 

As the communiqué issued by the G20 Summit in London in April states, ‘a global crisis requires a global solution’. Such a solution needs to be underpinned by effective and fair global arrangements that take care of the interests of African countries. It is worth pointing out that several of the issues raised by Africa in the preparatory process were addressed by the G20 leaders including allocation of new SDRs, gold sales, financing of counter-cyclical spending, review of the debt sustainability framework and the provision of more capital for Multilateral Development Banks including the African Development Bank Our challenge now is to ensure the realization of these and prior commitments including of official development assistance.  

Let me underscore that these are challenging times for Africa but I am optimistic that the good foundation that has been laid of better macroeconomic management, improved governance and commitment to sustained peace and security will see us through.

By Mr. Abdoulie Janneh,

UN Under-Secretary-General and Executive Secretary of ECA  

Excerpted from his remarks during the 2nd Joint Annual Meetings of the AU Conference of Ministers of Economy and Finance and ECA Conference of Ministers of Finance, Planning and Economic Development

 


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