After a decade of growth, African countries are facing a more challenging outlook, notably with commodity prices on the way down and interest rates on the way up. But our latest African Economic Outlook shows that growth is picking up, at 3.4% in 2017, up from 2.2% in 2016. And we project 4.3% growth in 2018. Most importantly, Africa’s growth relies increasingly on domestic sources. Foreign investors now realise the potential of a rapidly urbanising middle-class and the high-returns they can make investing in African markets.
OECD engagement with Africa is longstanding and wide-ranging and has strengthened over the years through different OECD programmes, such as the OECD Development Centre, the Sahel and West Africa Club, the MENA OECD Investment Initiative, the BEPS Inclusive Framework, our active contribution to the Deauville Partnership and many others. In 2017, together with the African Development Bank, the UNDP and with the support of the EU, we published the 16th annual edition of the African Economic Outlook: Entrepreneurship and Industrialisation.
Thus we can support the implementation of the Compact for and in partnership with the economies of the continent.
Three building blocks deserve mentioning:
First, you need the right macroeconomic framework and the ability to raise domestic revenues. In many African countries, public revenues stand at 20% or less of GDP, compared to 34.3% on average in the OECD and around 23% in Latin America.
I would therefore urge all countries to take advantage of the Tax Inspectors Without Borders (TIWB) Initiative to tackle the most difficult tax audit cases involving multinational enterprises. TIWB-style programmes have already yielded over USD 278 million in additional tax revenues in the period 2012-2016.
We will also step up our work with Platforms like the African Tax Administration Forum to tackle tax challenges facing developing countries like mineral pricing, or ineffective tax incentives. We are also establishing, jointly with Kenya, Germany and Italy, the Africa Academy for Tax and Financial Crime Investigation, aimed at fighting illicit financial flows.
But efforts from the global community, including all G20 countries, are critical to ensuring a transparent and effective international tax system and fighting tax evasion and avoidance. African economies are more vulnerable to base erosion and profit shifting, because of their heavy reliance on corporate tax revenues from multinational enterprises: this is 70% of the tax base in Rwanda, and 90% in Nigeria. By joining the BEPS Inclusive Framework as well as instruments like the new Multilateral Convention on Tax Treaty Related Measures to Prevent BEPS, African countries contribute to putting an end to harmful tax practices globally. In addition, by joining the new standard on automatic exchange on financial account information, they will be able to track and tax the money deposited by their nationals in tax havens.
Second, to foster the development of quality infrastructure in Africa, we must put in place the right policies and the right regulatory frameworks. But when it comes to infrastructure, money alone doesn’t guarantee success. Better governance will not only help improve the returns on public investment, it will also help to “crowd in” private finance.
The set of policy indicators we have developed to measure and monitor reforms aimed at mobilising private investment can be a very useful tool. They build on the OECD Policy Framework for Investment, which several developing countries, including Morocco, Nigeria and Tunisia have already tested.
The quality of public procurement is also a key component of a strong investment climate. The OECD is leading the revision of the Methodology for Assessing Procurement Systems (MAPS) to transform this instrument into an ambitious and universal assessment tool.
The OECD is also organising with the World Bank and regional organisations such as the African Development Bank a series of roundtables to share experiences about key governance challenges, such as infrastructure planning, managing public consultations with stakeholders, fighting corruption, aligning regulatory frameworks and using PPPs.
G20 countries must do their homework to ensure their companies are operating according to the highest standards of conduct. It is essential that all G20 countries adhere to the OECD Anti Bribery Convention, enacting and implementing laws that prohibit the bribery of foreign public officials, including in African countries, and that they also adhere to the OECD Guidelines on Responsible Business Conduct for Multinational Enterprises.
Last but not least, financing. There is a funding gap for infrastructure in Africa worth tens of billions annually. At the same time, there are trillions sitting in central banks at zero or negative real interest rates or invested in low-yield assets. What can we do to channel more of those funds to Africa?
We also need to focus on the regulation of investment by pension funds, which prevents them from investing in infrastructure in Africa. Those regulations could be systematically reviewed by the OECD and further discussed jointly with the IOPS, which includes 15 African pension supervisory bodies.
We can also support the diversification of financial instruments for infrastructure - as developed in the related G20/OECD guidance note - and help scale up the use, on the African continent, of innovative financial vehicles such as project bonds or of risk mitigation instruments.
The G20 Compact will help provide the momentum to design and implement the necessary reforms across policy silos. With our Multidimensional Country Reviews, we are already working with Côte d’Ivoire, Morocco and Senegal for the implementation of their development strategies, and the government of Côte d’Ivoire has engaged with us in a five-year programme to monitor the implementation of reforms. We are also supporting both Côte d’Ivoire and Senegal in their efforts to channel funds from the Millennium Challenge Corporation of the United States.
By Angel Gurría
Secretary-general of the Organisation for Economic Co-operation and Development.