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Sep 26, 2007

Africa must mobilise 'hidden' domestic resources for development - UN

United Nations Conference on Trade and Development's Sam Gayi discusses economic development in Africa (26/09/07)
© Reuse this African countries should become less reliant on overseas donor funding and move towards increased domestic resources to accelerate the continent’s economic growth, a United Nations (UN) agency said on Wednesday.

The UN Conference on Trade and Development (Unctad) head of the Special Coordinator in Africa Sam Gayi said at the launch of the ‘Economic Development in Africa’ report, in Johannesburg, that Africa could “claim ownership” of its development, if it had relied more on domestic financial resources.

Africa had potential financial sources that could, over time, significantly reduce the continent’s dependence on aid, and enable the countries to use the finances to fund their own priorities, rather than those of the overseas donors.

While some public finance reforms had been implemented to increase government revenue, the effect on State revenues had been limited.

Gayi suggested that countries needed to step up their efforts to boost local financial resources, and focus efforts on increased tax revenues, mobilising workers’ remittances, reforming the financial sector and tackle capital flights.

Many African countries have introduced value-added taxes, which raised government revenue to a limited extent without compensating for the revenue losses as a result of the reduction of trade taxes. But should countries improve their collection, revenues accrued from taxes could double in some countries.

Formalising the informal sector could also further boost tax revenues, which could be invested to sustain higher rates of economic growth.

Unctad stated that workers’ remittances were an important source of development finance, and that channelling more remittances through African countries’ formal banking systems could increase their development impact.

“Most remittances now spur consumption, but governments could encourage their greater use for investment,” the report suggested.

Capital flight also continued to deny African economies of large amounts of the continent’s resources for investment, and the agency urged Africa to stop the “financial haemorrhage”.

‘Developmental states’ to boost savings

Unctad also called for the establishment of what it described as a ‘developmental state’ to accelerate economic growth.

Developmental States had a much greater intention of increasing and retaining domestic financial resources, and had resulted in phenomenal growth for several Asian economies.

Developmental States have also underpinned the immediate post-colonial development of several African countries, and this could re-emerge in Africa, Gayi said.

Gabon, a West Central African country, was the one of the world’s fastest growing developing countries up to 1975.

Developmental States would enable African governments to use domestic resources and allow them to encourage long-term productive investment.

But, for developmental states to be successful, countries had to reduce their dependency on external funding, and deepen current improvements in governance, Gayi said.

A successful developmental State was one that creates institutions that genuinely address development challenges, but the report warned that there was “no magic formula”.

“Building such institutions is a learning-by-doing process, adjustable and flexible enough to allow even for the possibility of failure. True ownership means allowing sufficient policy space to undertake such a learning process, leading to robust institutions to push development forward,” Uctad stated.

Edited by: Liezel Hill
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