Advertisement

Raising $4tn needed to finance SDGs is Africa’s elephant in the room

Saturday July 11 2015
EApupilsjh

Standard One pupils at Moro Municipal Primary School in Tanzania. Most developing countries will need to devise ways of raising resources to finance the SDGs. PHOTO | FILE |

There is a general agreement that development financing for the future should move beyond aid from governments to include private investment and innovative financing.

The outcome of the July 13-16 Third International Conference on Financing for Development in Addis Ababa will be an important milestone on the road towards the adoption of a new set of Sustainable Development Goals (SDGs) in September and a universal climate change agreement at the Paris Climate Conference scheduled for December.

But these decisions take place amid a shift in economic power between donors and aid receivers, as many donor countries — such as Japan and the European Union members states — struggle with slow growth and pressures on national budgets.

Meanwhile, some emerging economies can now contribute to development themselves, and money flows to developing countries have increased dramatically from private sources.

But a key priority for most developing countries, particularly in Africa, ahead of the adoption of the SDGs is how to raise adequate resources to finance the development agenda in the face of declining aid.

This is because significant progress in the implementation of the Millennium Development Goals (MDGs), which expire this year, particularly in the developing world, has been largely fuelled by donor resources.

Advertisement

The MDGs were predicated on increased levels of international aid — indeed many of the achievements in health, especially HIV/Aids, over the past decade were funded by foreign aid.

Rapid economic growth

Moreover, rapid economic growth has seen countries reduce poverty dramatically.

But today, turbulent and worsening economic conditions are not only undermining economic growth globally but also forcing the developed world to rethink its aid commitments to the developing world, particularly in Africa, with a view to reducing it.

Now, the elephant in the room is how to raise at least $4 trillion annually to finance SDGs that are expected to sustain progress. This high price tag would go into improving basic infrastructure, strengthen food security and establish climate change mitigation and adoption measures, as well as improve health and education.

Public financial management

“African countries are already funding their development from domestic resources but we have to deal with illicit flows, deal with companies that do not pay taxes, deal with contracts in natural resources that are penalising Africa,” Dr Donald Kaberuka, the outgoing president of the African Development Bank (AfDB), told The EastAfrican.

“We have to ensure that there is public financial management that gives confidence to citizens that their taxes are well spent.”

The former long-serving Rwandan finance minister pointed out that last year, resources committed to development in Africa were about $400 billion, of which less than $50 billion was in the form of foreign aid. In the post-2015 sustainable development agenda, he argued, aid should act as a catalyst to mobilise various financial resources.

Estimates show investment needs for SDGs are $5 trillion to $6 trillion per year globally. Meanwhile, official development assistance (ODA), for the least developed countries, accounts for about 70 per cent of all funding coming in as well as a third of all funding for public expenditure that is available to governments.

According to an Organisation for Economic Co-operation and Development’s (OECD) report titled 2014 Global Outlook on Aid, aid is expected to increase for a few countries, in particular Cameroon, Mali, Morocco, Niger, Nigeria and Tunisia.

But a worrying trend is that two-thirds of countries in sub-Saharan Africa are projected to receive less aid in 2017 than they did in 2014.

Be in the driving seat

The report also underscores that the aid outlook remains uncertain for least developed countries (LDCs) and other low-income countries (LICs) — with a worrying trend of continued stagnation or decline in programmed aid.

Analysts say African countries now must be prepared to be in the driving seat in their pursuit of their development agenda by mobilising more domestic resources.

They argue that there has to be a shift in the economy that allows the private sector to thrive in order to allow governments to not only collect more taxes but also carry out public financial management reforms that enforce accountability and fight corruption.

This is in addition to tackling illicit financial flows that continue to deny governments much-needed revenue.

Illicit financial flows out of Africa have become a matter of major concern because of their scale and negative impact on the continent’s development and governance agenda.

By some estimates, illicit flows from Africa could be as much as $50 billion per annum. This is approximately double the ODA that Africa receives and, indeed, the estimate may well be short of reality as accurate data does not exist for all transactions and for all African countries.

Potential to raise revenue

Experts also say that, given the importance of the commodity sector for many African countries, there is potential to raise revenue from better management of their natural resources, in particular by negotiating better contracts with investors as well as creating linkages to the local economy.

They argue that natural resources are not intrinsically a curse for African countries. Instead, if well managed, this resource base can propel the continent to greater prosperity, broad-based development and structural transformation.

“For mineral clusters and linkages to flourish, it is important to align mineral policy with industrial and trade policy; improve inter-ministerial co-ordination to scale up programme implementation and promote regional integration with a view to facilitating factor flows, reducing transaction costs, realising economies of scale, accelerating the emergence of national and regional champions, as well as boosting competitiveness of local firms,” argued Antonio Pedro, the director of the UNECA Sub-regional office for Eastern Africa, which is based in Kigali.

READ: More children in schools now but literacy, numeracy skills remain low

Advertisement