3rd Global Partnership Steering Committee Meeting

25 Jul 2013

High Level Africa Side Event on Aid as
Catalyst for Domestic Resource Mobilisation in Africa

AU Conference Centre, Addis Ababa, Ethiopia

 

Remarks by

Eugene Owusu

Resident Coordinator, Humanitarian Coordinator&

UNDP Resident Representative                             

 

24th July 2013

 

Madame Chairperson of the AUC,

Excellencies,

Ladies and Gentlemen,

 

I am delighted to address you this afternoon at the closing of this important high level event on “Aid as Catalyst for Domestic Resource Mobilisation in Africa”.

I would like to congratulate and to thank the African Union Commission for gathering experts from across the continent to discuss this very crucial theme in the African renewal agenda. I am particularly glad that this event is being hosted by the Commission in the lead up to the meeting of the Steering Committee of the Global Partnership for Effective Development Cooperation here in Addis Ababa.

UNDP is fully committed to supporting the AUC Agenda and its NEPAD Programme towards Africa’s renewal.

Together we have built important foundations for progress, such as the establishment of the Africa Platform on Development Effectiveness, which has proven so vital to facilitating discussions on this agenda - including today’s meeting - as well as the Africa Position and Consensus on Development Effectiveness which consolidated African States around the Development Effectiveness Agenda leading up to the 4th High-Level Forum on Aid-Effectiveness in Busan. 

Today’s gathering is a further illustration of Africa’s, and more specifically the Africa Union’s, commitment to strengthening its

leadership, ownership and execution of the development effectiveness agenda on the continent.

This event is also significant because it is a follow-up to Africa’s engagement in Busan, recognizing that sustained development

and impact is dependent on harnessing Africa’s own human, financial, material, and institutional resources.

For us in UNDP, we see today’s event as part of our commitment to support Africa’s implementation of outcomes stemming from Busan. It is also part of our ongoing support for enhancing development effectiveness issues on the continent, in particular within the context of  ongoing efforts by African countries to mobilise resources domestically.

The reality of budget constraints in many countries, and the range of challenges to development,  make this discussion especially important.

Deliberations about domestic resource mobilisation must be considered within the broader context of ensuring necessary and sustainable financing for development. 

Overall, development assistance from developed countries makes up a relatively small share of the resources invested in development. Resource flows from trade, foreign direct investment, remittances from migrant workers, and domestic resources mobilised from the growth of developing economies themselves make up the largest share of the monies flowing to development.

 

This makes it all the more important that the official development assistance is used in smart and catalytic ways, advancing necessary institutional, financial, and fiscal policy reforms, and helping African countries make the transformational change they seek.

 

The importance of raising resources domestically for development is increasingly well-recognized in Africa.  The AU has already initiated studies on domestic resource mobilisation with the support of various development partners. UNDP supported six country studies as part of a regional study, covering Botswana, Kenya, Namibia, Rwanda, Cote d’Ivoire, and Cameroon. Other countries included in the study, but funded separately, were South Africa and Ethiopia.

 

These studies reveal that Africa is today on the threshold of sustained transformation, with some economies poised to move from their current status to middle income status.  To achieve this goal, these studies stress that three factors must come into play. These are: quality and effectiveness of governance and institutions; effectiveness of development policies; and availability of technical and financial resources to implement development programmes and projects.

 

We are all aware of the improvements in governance, institutions and development policies over the past decade in Africa. These achievements continue apace.

 

The availability of resources, however, currently remains a significant constraint.  But it need not be the case. There is enormous potential for the continent to raise more financial resources domestically to implement its development programmes and projects.

 

Let me highlight two sets of facts to support this.

 

First, Africa generates more than US$520billion annually from domestic taxes; earns more than US$168billion annually from minerals and mineral fuels; and has more than US$400billion in international reserves held by its central banks.  Remittances reached US$40billion in 2012. Stock Market Capitalisation in Africa rose from US$300billion in 1996 to US$1.2trillion in 2007. Africa’s private equity market is estimated to worth some US$30billion.

Second, illicit financial flows from the continent reached US$854billion over the period between 1970 and 2008. If curtailed, such flows are financial resources that could be available for the implementation of national and regional development programmes and projects.

These two facts alone show us that with the right capacities, the right policy choices, the right strategies, and above all the right leadership, the continent has the potential to finance even more of its own development to achieve inclusive, sustainable growth and development.

 

Let me mention just three areas where, I believe there is scope for raising more resources domestically.

 

First, boosting tax revenues.  Lessons emerging from different country experiences indicate that if African countries want to increase tax revenue further, they should focus on expanding the tax base, improving tax administrations, and tapping relatively underutilized sources of taxation such as property and environmental taxes. 

Here in Ethiopia, tax revenues increased by more than 9 per cent in the first half of fiscal year 2012/13 as a result of solid performance in direct and indirect domestic tax collection.  This notwithstanding, tax to GDP ratio remains below the sub-Saharan African average in Ethiopia, and there is considerable scope to increase the tax base going forward, including on the basis of a more vibrant private sector.

Developing effective taxation regimes is not always easy where there are large informal economies and limited institutional capacities to collect taxes and prevent evasion.  And the costs of new taxes – and in particular the potential costs to the poorest – will also need to be weighed against the social and economic returns from stepped up public investments. 

A second way is to grow and draw on the domestic savings in African countries to invest in agriculture, infrastructure, health, and education.

Across Africa, including here in Ethiopia, governments have ambitious public investment plans. Given low current levels of savings, it may not be easy to finance this investment plan.

The risks that external sources of financing might decline present added incentive for growing domestic savings.

Third, improving and expanding access to financial services can also be an important way to expand fiscal space, by pooling savings which can be used for domestic investment.

These approaches must also be coupled with an increase in the efficiency of public spending.  As development financing is increasingly channelled through national budgets, sound and effective public financial management has become even more important. 

In all these areas, well-targeted ODA can serve as a much-needed catalyst, helping countries put in place the capacities, plans, and policies needed to raise more resources for development domestically.

 

For its part, UNDP will continue to provide the regional- and country-level support to Africa in enhancing development effectiveness and in promoting inclusive, sustainable development for all. Supporting efforts at boosting domestic resource mobilisation is one important way to make that happen.

In closing, allow me to once again thank the AUC and NEPAD for the opportunity to share our thoughts on this important subject.

I thank you