Tax to finance Africa’s sustainable development

Addis Ababa, 14 July 2015 (ECA) - “A mere 0.44% increase per annum in tax collection in African states can mobilise about 22 billion a year which can be used to finance development projects ,” suggested Mr. Carlos Lopes, ECA’s Executive Secretary to delegates attending a side event in the margins of the ongoing Third International Conference on Financing for Development.

“We can admit commendable efforts have been made in Africa however there is ample need for reform. African countries have to invest in capacity to address the gaps created and compounded by complexity of contracts. They have to build and utilise this capacity,” proposed Mr. Lopes.

Mr. Abdalla Hamdok, the Deputy Executive Secretary of ECA challenged governments to “break with the past and not depend on Overseas Development Aid which has been declining in the past decade”.

African governments are unanimous that an improved tax collection system will help countries finance their own development projects. One of the panellists during the discussion, ‘Increasing Africa’s Fiscal Space’, the former Finance Minister of Nigeria, Ms. Ngozi Okonjo-Iwela also advocated states to improve tax collection.

“Financing SDG will have to come from our own resources. A lot depends on what we can do for ourselves. The challenge is also an opportunity because it will show we have the ability to do this,” Ms Okonjo-Iwela said.

Improvements at tax collection require good planning which in turn is dependent on accurate data collection and information. However, the panellists, composed of representatives from ECA, Nigeria, Guinea, Ethiopia and McKinsey& Company, pointed out that many countries suffer because they don’t have accurate data and information on their own economy.

Many African economies are dependent on natural resources such as oil and minerals but they need to diversify their sources of income. A McKinsey & Company representative asserted that “to keep pace with its growth, Africa still needs to invest and close gaps in infrastructure and social services”. Tax collection has significantly improved in Africa with an overall 10 -11% increase and this is the sector that will provide funding for development projects.

Though tax collection can account for a major part of raised funds, it alone cannot cover all the cost of development. Countries have to seek international finance but will as Mr. Lopes reminded delegates “we should not neglect the importance of the negative perception on Africa”.

Investment returns are high on the continent but the pessimistic perception may discourage investors. Mr. Lopes suggested that perhaps multilateral development banks can play a role in helping with perception and turning it into a positive story that it is.


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