As the current global economic trend clearly witnessed, Africa is on the rise while Europe and America are tied with the downward trend due to their current financial and economic woes. According to the recent United Nations economic report, five out of the ten countries the UN forecasted to register fast GDP growth in the year 2012 are African countries Ethiopia included.
The prevailing progress of Africa is not only on GDP growth, but also on the reduction of foreign aid. As the domestic private sector becomes the engine of growth across much of Africa, an increasing number of African countries are beginning to step away from aid dependency. Currently, at least a third of African countries receive aid that is equivalent to less than 10 percent of their tax revenue. They include Algeria, Angola, Equatorial Guinea, Gabon and Libya. This is a significant change from years of high dependency on aid.
Significant domestic resource mobilisation is essential to solidify ownership over development strategy and to strengthen the bonds of accountability between governments and their citizens. Adam Elhiraika, Director of the Macroeconomic Policy Division at the Economic Commission for Africa (ECA) stated that mobilising domestic resources, from both the public and private sectors, is central to Africa’s collective success in achieving the 2030 sustainable development goals (SDGs) and the continent’s 50-year development plan, Agenda 2063.
According to a comprehensive look at African resource mobilization by the recent African Economic Outlook report, on average, Africa has managed to raise an estimated 441 dollars in taxes per person per year while receiving 41 dollars per person per year in aid. In other words, what this means is that Africa as a whole receives aid that is less than 10 percent of collected taxes. Although aid exceeds 10 percent of tax revenue in 34 countries, these countries have shown a progressively higher expansion of their tax base. They include countries such as Mozambique that have almost doubled their tax revenue, as well as Liberia which in the last decade has increased tax revenue from six percent to about 20 percent. Ethiopia aspires to cover a round 70% of its annual budget by mobilizing domestic tax revenues. Botswana is another strong economy whose development is largely driven by domestically raised revenues. Although countries such as Rwanda raise more resources from donors, the nation also has a strong focus on foreign direct investment.
Roy Culpeper, President of The North-South Institute in Canada stated that in Kenya development is donor-driven, but aid has been useful in building sustainable infrastructure. As a result, Kenya has been able to build state of the art roads. For instance, the Thika Road super highway has made the real estate business in that region exponentially profitable. In similar fashion, Ethiopia’s infrastructure development is donor assisted. Many road and infrastructural development projects were financed by the country’s major development partners such as the World Bank, the European Union, the African Development Bank and the like. The construction of these roads greatly accelerated the country’s product movement and domestic trade. By the same token, this has attracted private investors and had a positive direct and indirect impact on taxes, as people establish and expand already existing businesses.
Uganda depends substantially on donor funding for development. But like Kenya, aid has gone into building strong infrastructure, which has created an enabling environment for private investment. On different occasions, the government of Uganda stated that in the last few years, Uganda’s economy has been driven by the growth in telecommunications, the construction industry, as well as the expansion of financial institutions – economic sectors dominated by private investors accounting for about 54 percent of the GDP, as compared to the agricultural sector that accounts for about 24 percent of the GDP.
According to Aniket Bhushan, a researcher at The North-South Institute in Canada, from Africa’s 54 countries, aid exceeds taxes in only 12 extremely poor countries such as Niger. But under that West African nation’s Accelerated Development and Poverty Reduction Strategy (ADPRS), which supports the growth of the private sector, additional revenue from this growth is projected to double the current real GDP growth rate to 11.5 percent.
Aniket Bhushan noted that politically stable and democratic countries in Africa such as Tanzania and Madagascar are now raising alternative resources primarily through increased taxation, trade and domestic borrowing. Aid has been the main source of income in countries such as Tanzania, which received 2.9 billion dollars in aid, making it the leading recipient of ODA in the region. However, economic analysts predict that the ongoing private-public partnerships in Tanzania will make the country more self-reliant.
These partnerships include the Southern Agricultural Growth Corridor of Tanzania (SAGCOT), a private-public agribusiness partnership meant to support small farmers. In Kenya, leading private companies such as Safaricom, East African Breweries Limited and private banks have widened the country’s tax base by expanding their branches and scope of distribution, consequently increasing the number of people who are employed and, thus, taxed. Safaricom is a leading mobile network operator in Kenya.
The private sector has proved useful in boosting GDP. Years of depending on agriculture has been Africa’s undoing. Consequently, more African countries are now diversifying their economies by creating an enabling environment for the private sector to thrive. Already, telecommunications is one of the main sectors driving Uganda’s economy. The involvement of the private sector in establishing profit-driven educational institutions has become another source of revenue. According to the United Nations Educational, Scientific and Cultural Organization (UNESCO), South Africa, Senegal and Nigeria have the highest number of such institutions.
While much more remains to be done by government to stimulate domestically-funded development in Africa, the African private sector is increasingly giving greater focus to corporate social investment and core business alignment, to help African governments to implement their national development agenda initiatives. The end result of both domestic resource mobilization and private-public partnership acceleration has been greater African autonomy in regard to the continental development agenda and this has been universally regarded as a very positive trend.