Institute of Development Studies website. Devoting more aid to ‘public resource mobilisation’ will eventually enable developing countries to become less dependent on aid is the view from the African Economic Outlook 2010 (AEO) report. The content of the report was debated on the 11th of June 2010 at the 10th International Economic Forum on Africa in Paris. The discussion was between experts, representatives of governments and civil society, private sector operators, researchers and journalists.
Published by the African Development Bank (AfDB), OECD Development Centre and United Nations Economic Commission for Africa (UNECA), the AEO 2010 report discusses a wide range of issues that have impacted Africa in recent times.
Henri-Bernard Solignac-Lecomte, Head of the Europe, Africa and Middle East desk at the OECD Development Centre gives an overview of the report. ‘Africa was propelled by seven years of strong growth from 2002 to 2008, only to be stopped in its tracks by the world’s deepest and most widespread recession in half a century.’
‘The good news is that the continent has proved resilient to the crisis. The bad news is that the downturn could make it more difficult for some African countries to meet the Millennium Development Goal of halving the number of people living in poverty by 2015.’
‘This edition [of the report] finds the continent struggling to get back on its feet and identify new, more crisis-resilient practices for moving forward.’
The debate now is about the most practical and long-term solution for Africa to move forward.
Lower, simpler taxes
The report summary explains that, ‘the global economic crisis has given a new impetus to dialogue on domestic resource mobilisation in Africa. Lower export revenues, uncertain future foreign investment and aid inflows amidst generally high levels of indebtedness have raised the importance of increasing domestic resources.’
In a bid to achieve this, the report argues that ‘the capacity constraints of African tax administrations must be eliminated to open up policy options and enable tax revenue generation through a more balanced tax mix.’
As highlighted by the report, ‘lower, simpler taxes are easier to collect and administer.’ This is also an effective means in stimulating private sector development.
However, the differences between African countries in raising taxes are large. In some instances, the report notes, some countries would collect two or three times more than they would be expected to in tax, whilst other countries would collect less than half of the expected revenue.
A recurring factor throughout the report is the uneven nature of the countries’ recovery. Southern Africa, the hardest hit in 2009, is expected to recover more slowly than other parts of the continent. It is East Africa that has survived the crisis well and is set to achieve the highest growth.
Léonce Ndikumana, Director of Development Research Department, AfDB explains ‘the prospect of only a moderate recovery in a number of African countries makes it even more pressing to address the structural problems which existed even before the global crisis, and which reduced growth potential and led to high poverty levels.’
Jing Gu responds to UK launch of AEO report
In May, Dr Jing Gu, research fellow in the Globalisation team, along with Director of Overseas Development Institute (ODI), Alison Evans, was invited to the UK launch of the report in parliament to offer her response.
Gu focused on the presence of emerging donors within the report, ‘Some believe that their [emerging donors’] practices in foreign aid and development assistance pose a significant challenge to the norms governing the international aid architecture.’ She continues ‘others welcome the rise of these new development partners.’
As an expert on China’s relationship with Africa, Gu noted that the report was correct in saying ‘there is little evidence that China gives more aid to countries with natural resources, or specifically targets countries with a poor governance record.’
Referring to her own research she explained that a survey conducted of Chinese private firms investing in Africa showed that those enterprises are still looking to invest African economies and to increase their role in Africa, ‘they see the crisis as a business opportunity as well as a source of new business challenges.’
‘So the fall in the amount of FDI going to Africa during the crisis is not the whole story,’ Gu explained, ‘as the report says, African governments have introduced ‘frameworks to attract more foreign investment’ and are setting up new Special Economic Zones to help attract FDI and foreign firms – particularly from China.’
‘The report has proven that it is a dynamic picture in Africa’, Gu explained, ‘things change fast. We need to recognise that there is much more diversity and there are many more actors involved. It’s an unfolding picture. And it requires a multidimensional African response.’
This article, published on the Institute of Development Studies’ website, was written by Vivienne Benson who works in IDS’ Globalisation Team.