2014 African Development Forum

Africa needs to mobilize domestic resources to cut aid dependency

Participants at 2014 African Development Forum in Marrakech have agreed that exploring new sources for domestic financing will help the continent to move away from aid and boost sustainable development.

Press release | 14 October 2014
MARRAKECH – As funding from Official Development Assistance (ODA) continues to dwindle, Africa needs to devise new ways to finance its infrastructure, healthcare and education programs, said high-level participants to the Ninth African Development Forum (ADF IX) held in Marrakech, Morocco.

“From the ILO’s perspective, we clearly see domestic resource mobilization as an avenue for developing countries to access needed revenues to invest in infrastructure and social services”, said Aeneas Chapinga Chuma, ILO Assistant Director-General and Regional Director for Africa at the roundtable discussion.

The interactive panel session brought together major stakeholders including high-level government officials, top representatives of private banks, senior officials and academics from countries across Africa as well as international executives.

Domestic resources are the largest source of sustainable financing for development in African countries while Official Development Assistance (ODA) is expected to be US $55.2 billion in 2014. Tax revenues continue to increase and were already at US $527.3 billion in 2012, according to the African Development Bank.

However, despite some improvements, “in many African countries there are still severe gaps in tax revenue collection,” underscored the ILO Acting Head for Africa. Development partners can act as a catalyst for domestic resource mobilization by supporting the technical capacity these countries need to make their tax systems more reliable, Aeneas Chuma explained.

Challenges and Opportunities

Domestic resource mobilization is the generation of savings at the national level -- as opposed to investment, loans, grants or remittances received from external sources -- and their allocation to socially productive investments within the country.

Low savings, capital flight, illicit financial flows, tax evasions, weak administrative systems and a vast informal economy constitute some of the major obstacles to efficient domestic resource mobilization in Africa.

According to UNCTAD, improving domestic resource mobilization may be the best way to place the financing of public investment on sounder footing. This can be done by strengthening fiscal revenues through tax reforms and by making tax collection and administration more efficient.

Possible actions include broadening the tax base, improving the collection system and making the tax system more progressive.

Participants agreed that mobilizing domestic resources was one of the best ways for African countries to fully fund their development agenda and reduce foreign assistance.

“Domestic and regional stakeholders have to work on a broad agenda” to promote sound governance, concluded Aeneas Chapinga Chuma, advocating for the establishment of an African Infrastructure Fund, the development of an African Credit Guarantee Facility, the creation of an Africa-owned Private Equity Funds and the Promotion of Regional Stock Exchanges.

The International Labour Organization (ILO) joined the Ninth African Development Forum (ADF IX) that brought together African Heads of State and Government, representatives of the African Union, Regional Economic Communities, UN agencies, business leaders, civil society and the media, in a multi-stakeholder dialogue on concrete strategies for financing Africa’s development in the post-2015 era. The meeting aims to agree on innovative financing for Africa’s transformation.