23 June 2014

Africa: How Can Africa Fund Its Own Development Initiatives?

analysis

Africa has the potential to fund up to 70% of its own development agendas through several untapped resources. However, there are still many obstacles in the way.

The Agenda 2063, a development initiative set up by African Union Commission, aims to “use African resources for the benefit of all Africans.” The question remain, how can Africa turn potential financial sources into accessible ones?

This week as African leaders meet in Malabo, Equatorial Guinea for the African Union Summit, it presents an opportunity to answer this question and strengthen advocacy to finance a self-driven development agenda.

There is recognition from within Africa that the continent needs to tap into its own wealth to fund African development initiatives using alternative financing from underexploited sources.

A recent NPCA & UNECA study demonstrated that sustainable domestic financial resources hold the potential to implement over 70% of NEPAD initiatives. There are many significant untapped resources such as:

  • US $ 520 billion generated annually by domestic taxes;
  • US $ 168 billion annually from minerals and mineral fuels;
  • US $ 400 billion held byAfrican countries in international reserves in their respective Central/Reserve Banks;
  • US $ 160 billion held by African Sovereign Wealth Funds

By partnering with international actors and setting up adequate frameworks and mechanisms, some additional US$ 64 billion could be secured from remittances and US$ 50-60 billion from countering illicit financial flows.

Africa may be wealthy in untapped resources, but the issue is not in the wealth, it is in how it can be mobilised to implement development initiatives? The European Centre for Development Policy Management (ECDPM) recently explored how Africa can mobilise these resources to carry out frameworks such as the Agenda 2063.

As an overarching “global strategy to optimize use of Africa's resources for the benefits of all Africans”,Agenda 2063 will be implemented through successive 10-year national action plans. Before it is adopted, it is likely at the January 2015 African Union Summit, African leaders will have been able to include some flexibility in the Agenda. This would allow members states and the regions to define an optimum combination of policies and strategies, and to reach the goals and milestones proposed by the Agenda 2063, through a collaboration of African governments, the private sector and civil society.

This flexibility is crucial as continental development plans ultimately depend on member states and Regional Economic Communities (RECs) aligning with existing or new policies, budgets and frameworks.

In order to mobilise adequate resources from African sources at minimum cost and in a predictable manner, trustworthy mechanisms have to be developed in which potential creditors will want to invest. To create suitable instruments, development players will have to look into the past and current experiences with domestic resource mobilization in African countries.

The main challenge in securing financing for continental development is that often actors have difficulty in seeing the direct outcome for them.

It is time to turn that narrative around.

So far the issue of financing has largely been addressed from a ‘demand-driven' perspective (i.e. how to tap into Africa's riches for example by introducing for example a levy on tourism as proposed by the Obasanjo Report on Alternative Sources of Financing for the AU) to one that is ‘supply-driven' (i.e. what is being offered to incentivise actors to provide financing?).

Supply can come in different forms. Secure financing for Africa's development will largely depend on clearly demonstrating the possible return of investment, be it monetary or some other incentive.

Arguments around a return of investment would ideally evolve into a bargaining process where countries that commit some of their resources to a particular continental or regional priority could get guarantees in areas relevant to their national development priorities.

Development players should consider how to address the major challenges in using domestic financing, and the discussions around Agenda 2063 need to be carefully designed.

On that point, the potential of all forums which gather a number of the key players like the Malabo Summit need to be seized in order to asses the drivers and incentives.

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