Zimbabwe: Domestic Resource Mobilisation - Role of Civil Society

9 August 2019

Following the recent adoption of the Sustainable Development Goals (SDGs), and the commitment of Africa to implement Agenda 2063, which is the continent's development blueprint, domestic resource mobilisation becomes a crucial issue.

SDGs are the blueprint to achieve a better and more sustainable future for all. They address the global challenges the world is facing, including those related to poverty, inequality, climate, environmental degradation, prosperity, and peace and justice.

Agenda 2063 is a strategic framework for the socio-economic transformation of the continent over the next 50 years. It builds on, and seeks to accelerate the implementation of past and existing continental initiatives for growth and sustainable development.

Given the background that most African countries, Zimbabwe included, did not fully achieve the Millennium Development Goals (MDGs) due to over-reliance on donor resources, enhancing domestic resource mobilisation in Africa becomes a necessity.

Domestic resource mobilisation has two elements to its definition: the generation of savings and taxes on one hand and their allocation to economically and socially productive activities.

Accountable states and institutions are crucial for the success of domestic resources mobilisation initiatives and the curbing of illicit financial flows.

However, while it is widely agreed that domestic resource mobilisation is the way to go, Africa Capacity Report shows that this may not be achieved because of one missing link -- the capacity to do so.

It highlights that the civil society, which consists of organised groups and institutions that are independent of the state, can play a leading role in bargaining with Government on behalf of the people around effective strategies for mobilising domestic resources and curbing illicit financial flows in Africa.

The report, titled "Building Capacity for Domestic Resource Mobilisation: The Role of the Civil Society", is based on a survey from 45 African countries.

It measures and examines capacity in relation to the development agenda in African countries, surveys the state and trends in domestic resources mobilisation and illicit financial flows across the continent, and puts together good practices in this area from countries that have been successful in their initiatives.

According to the report, most countries in Africa are now able to increasingly mobilise domestic resources to finance their own development.

For example, Zimbabwe's net revenue collections grew by 118,9 percent to $5,06 billion in the first half of 2019 from $2,41 billion collected last year driven mainly by the two percent intermediated transfer tax on money transfers and excise duty.

The Zimbabwe Revenue Authority (Zimra) had set a target of $4,3 billion.

"Revenue performance for the first half of 2019 exceeded the set target on both gross and net positions. Gross collections for the first half of 2019 were $5,27 billion against targeted $4,30 billion, thereby surpassing the set target by 22,75 percent.

"After deducting refunds of $211,52 million for the first half, net collections of $5,06 billion surpassed the target of $4,3 billion by 17,83 percent," Zimra chairperson Callisto Jokonya said in a statement.

However, a significant proportion is made up of resource rents which are not stable due to volatility of international commodity prices.

Resource rents are basically the high taxes governments get from corporations for extracting natural resources in their countries.

Due to volatility of global prices for natural resource commodities, the revenues from resource rents also become very volatile.

Tax performance in African countries was found to be inefficient and costly with a significant amount of revenue lost due to tax exemptions and tax avoidance.

The efforts made in mobilising domestic resources as proxied by the tax effort index shows that most African countries are not efficient enough.

According to the report, citizens are largely reluctant to pay taxes due to lack of transparency in the use of tax revenues, high levels of corruption in government and the lack of awareness on the use of tax revenue.

The watchdog role of the civil society hence becomes critical.

Curbing Illicit Financial Flows

Illicit financial flows from Africa represent a significant loss of taxes that could be used to finance development programmes, build infrastructure and finance social services.

The report points out that more financial resources are lost from Africa than the amount of development aid received.

From 2005 to date, illicit financial flows (IFF) from Africa were higher than the amount of aid received annually, and grew over time.

It is estimated that Africa has lost more than US$1,8 trillion to IFF between 1970 and 2008 alone, and continues to lose resources valued at up to US$150 billion annually through IFF or "illicit capital flight", mainly through tax evasion, mispricing of goods and services by multinational companies, according to a recent study commissioned by the African Union (AU).

This, therefore, means that resources that are intended to develop Africa are being used elsewhere to improve the economies of other countries in Europe, Asia and the US.

Most of the IFFs in Africa emanate from trade misinvoicing (68,2 percent) while the rest is in the form of illicit "hot money" flows.

IFFs are found to be high in countries rich in resources where corruption is also high.

A list of people and companies that moved funds offshore illegally published last year indicated that Zimbabwe had lost close to US$1 billion while the Reserve Bank of Zimbabwe (RBZ) 2016 Monetary Policy Statement estimated that a US$684 million was remitted outside Zimbabwe by individuals under the auspices of free funds.

According to the Global Financial Integrity, Zimbabwe could have lost a cumulative US$2,8 billion (representing an annual average loss of US$276 million) during the period ranging from 2004 to 2013.

Another study by Afrodad on IFFs in the sectors of mining, wildlife and fisheries estimated that between the period 2009-2013, Zimbabwe lost US$2,83 billion, through illicit flows, translating to an annual average of US$570,75 million.

For effective domestic resource mobilisation and mitigation of resource leakage, the Africa Capacity Report recommends that civil society organisations should take action by working closely with governments and other stakeholders in:

Undertaking resources audits in all African countries so that the citizens may have an understanding of the available national resource pools and disseminate such statistics freely to the public.

Advocating for transparency around foreign direct investment -- highlighting the incentives and how domestic players are beneficiaries, and how the value-chain of production around societies' natural resources endowments are harnessed to benefit citizens.

Revealing how seriously government customs services are collecting mandated official import duties/tariffs and how domestic businesses are protected from unfair competition.

Requesting accountability by all state actors especially those holding public offices where decisions around taxes and resource rents are made.

Lobbying for access to information on expenditure of resources mobilised by the nation through taxation.

Developing capacity for the citizens in Africa to demand transparency on revenue collection and expenditure, through advocacy trainings and workshops.

Advocating for political independence on revenue collection agents and increased accountability.

Creating awareness campaigns to the citizens on the importance of tax compliance. Civil society organisations can partner with the national revenue authorities to create awareness to the taxpayers of their rights and obligations

Advocating for stronger legal frameworks against the dangers of corruption, tax evasion and illicit financial flows for tracking, stopping and recovering illicitly flowing resources.

Additionally, it seems clear that most countries in Africa are now able to increasingly mobilise domestic resources to finance their own development.

However, the potential for mobilising more remains huge.

Some of the challenges to achieving optimality relate to reluctance to pay taxes due to lack of transparency in the use of tax revenues, high levels of corruption in government and the lack of awareness on the use of tax revenue.

This calls for the need for capacitating the civil society with the knowledge and advocacy skills around the designing of strategies that will optimise revenue collection in a fair manner while holding governments accountable in the utilisation of revenues.

Such advocacy would have to be built on well researched findings.

Relatedly, there is need for governments to recognise civil society groups as important players in the designing and implementation of policies aimed at enhancing domestic resource mobilisation and curbing illicit financial flows.

This partnership will enable credible, open systems of policy making in Africa.

This calls for strong leadership ethos in government as resource mobilisation strategies are about developing sound systems of public administration and democratising the process of resource use in their countries.

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