African economists have kicked off a forum to examine what the continent must do to finance its development agenda efficiently and sustainably. The 6th Congress of African Economists which gathers African Economists from across the continent and the diaspora, will seek to deepen the understanding and analyze the implications of Illicit Financial Flows (IFFs) and the effectiveness of the debt management strategies employed at the national level. The congress is focused on ''Financing Africa's Development beyond Crisis'' delving into issues that are critical to the African Union Member States to close the financing gap for inclusive growth, sustainable development, and enhanced prosperity.
The impact of the global shocks induced by the COVID-19 Pandemic, geopolitical tensions and climate change continue to affect Africa's growth trajectory. Africa's Gross Domestic Product (GDP) is projected to grow by 4% in 2023, lower than 4.8% in 2021 but, above 3.7% recorded in 2022. Despite this positive trend, Africa's growth remains below the pre-pandemic average of 5 percent and far below the needed 7 to
10 percent level expected in the long-run to achieve the Aspirations of Africa's development framework Agenda 2063. To accelerate growth and cope with an unfavorable environment, most governments have increased their fiscal spending in a context of declining revenues. With the deteriorating financial conditions, reduced fiscal space and lower external demand, debt has increased to unsustainable levels.
Recent analysis from the African Development Bank suggest that Africa's average debt-to-GDP ratio will remain high at 66 percent in 2023 and stabilize at 65 percent in 2024 due to the growing financing needs associated with rising food and energy import bills, high debt service costs, exchange rate depreciations, and rollover risks. Further, many countries continue to face difficulties in accessing international capital markets due to unfavourable credit ratings and the inefficiency of the Global Financial Architecture. The limited revenue mobilization has led to local currency debt, which has increased from 35 percent of GDP on average in 2019, to 42 percent in 2021 signaling that domestic debt restructuring should be part of the negotiations for the resolution of public debt crises in countries facing risks.
Amb. Albert Muchanga, African Union Commissioner for Economic Development, Trade, Tourism, Industry and Minerals of the Commission observes that to navigate the financial strain and sustainably finance Africa's development, Africa must improve domestic resource mobilization to bridge the budget deficit gap. At the opening of the 6th Congress of African Economist, Amb. Muchanga stated that Africa's socio- economic transformation requires 75% of resources to be mobilised domestically and at the same time, increase investment from the current level of 20 percent to 40 percent of GDP.
''The continent must focus more on innovative approaches to mobilize domestic resources and external private capital, and stem illicit financial flows. This can be made possible if the continent takes advantage of the USD 220 billion loss annually due to tax incentives. Additionally, effectively stemming IFFs will allow us to secure USD 90 billion yearly, which represents approximately 3.7% of Africa's GDP. There is also urgent need for African countries to strengthen the links between debt financing and growth returns to ensure debt sustainability. Debt to finance must be channeled to the most productive projects that generate sufficient growth to pay for the debt in future.''
The terms and conditions to access low-cost capital especially in international debt markets has been a growing challenge for Africa. To navigate the challenges, African countries have diversified their funding sources with the issuance of sovereign bonds, which although come with less conditionalities, have led to a significant increase in their debt levels, thereby increasing the debt servicing burdens and introducing new risks. Borrowing in foreign currency debts places the exchange rate risks with the debtor countries, which requires sound monetary and fiscal policy frameworks to prevent currency devaluations and capital outflows during a financial downturn.
H.E. Douglas Syakalimam, Zambia's Minister of Education, noted that in addition to high costs of debt servicing, African countries are also faced with challenges relating to the mismanagement of internal resources. ''To increase our domestic resource mobilisation capacity, Africa needs to tackle three types of challenges: address the structural bottlenecks of high levels of informality, a lack of fiscal legitimacy and administrative capacity constraints; reverse the current erosion of the existing tax bases due to excessive granting of tax preferences, inefficient taxation of extractive activities and an inability to fight abuses of transfer pricing by multinational enterprises; re-equilibrate the tax mix of many African countries that rely excessively on a narrow set of taxes. In particular, the lack of urban cadasters and population censuses makes collecting urban property taxes particularly challenging for local administrations on top of the difficulty of collecting taxes from higher income groups. Considering these three challenges, the solution is not to simply raise existing taxes as this might undermine economic recovery without necessarily improving the quality of tax systems.''
Economic research shows that Africa has the most important comparative advantage to lead the global growth underscoring the urgency for economic transformation by gradually shifting labour from lower to higher productivity sectors in agriculture, industry and services. Dr. Jacob M. Mwanza, Chancellor, University of Zambia, in a statement delivered on his behalf, observed that with economic transformation, Africa is able to increase decent jobs creation, social cohesion, socio-economic development, and raise domestic resources to sustainably fund development without relying the volatile external resources.
''To this end, there is need to take advantage of the market opportunities of the African Continental Free Trade (AfCFTA). With a population size estimated at 1.4 billion today and prospects nearly 2.7 billion by 2050, there is a balance of evidence that the next century in Africa offers good prospects for realizing the vision of a prosperous, dynamic, diversified and competitive economic zone, in which extreme poverty is eliminated within peaceful, stable and vibrant societies as encapsulated in Agenda 2063. Achieving this vision requires investment in skills and education to equip our youth and African people with the right capabilities to drive economic transformation.''
Prof. Barthelemy Biao, President of the Scientific Committee of the African Integration and Development Review, and Thomas Huyghebaert, Head of cooperation, at the European Union Delegation to the African Union, in their opening remarks echoed similar sentiments calling for good governance to stem illicit financial flows, seal loopholes in tax revenue, effective management of resources and collaboration in the implementation of sound economic management strategies.
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During the three-day meeting, the economists will delve into 10 broad issues addressing the:
Macroeconomic dynamics and implications of IFFs on Africa's development;
Interlinkages between debt and IFFs on Africa's development;
Causes, drivers, and estimates of IFFs in Africa;
International advances and challenges in stemming IFFs;
Risk perception and cost of capital in Africa;
Mobilizing Private Sector Financing for Africa's development;
Innovative finance for Africa's Development;
Scaling up the diaspora contribution to development;
Tools and policies for Debt management;
Macroeconomic theory and frameworks for Debt sustainability in Africa.
The outcomes of the Congress are critical for policy formulation and decision-making processes of the African Union and its member states and inform the regional policy debates. Through the congress, the African Union promotes research in strategic issues pertinent to Africa's transformation to improve national policy formulation and implementation, and enhances economic skills and capabilities of Africa's workforce through links between research and the supply of skilled graduates.
