I recently came across the 2024 Ibrahim Forum Report, Financing Africa: Where is the Money? It offers a critical assessment of Africa's financial landscape and lays bare the immense financial needs required to achieve sustainable development while providing actionable recommendations to bridge the resource gaps.
With trillions of dollars needed to meet development and climate goals by 2030, the report underscores the urgency of rethinking financial strategies, mobilising domestic resources, and fostering global partnerships.
Africa faces staggering financial requirements, ranging from $1.3 to $1.9 trillion annually, to meet the targets set by the Sustainable Development Goals (SDGs) and Agenda 2063. Current financial flows fall far short, with climate finance covering only 11 per cent of the needs while illicit financial flows (IFFs) drain an estimated $100 billion yearly. To address these challenges, the report advocates for a paradigm shift in financial strategies, placing domestic resource mobilisation (DRM) at the core of Africa's development agenda.
DRM should account for 75-90 per cent of the financing needed for Africa's transformation. The report identifies reforming tax systems, tackling illicit financial flows, and leveraging underutilised domestic assets as critical steps. Africa's tax-to-GDP ratio remains the lowest globally, revealing a significant opportunity for improvement. Strengthening tax administration, addressing corporate tax evasion, and reducing costly tax holidays - which cost Africa $46 billion annually - can bolster revenues. Additionally, improving governance and transparency is essential to ensure efficient use of mobilised resources.
Africa's abundant natural resources present another opportunity for sustainable financing. With 30 per cent of the world's reserves of critical minerals for renewable energy, the continent can position itself as a global leader in the green economy.
However, resource governance remains a challenge; only a handful of African nations have satisfactory mining governance frameworks. Strengthening these frameworks and adding value locally to mineral exports can boost revenue and align with global sustainability goals. Regional cooperation through initiatives like the African Continental Free Trade Area (AfCFTA) can further enhance trade and industrialisation.
The report also highlights external financing mechanisms, emphasising the need for quality over quantity. While Africa received over 28 per cent of global official development assistance (ODA) in 2022, fragmented delivery and stringent conditions limit its effectiveness.
The report calls for increased concessional financing and innovative financial tools, such as green and blue bonds, debt-for-nature swaps, and sustainability-linked loans, to unlock additional resources. These instruments can fund projects that address climate resilience, renewable energy, and sustainable agriculture.
Climate finance is a pressing priority. Africa's adaptation needs are estimated at $579 billion by 2030, yet financing flows disproportionately favour mitigation. The report advocates for recalibrating financial priorities to address Africa's specific challenges, such as food security and water scarcity, which are exacerbated by climate change. Ensuring that adaptation receives adequate attention is vital for protecting livelihoods and fostering economic stability.
IFFs are another area where action is urgently needed. The $100 billion lost annually to tax evasion, trade misinvoicing, and corruption represents nearly all the ODA Africa receives. Curbing IFFs requires stronger international cooperation, improved data sharing, and stricter enforcement of anti-money laundering laws. By addressing these flows, African nations could unlock significant resources for development and climate action.
The report also points to the potential of remittances, sovereign wealth funds, and pension funds to drive development. Remittances reached nearly $100 billion in 2022, making them a stable source of external financing.
Similarly, Africa's sovereign wealth and pension funds, collectively valued at over $300 billion, remain underutilised. Redirecting even a fraction of these assets towards infrastructure, health, and education projects could significantly close financing gaps.
Collaboration and regional integration are critical for unlocking Africa's full economic potential. Aligning policies, pooling resources, and fostering cross-border investments can create economies of scale and reduce dependency on external actors. The AfCFTA provides a unique framework for integration, but its success depends on robust implementation and political commitment.
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The report concludes with actionable recommendations for stakeholders. Governments must prioritise domestic resource mobilisation through tax reform, transparency, and governance improvements. They should also invest in infrastructure that facilitates trade and industrialisation, such as transport networks and digital connectivity. International partners, meanwhile, must honour climate finance commitments and simplify access to concessional funding.
In summary, the 2024 Ibrahim Forum Report lays out a roadmap for Africa's financial future. By focusing on DRM, leveraging green assets, and fostering innovative financing, Africa can address its financial gaps and unlock sustainable growth. However, achieving this vision requires bold leadership, strong governance, and strategic partnerships.
The author is an applied economist.
