Although tax revenues are the largest sources of domestic resources, tax collection, as a share of gross domestic product (GDP), increased only marginally from 26.6 per cent in 2009 to 27 per cent in 2011, with many countries recording tax ratios below 10 per cent. With current estimates of the financing gap standing at approximately 6 per cent, it is clear that mobilizing sufficient, stable and predictable resources is still a source of concern.
It is faced with key barriers which boil down to; a narrow tax base, incapable tax administration infrastructure, use of concessions to attract private investors, tax evasion, tax avoidance, corrupt by tax officials. This leads to low revenue collected thus being a harbinger to development. According to the African tax Outlook 2017 report, a faster growth in revenue would see African nations having a large disposal of funds to invest in infrastructure development. Therefore, there is need for policies to make this happen.
As a leader, I would first ensure proper and effective use of tax revenues, develop a tax payer friendly system of collection, restructure outdated tax laws and ensure implementation of these laws, I’d also put up policies to broaden the existing narrow tax base while including the potential contribution by the informal sector and lastly, reducing tax exemptions for foreign investors.Further, Africa still faces a challenge of illicit financial flows.These are as a result of trade misinvoicing by private companies, criminal activities such as drug trafficking, tax avoidance, tax evasion among others. Due to this, a large volume of capital has left Africa leading to serious implications for the continent’s development which according to estimates by the Economic Commission for Africa put the annual loss at around $50 billion and this may fall short of the reality since accurate data of all transactions is not captured. Not only do illicit financial flows exacerbate income inequality and undermine a nation’s fiscal policy, they also place a major drain on resources of African countries. However, if they are stemmed, it would save African nations a lot of funds to enable them finance their transformation agenda. Therefore, there is need for efforts to curtail and redirect the illicit financial flows.
As a leader, I would do this by strengthening customs administrations, and also requiring multinational companies to publish annual financial reports that explicitly detail their activities in the resource sector of the country. In addition, I’d also implement measures to reduce corruption, strengthen the regulating oversight, improve government effectiveness, increase accountability, increase political and economic stability and also strengthen the rule of law.Infrastructure is central to Africa’s continued growth and development, and there is a strong connection between infrastructure development and economic growth. However, the financing needs of infrastructure projects surpass the capabilities of traditional financing mechanisms, thus a need for alternative ways of financing economic development. Therefore, there is need to engage the private sector in the development process. This would be through formation of public-private partnerships (PPPs).
Under these, a long-term contractual agreement is formed between the public and private sector for a public facility or service in which the private sector provides financing, ownership and management of the facility. However, “The success of public-private partnerships depends on the ability to establish a framework with laws, systems, processes, and contracts that promotes financially viable PPPs especially where there are natural monopolies or market failures.” notes Rachel Sebudde. Therefore as a leader, I would work to ensure these are put in place. I’d also work with the National Development Bank and the regional development banks such as the East African Development Bank (EADB) of the East African Community, Trade and Development bank (TDB) of the Common Market for East and Southern Africa, African Development Bank (AfDB) among others. These would provide monitoring and evaluation in areas where the private sector may have fallen short, and where needed, their own money thus partnering with private investors to co-finance projects. They would also provide long-term loans to finance infrastructure development at subsidized rates.
Africa is perpetually perceived as the continent with the “begging bowl” in hand, something which both locals and Diaspora communities resent. However, through a Diaspora bond, this “begging bowl” notion could be countered. Under this, a government borrows from its Diaspora with hopes of paying back in a defined period of time at a given interest rate. In a way, this enables them contribute to their countries’ development. The great advantage with Diaspora bonds is that they are long-term in nature, cost much less than loans from a bank, and are free from conditionalities that accompany the development funds from donor countries and organizations. With an estimated 140 million Africans living outside the continent, say up to an estimate $33 billion in these countries the potential for Diaspora bonds is enormous.
However, in order to give expatriates the confidence to invest in these bonds governments need to tackle issues of poor governance, lack of democracy, corruption among others. As a leader, I would work to implement measures against corruption, improve effectiveness, accountability and ensure political and economic stability. This would also manage the inherent risks associated with issuing bonds.
Furthermore, I would work together with foreign government to try and reduce the cost of sending remittances. This would encourage the Diaspora to send money home to invest education, healthcare among others thus ensure transformation.