Africa can finance its development but needs a paradigm shift

Matilda Moyo: Sierra Leone Telegraph: 19 December 2020:

Africa faces its worst economic recession in 25 years, largely due to the COVID-19 pandemic. It is estimated that the continent’s economy will contract by 2.6% at worst, pushing about 29 million people into extreme poverty and causing 19 million job losses, while remittances to sub-Saharan Africa are likely to decline by 23.1% ($37 billion) in 2020 alone.

Africa’s challenge is not the absence of liquidity or funds to finance development. Its problems are massive illicit financial flows that are draining funding capacity and the lack of ownership over natural resources, coupled with a whole narrative built around managing poverty instead of development, and depicting Africa as a poor continent in need of help from the international community.

The continent’s leaders urgently need to look at new ways to finance development, or risk falling further behind.

Financing Africa’s development was already off-track, but the COVID-19 pandemic threatens to further reverse the slow progress  towards meeting the Sustainable Development Goals (SDG) and the African Union Agenda 2063—the blueprints for a more sustainable future and that address global challenges such as poverty and climate change.

African Union (AU) Chairperson and South African President, Cyril Ramaphosa, says, “The pandemic has set back the SDG process, and we now require additional financial resources to enable developing economies to respond effectively, not just to the pandemic but to recover and rebuild.”

Mr. Ramaphosa maintains that the pandemic has vastly reduced the fiscal space of countries to meet their commitment to support development. He adds that the challenges facing developing countries are compounded by weak public health systems, limited social safety nets, high levels of inequality, high debt burdens, reduced tax revenues, capital outflows and lack of adequate and sufficient access to financial markets.

In March 2020, African finance ministers called for a $100 billion stimulus package to provide governments much-needed fiscal space and liquidity. UN Under-Secretary-General and Special Adviser on Africa, Cristina Duarte, believes that Africa should adopt a new approach to development financing, one that strengthens its systems and institutions to enhance domestic resource mobilization so it can fund most of its development and turn its fortunes around.

In explaining this new approach, Ms. Duarte says “Africa’s challenge is not the absence of liquidity or funds to finance development. Its problems are massive illicit financial flows that are draining funding capacity and the lack of ownership over natural resources, coupled with a whole narrative built around managing poverty instead of development, and depicting Africa as a poor continent in need of help from the international community.”

Africa loses $89 billion annually, about 3.7 per cent of its gross domestic product (GDP), in illicit financial flows, according to the UN Conference on Trade and Development (UNCTAD). The organisation reports that curbing such flows could enable the continent to retain substantial funds that can be directed to responding to the COVID-19 pandemic and to development.

Ms. Duarte, who heads the UN Office of the Special Adviser on Africa (OSAA), which works with the AU and other multilateral institutions to ensure coherent support to the continent, believes that African countries, as well as international financial and multilateral systems, need to change their approach to development financing in Africa.

This entails moving from a predominantly poverty management perspective to a development management approach. The poverty management approach identifies debt relief and official development assistance (ODA), among others, as the main tools for financing development, while the development management approach focuses more on domestic resource mobilization as the fundamental way to ensure sustainable financing. The latter approach is more sustainable and helps to safeguard developing countries’ ownership of their resources.

“African countries are responsible for building Africa’s new narrative by changing the thinking from relying on external assistance, which is much needed, to relying first on domestic and internal capacities and capabilities,” Ms. Duarte says, adding that tackling corruption, tax evasion and illicit financial flows are the cornerstones of successful domestic resource mobilization. African leaders also need to honour commitments under the Addis Ababa Action Agenda of the Third International Conference on Financing for Development, especially to substantially reduce illicit financial flows, combat tax evasion and corruption, reduce the cost of remittances and support other efforts to strengthen  domestic resource mobilization.

Ms. Duarte says this new thinking also means a shift in the perception of Africa as an aid-recipient continent to one that is a key stakeholder and an actor on the global stage, with the same rights and standing as any other region in the United Nations and other international organizations.

Green industrialization

In addition, Ms. Duarte contends that Africa can leverage its potential on green industrialization by focusing on three key drivers: First, exercising ownership over natural resource management; second, moving up along global value chains; and lastly, taking advantage of the African Continental Free Trade Area (AfCFTA) to create integrated regional value chains. In this context, the development of African capital markets to mobilize the continent’s financial liquidity will be crucial.

She further recommends for financing solutions to be tailored to the unique circumstances of different categories of African countries, including Small Island Developing States (SIDS), Least Developed Countries (LDC) and Landlocked Developing Countries (LLDC).

Solutions should also be customized for countries in conflict situations and fragile middle-income countries with limited fiscal space, as they are vulnerable to external shocks. This will assist these countries to relieve the negative impact of COVID-19 on their economies and build back better, she says.

Finally, Ms. Duarte says, there is a need to enhance efficiency and to strengthen accountability in existing mechanisms. African countries need to constructively engage the various ongoing processes, notably the recently established High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI Panel). The panel complements current efforts at enhancing development finance, especially through addressing illicit financial flows and fighting corruption.

“These are crucial measures to help African countries unlock resources to finance recovery and build better beyond COVID-19,” Ms. Duarte concludes.

For more information on COVID-19, visit www.un.org/coronavirus

Africa Renewal

 

3 Comments

  1. Siaka Stevens, the ex police officer turned president, started this sad episode in our polity. And the country is still the worse for it, as corruption has become the norm.

  2. “The continent’s leaders urgently need to look at new ways to finance development, or risk falling behind;” says the writer. Good luck with that. And I wish you well also in trying to convince lazy, irresponsible and incompetent men that are completely at ease with being spoon-fed with complicated grants and high interests loans to refrain from their senseless impulsive attitudes of greed. Same old story, same old Africa that never ever change; same con-artists posing as politicians smooching the same naïve and gullible people with their ceaseless lies.

    No question, the effects of Covid 19 has been devastating for African economies but African leaders should not use it as an excuse for their paltry leadership performances; there are still solid evidences highlighting that not one of these leaders, now making foolhardy excuses had been moving steadily on the right track towards sustainable development and progress before Covid appeared – not a single one of them. And how easy is it for African leaders to now make a U-turn away from loan sharks who have them shackled from head to toe with high interests loans?

    The days of opportunities and possibilities are long gone like rain that fell heavily only for a season, like a generous traveler that came, showered us with gifts and went his way; Now all hope is lost, a new era of struggling and challenges is upon us accompanied by traumatizing dark nights that will never end, anxiously wanting to make their impact felt. What a sad never-ending story, the African story has become.

  3. This report is a warning of the impending disaster that is hitting African economies, like a run-away train. This COVID19 train is inflicting damage on Africa, both economically and socially. Foreign direct investment has been impacted heavily, or in some countries dried up all together. Small businesses and start-ups are going down like the Victoria falls. The impact on people’s mental wellbeing is unimaginable. The thing that worries me, the government of Sierra Leone, have all this assessments of the impact of COVID19, on businesses and the like, but they choose to ignore the warnings, and the suffering of Sierra Leoneans pandemic or no pandemic. For us due to unchecked corruption, life as we know it, has always been a struggle.

    Now when you think things can’t get any worse, the funds provided by international financial institutions like the world bank and the IMF, the European union, and the African development bank, to mitigate or cushion the impact of COVID19 for the ordinary man and woman. Bio who claimed to have the people of Sierra Leone at heart, is busy stealing those funds for his personal use. I wish he never say that. Maybe he would have been a different president. He should have just said, I am a conman – elect me as your leader. At least we know what to expect of him.

    Do Bio and his men know what this disease is all about? The last time the world experienced this sort of pandemic was the Spanish flu in the spring of 1918. If we go by the recent audit report that shows how serious Bio, and his men take this pandemic, When are Sierra Leoneans going to realise that their real enemies are our corrupt politicians, not your neighbours or people from different tribes or region? The sooner we answer that question the better for our country.

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