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Tax reform, digitisation key to financing development

Tax reform, digitisation key to financing development

This year’s Economic Report on Africa, produced by the UN’s Economic Commission on Africa, highlights the ways countries must digitise their economies, so they’re not left behind by the digital revolution.

Africa must broaden its tax base, prevent further deterioration of fiscal and debt positions, and aim for double-digit growth to achieve the UN 2030 global goals and the AU Agenda 2063.

These were some of the key messages of the 2019 Economic Report on Africa presented this week to finance and trade ministers from across the continent at the Conference of Ministers in Marrakech.

The week-long Conference of African Ministers of Finance, Planning and Economic Development kicked-off in Marrakech on March 20, with finance ministers from Morocco, Egypt and Sierra Leone all in attendance.

Government revenues currently account for 21.4% of GDP, insufficient to meet countries’ development financing needs, the conference heard.

“The Report identifies several quick wins in Africa’s pursuit of additional fiscal space to finance its accelerated development,” Vera Songwe, the ECA’s Executive Secretary stated at the launch.

“[It also] focuses on the instrumental role of fiscal policy in crowding-in investment and creating adequate fiscal space for social policy, including supporting women and youth-led small and medium enterprises.”

With the continent a decade away from the deadline to meet its development goals, she added that “African countries continue to search for policy mixes to help accelerate the achievement of the SDGs.

“However, for many countries, financing remains the biggest bottleneck with implementing capacity a close second.”

In it’s analysis of challenges and opportunities in the region, the report recommends comprehensive macroeconomic reforms aimed at building financial resilience, accelerating growth to double digits by 2030 and boosting investment from its current 25 per cent of GDP.

Economic growth in Africa remained moderate at 3.2 per cent in 2018, due to “solid global growth, a moderate increase in commodity prices and favourable domestic conditions”.

But governments need to to do more to find the balance between raising revenue and incentivizing investments, in order to boost growth.

The growers and shrinkers

In some of Africa’s largest economies—South Africa, Angola and Nigeria – growth trended upwards but remains vulnerable to shifts in commodity prices.

East Africa remains the fastest growing, at 6.1 per cent in 2017 and 6.2 per cent in 2018, while in West Africa, the economy expanded by 3.2 per cent in 2018, up from 2.4 per cent in 2017.

Central, North and Southern Africa’s economies grew at a slower pace in 2018 compared to 2017.

On the issue of Africa’s debt burden, debt levels remained high as African countries increased borrowing, to ease fiscal pressures.

These pressures were compounded by the narrowing revenue streams caused by commodity price shocks of 2014., the report revealed.

The report argues that African countries can boost revenues by 12–20 per cent of GDP by adopting a policy framework that strengthens tax mobilisation.

One example is by digitising their tax collection systems, which could see revenues jump 6 per cent.

“Digital identification can broaden the tax base by making it easier to identify and track taxpayers and helping taxpayers meet their tax obligations.

“By improving tax assessments and administration, it enhances the government’s capacity to mobilize additional resources.

“Digital ID systems yield gains in efficiency and convenience that could result in savings to taxpayers and government of up to $50 billion a year by 2020.”

Fostering prosperity

The Economic Commission for Africa (ECA) was established by the UN’s Economic and Social Council (ECOSOC in 1958.

As one of the UN’s five regional commissions it’s mandate is to promote the economic and social development of its member States, foster intraregional integration, and promote international cooperation for Africa’s development.

It also provides technical advisory services to African governments, intergovernmental organizations and institutions.

It also formulates and promotes development assistance programs and assists countries in the execution of relevant operational projects.

Made up of 54 member States, and playing a dual role as a regional arm of the UN and as a key component of the African institutional landscape, the ECA is well positioned to provide technical advice, and a high-level platform, to address the continent’s developmental challenges.

Headquartered in Addis Ababa, Ethiopia, its offices span Rabat, Lusaka, Kigali, Niamey, Yaoundé and Dakar.

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Written by African Business Magazine

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