Africa’s external, tax revenues triple to $152.2b in 2011 – AfDB

Africa’s external finances recovered to pre-crisis levels with foreign investment, official development assistance and remittances estimated at $152.2 billion in 2011, according to the African Development Bank (AfDB).

According to a report released today, May 28, 2012 as the AfDB begins its annual general meeting in Arusha, Tanzania, “external and tax revenue resources available for development in Africa have trebled over the past decade and have never been so high.”

The African Economic Outlook 2012, co-written by the AfDB, the OECD Development Centre, the United Nations Economic Commission for Africa and the UN Development Programme, says “as a share of Africa’s gross domestic product, external flows doubled from 6.8% in 2000 to 12.3% in 2006, but were still down at an estimated 8.2% in 2011.”

It says foreign direct investment (FDI) and official development assistance (ODA) remain the key sources of finance, but urged African governments and their partners to increasingly look at remittances and tax revenues.

The appetite of emerging economies for natural resources and a boom in international commodity prices underpinned an increase in resource investment in Africa, it said, adding that sustained growth of over 5% and improved macroeconomic indicators –lower inflation, sustainable debt levels– attracted international and, increasingly, national investors.

The report noted that foreign investment remains the largest external financial flow to Africa and has great potential for stimulating long-term growth and employment, while acknowledging that the increase in investment in recent decades did not produce more inclusive growth or sufficient jobs as most of the finance went on the hunt for resources.

“Africa needs to attract more productive FDI to diversify its economy and benefit from technology transfers and spill over effects,” it recommended.

The report said ODA increased in 2011, but at a slower pace than previous years, indicating that the sovereign debt crisis and austerity measures in OECD countries dampened prospects for a significant increase in future assistance.

“This particularly threatens the functioning of the state for nearly half of African countries where ODA is still the largest external finance,” it said.

Remittances to Africa peaked in 2011 and are projected to continue to increase strongly in 2012, the report said. It indicated that the importance of remittances varies across countries and regions.

“They play a significant role in smoothing consumption and hence contribute to poverty reduction and improving social conditions. Additionally, they can provide capital to small and microenterprises, aiding job creation,” the report said.

It said collected taxes in Africa increased from an unweighted average of 18.1% of gross domestic product (GDP) in 2000 to 19.9% in 2009.
However, it noted, this increase was mainly driven by resource-related taxes in oil-exporting countries as oil prices surged after 2007.

It called on African countries to improve the quality of their tax systems by deepening their tax bases.

“Tax revenues complement external financial flows by helping states to provide quality public services and pursue economic policies that are conducive to raising growth and attracting finances from abroad,” the report said.

By Emmanuel K. Dogbevi

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