Mobilising domestic revenue through stronger taxation regimes and proper reallocation of funds are critical if some of the world’s poorest countries are to meet the United Nations Millennium Development Goals, according to a report released today (29 May).
The report, “Financing the fight for Africa’s transformation”, by campaign group One, ranks the progress of countries against the eight UN targets, with particular emphasis on sub-Saharan Africa.
While many of the region’s 47 nations receive development assistance, they have seen economic growth rates of some 5% over the past seven years. That is largely due to the proportion of government budgets spent on basic services, such health, education and agriculture, the report says.
“Development assistance from donors remains critical, but developing countries’ own resources dwarf aid resources in many cases, and the domestic political decisions that governments make about how to channel these resources have the biggest effect on development outcomes,” the report says.
Champions and laggards
The authors cite Rwanda, Uganda, Malawi, Ghana and Ethiopia as countries making particular progress while flagging Nigeria and the Democratic Republic of Congo for failing in many areas and hampering regional development.
The report finds strong links between better government spending and reducing infant and maternal mortality, and cutting extreme poverty, defined as under $1.25 a day per capita income. Between 2000 and 2011, Ethiopia lifted an estimated 10 million people out of extreme poverty, while the government spent nearly 45% of its total budget on health, agriculture and education over the same period, the report says.
Burkina Faso also made progress, spending 51.6% of its budget on health, education and agriculture, more than any other country analysed. European Commission officials recently told EURACTIV that they considered Burkina Faso an “aid champion”, along with Ghana.
While development aid is increasing in many parts of the world, with new emerging donors such as South Korea, the 4.3% drop of European overseas aid during the crisis outlines the necessity of mobilising domestic resources, say officials in Brussels. But many sub-Saharan African countries have notoriously weak tax and customs regimes.
Speaking at a Brussels conference, Algirdas Šemeta, the European commissioner for tax and anti-fraud, said better global tax governance would be a key driver of development, especially in African countries. He said it was critical to ensure that multinational companies operating in developing countries paid their fair share of tax, boosting national budgets, rather than shifting profits to tax havens.
“During the economic crisis, donor attention for providing support is limited so the need to mobilise domestic resources is even more important,” he said at the conference organised by the Friends of Europe think tank. “We are pushing for global [tax] standards. Everyone needs to take responsibly and everyone will win.”
The NGO Christian Aid estimates that countries lose out on $160 billion (€124bn) from multinational companies shifting profits between subsidiaries in different countries, called “transfer pricing”. In 2011 the entire amount of official development aid donated by the group of Organisation for Economic Co-operation and Development member states stood at $134 billion (€104bn).
Campaign group Oxfam last week released figures estimating that two-thirds of the global offshore wealth of individuals is hidden in European Union-related tax havens, amounting to some €9.5 trillion.
The EU recently adopted new laws aimed at increasing the transparency of tax payments from the extractives industry in a bid to root out corruption in resource-rich developing countries.
But fiscal experts warn of the complexity of improving weak tax regimes. They say that sub-Saharan Africa is unlikely to feel the changes in the short term.
“It will be a long and slow grind of bureaucratic and legal changes,” said Mick Moore, chief executive officer of the International Centre for Tax and Development.“I don’t see the poorest countries benefitting in the short run. The wave of information could be overwhelming. International actors should keep an eye out that it is implemented correctly.”
Analysts also refer to the difficulty of taxing Africa’s extremely large informal sector, with huge numbers of workers – from lawyers and doctors to hair-dressers – receiving unregistered income cash-in-hand.
“We are not talking about the poor person in the street. The issue is people with a lot of money not graduating to the formal sector,” said Thulani Shongwe, a fiscal specialist at the African Tax Administration Forum.