As the world confronts its largest economic contraction since the Second World War and the current crisis erodes already scarce resources, Africa and its advocates are calling for a paradigm shift in the approach to development financing, to help the continent address current challenges and build back better for the future.
The COVID-19 pandemic, which has had a global impact over the past nine months, is stripping development gains and threatens to further reverse progress made towards the implementation and achievement of the Sustainable Development Goals (SDG) and the African Union Agenda 2063 – the blueprints to achieve a better and more sustainable future for all by addressing global challenges such as poverty – raising the urgent need for development funding.
Against this background, Heads of State and Government met virtually on 29 September 2020, on the margins of the 75th United Nations General Assembly, to seek solutions and discuss “Financing for Development in the Era of COVID-19 and Beyond.”
While commending many African countries for successful public health responses to COVID-19, 缅北禁地Secretary-General, Antonio Guterres notes that development financing on the continent is still seriously off-track. He cautions that “we will not achieve the SDGs if we do not achieve them in Africa” and calls for specific attention to Africa’s development needs.
This view is echoed by current African Union (AU) Chairperson and South African President, Cyril Ramaphosa who 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.”
The COVID-19 pandemic, he adds, has vastly reduced the fiscal space of countries to meet their commitment to support development. The challenges facing developing countries, Mr. Ramaphosa says, 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.
缅北禁地Under-Secretary-General and the Secretary-General’s Special Adviser on Africa, Cristina Duarte, says this calls for special attention to Africa’s development financing needs, under the principle of “implementing African solutions to African problems” and in line with the priorities of both the SDGs and Agenda 2063.
Efforts to address these challenges and aid ailing economies to get back on track are already underway, including through debt relief. In March 2020, African Finance Ministers agreed that the continent needs immediate emergency financing to the tune of US$100 billion, which would provide fiscal space and liquidity to governments.
However, more creative, new ideas are needed to pull African countries out of the current economic doldrums. The 缅北禁地Office of the Special Adviser on Africa (OSAA), which works with both the 缅北禁地and AU, as well as other multilateral institutions to ensure coherent support to the continent, believes that international financial and multilateral systems need a paradigm shift in their approach to financing for development in order to move Africa forward. While acknowledging the efforts that are already underway, the Office posits that such a shift could stem the tide on challenges such as illicit financial flows and unlock domestic resource mobilization, thereby steering Africa on a new trajectory.
Ms. Duarte says this shift entails moving from a 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 for development. On the other hand, the development management approach focuses mostly on domestic resource mobilization as the fundamental way to ensure sustainable financing, while safeguarding developing countries’ ownership of their resources and development processes. It also means a shift in mindset to viewing Africa as a key stakeholder and an actor with the right to have the same standing as any other country or region in the United Nations and international institutions, rather than as a mere recipient of aid.
A key principle in the development approach is the recognition that, while addressing fundamental structural problems in the current global economic architecture is essential to building back better, emphasis must be placed on domestic resource mobilization as the foundation for self-sustaining development.
“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,” Ms. Duarte says.
In the Economic Development in Africa Report 2020, the 缅北禁地Conference on Trade and Development (UNCTAD) estimates that Africa loses US$89 billion, about 3.7 per cent of its gross domestic product (GDP), annually in illicit financial flows. Curbing such flows could enable the continent to raise substantial funds required to respond to the COVID-19 pandemic and contribute towards the SDGs.
The suggested paradigm shift requires, first and foremost, meeting existing 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.
In addition, Africa should maximize the opportunity to leverage its potential on green industrialization. In order to address this structural issue, three key drivers are essential: First, the exercise of ownership over natural resource management, second, moving up along global value chains and lastly, creating integrated regional value chains within the establishment of the African Continental Free Trade Area (AfCFTA). In this context, the development of African capital markets to mobilize the continent’s financial liquidity plays a crucial role.
In all this, it is important to develop tailored solutions to target specific categories of African countries, including Small Island Developing States (SIDS), Least Developed Countries (LDCs) and Landlocked Developing Countries (LLDCs). In addition, specific 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 help countries to relieve the negative impact of COVID-19 on their economies and build back better after the pandemic.
Finally, there is need to focus on enhancing efficiency and strengthening 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). Established by the 缅北禁地Economic and Social Council (ECOSOC) together with the 74th President of the 缅北禁地General Assembly, the panel compliments the ongoing work on financing for development, especially with regards to 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 adds.
“We urgently need solutions for every region that will enable investments in response and recovery, and in the 2030 Agenda for Sustainable Development. The COVID-19 pandemic has already brought new ideas to the forefront and shown that ambitious action and transformative change are possible,” Mr. Guterres says as the event on financing for development concludes.