‘AFRICA set to burn as debt soars’ is a headline of an opinion piece on a South African publication last year. The message was African countries were reeling under heavy debt burden particularly from China as they secured loans from the top Asian economic powerhouse to finance their large infrastructure projects.
The author wrote about what he called Zambian economic dilemma and also about Malaysia’s bold move to turn down China’s $20bn loan offer for development projects last year.
African countries are facing big challenge to finance their development needs as donor support is falling. According to Organisation for Economic Co-operation and Development OECD, sub-Saharan Africa faces a sizeable shortfall in financing for investment, estimated at about $230 billion a year, on average, over the next five years.
This shortfall is due to low domestic savings rates, partly as tax revenue collection continues to underperform notwithstanding recent improvements. Indeed, tax revenues in the region (excluding those raised from the natural resources sector) moved up from 11 per cent of GDP in the early 2000s to about 15 per cent in 2015.
In recognition that mobilising domestic resources, from both the public and private sectors, is central to Africa’s collective success in achieving the 2030 sustainable development goals (SDGs), African countries agreed last year to boost tax-to-GDP ratio to a minimum threshold of 15 per cent of their economies, as part of an effort to realise the Continental Free Trade Area agreement.
In East Africa the picture is not very convincing as the region. Tanzania and Uganda tax-to-GDP ratios are below sub-Saharan average of 15.1 per cent which is deemed low to finance development needs of the countries. Kenya is the only country whose tax to GDP ratio is above the sub-Saharan average.
It is against the backdrop of that, the government is taking measures to enhance tax revenue collection by expanding the tax base and plugging off leaks blamed for tax evasion and avoidance. The government has also put up an effective strategy to tax the informal sector right from policy design to compatible tax administration initiatives.
We find these measures to be very crucial as the country needs to fund own development needs with own resources. With our ambitious large investment projects in transport and energy infrastructure such as the ongoing construction of standard gauge railway and the hydroelectric project at Stiegler’s Gorge, we have no alternative but to enhance domestic revenue collection especially when donor aid has increasingly become hard to come by.