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National wealth is key source of finance, if East Africa is to fund its own GDP growth

AS every nation around the world grapples with Covid-19 pandemic, to-date, it is now understandably that our East African region’s governments, autonomously, have responded swiftly to the threat of Covid-19, albeit implementing various measures to contain its spread in a different way.

Even though most countries around the world embraced what can be termed “copy and paste approach” denoting lockdown or under curfew, or a combination of both, seeing such measures in bigger picture, some stern nations such as Tanzania, implicit aware of what would have been the side effects of copy and paste approach measures didn’t surrender to the fashioned fear, errand viewed as lockdown marathon rally amongst nations.

Instead, Tanzania stood firm in placing on the ground its own mechanisms that could allow people to protect themselves with at the same time continuing with their normal dealings. Even though, Tanzanian model was at first seen as going contrary to the rest of the world model, today, most nations around the world, including USA, UK and the like, are now coming to terms that, lockdown or under curfew its people, thought to have been the lasting solution to clear Covid-19 pandemic isn’t working.

Undesirably, lockdown or under curfew tactic have led to the loss of livelihoods for many people unnecessary, mostly in the informal sector that commands at least 85.5 per cent of work forces in many countries.

To shield the formal and informal economies from lasting destruction, and vulnerable households from income and basic shortages, unlike western world, a range of both fiscal and monetary measures have been instituted by African governments.

As many wait for these measures and stimulus package to take effects, in my opinion, there is one area that shouldn’t be forgotten and this area is funding its own growth, exclusively as many partners are now looking inwards to absorb Covid-19 shocks including retreating from lockdown.

Amidst resource competition demand, and departing from receiving end culture, mobilizing domestic resources is a key source of finance, if E/A is keen to fund its own growth competitively as it emerges from effects caused by Covid-19.

One of the leading pan-African organizations, the United Nations Economic Commission for Africa, in one of latest report stated that, infrastructure development in Africa has the potential to raise GDP by 2 per cent annually and advance the pillar for rapid industrialization, which in turn can increase and boost the capacity of the continent to generate more domestic resources. Meaning that growth is adequately enough to fund its own growth for its people.

Creatively, financing for the Economic Transformation of Africa article, published in March 2015, calculated that Africa’s current infrastructure needs stand at a massive 93 billion US dollars yearly, out of which 45 billion US dollars can be mobilised, leaving an annual deficit of virtually 50 billion US dollars.

One answer to reduce estimated deficit would be to speed up the development of our financial markets with a view to igniting the transformation of African economies. While this is quite in order, in my opinion there is a need; further to come up with innovative financial products and set up effective national and regional financial institutions and services designed to came into terms with regions specific circumstances.

Notwithstanding witnessing exceptional growth in development finance in recent years, Africa is still confronted with the demanding task of mobilizing adequate resources domestically to fund its growth and future transformation agenda.

Certainly, the paucity of external development assistance, and low commodity prices for its goods and services, Africa has to awake to the fact that it must rely on its own financial resources for sustainable development proportionally instead of being caught in aid syndrome mind-set. 

One innovative idea is to have trust on its own development finance institutions. Development finance institutions when engaged and being used as agency of the government contribute to development by investing in the private sector.

The resources DFIs provide i.e. long term loans, technical assistance and advisory to mention a few, aiming to be additional to what the market can offer do help to catalyse further investment. Characteristically, projects supported by DFIs generate jobs, provide access to finance, and in aggregate, contribute to economic growth and hence reduce poverty.

There is therefore the need to find domestic sources, through well-organized taxation collection systems, to finance social assistance programmes to provide for their citizens. There are three basic reasons this needs to happen.

One, domestic funding will always be necessary in the event there is a global crisis and global partners are not able to assist significantly. Two, it is hard to teach an old dog new tricks. Countries that depend on donor funding struggle to fund emergency relief for example those affected by Covid-19 lockdowns themselves. They are not used to it.

To the contrary, countries that are used to funding their own social assistance have been quick to fund crisis relief to mitigate the effects of lockdowns, especially on deprived people.

Three, international funding, though necessary and much needed on the continent, has unpremeditated concerns. That’s because it tends to remove the incentive for African governments to put in place their own stable programmes. And the mostly short-term nature of the finances from the international partners means they can’t be used as the basis to create long-term, large-scale solution for the region.

Innovative domestic financing mechanisms such as Africa50, instigated by the Africa development bank last year, are thus estimated to lead or supplement other external resources and innovative putting money into forces like the BRICS countries i.e. Brazil, Russia, India, China and South Africa would help to achieve Africa’s determined development needs.

Nonetheless, in my opinion, Africa’s biggest challenges are confidence, the fault-finding policy matrix, the stringencies of internal trade and intra-trade and differences across nations. A good example is recent row involving truck drivers between Kenya and Tanzania on one hand and Uganda and Rwanda on the other. Confidence is a giant restrictive to attracting sustainable, dependable and credible internal investment.

East Africa in my opinion has the greatest investment potential of all leading edge markets globally as far as agriculture is concerned and investment in to new leading edge. To be able to fund its own growth and mobilizing domestic resources, there is a need to create a dashboard around which there is proper governance, accountability and dependability with investors.

Funding its own growth and being able to mobilize internal resources resourcefully, there is a need to nurture a setting for high-level public-private sector talks, seeing that the private sector has so far engaged in recreation a limited role in implementing Africa’s development.

Appealing with the private sector frankly will increase investments within and also will become an active means of attracting external investment. I am not suggesting that there isn’t an efficient bond between governments and the private sector but there is what in my view seems to be them-and-us set of symptoms.

The potential for our region to fund its own growth is there but these states has to first undoubtedly define its priorities, their cost and the mechanisms to run into them.

A few days ago, I wrote in one ...

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Author: Dr HILDREBRAND SHAYO

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