The President of African Development Bank (AfDB), Akinwumi Adesina, has urged Africa’s governments to boost tax revenue and steer clear of international borrowing as the continent is facing its worst economic slump in more than a decade.
Adesina said he expected the downturn in Africa, which was triggered by the slump in commodity prices and the slowdown in China, to last for up to another three years.
Adesina said that expanding the tax base and improving the efficiency of tax administration would be the easiest ways to boost public finances.
He said the tax-to-GDP ratio in sub-Saharan Africa was about 14.5 per cent, compared with more than 30 per cent for most developed nations.
He said, “So, a lot more needs to be done to expand the tax base in Africa. Today it’s about $500bn a year [for the region], which is much better than it used to be, but we need to expand that.”
The AfDB chief said not only was it risky for governments to borrow overseas because many African currencies were weakening and the US Federal Reserve appeared set to raise interest rates again this year, but also unnecessary.
“Instead of African countries running off to raise a lot of Eurobonds, I think there’s huge amounts of capital available more locally that we must tap for Africa’s development,” Adesina said.
He added that borrowing should only be undertaken to finance projects that enhance economic growth.
Adesina said African pension funds had a pool of $334bn, sovereign wealth funds $164bn and there was some $56bn of foreign direct investment looking for bankable projects.
However, he acknowledged that “there’s a lot of work that needs to be done to unlock that capital,” particularly in improving legal and regulatory environments.