Enhancing domestic resource mobilisation in Sub-Saharan Africa

August 19th, 2010

Wilton Park | Photo: Deshal de Mel

A recent conference at Wilton Park addressed the largely neglected issue of domestic resource mobilisation in Sub-Saharan Africa. Tax Justice Network argues that domestic resource mobilisation should be the core of development strategies for most countries, but common sense has been in scarce supply in recent decades, largely pushed to one side to make way for the tax-cutting and privatising agenda of big companies and the western governments who serve their interests. So this conference was a welcome event, and we are pleased to report that the outcome document is now available online here.

Domestic resource mobilisation refers to giving priority to making efficient use of the savings and investments of households, domestic companies and local and national governments. It stands in contrast to the excessive focus on trying to attract external investment (known in the development jargon as Foreign Direct Investment) which must be lured into the country by a combination of tax breaks, subsidies and lax regulation. Needless to say domestic resource mobilisation carries a number of significant advantages, not least since it is more likely to serve the needs of local populations and less likely to engage in aggressive tax avoidance. Also, unlike foreign aid (another source of external investment) it doesn’t involve undemocratic interference in decision-making processes.

Domestic resource mobilisation was given a boost by the 2002 Conference on Financing for Development, held at Monterrey in Mexico, which placed this issue as the first of the six “leading actions” of the famous Monterrey Consensus. This Declaration was one of several factors that motivated the creation of TJN, which recognises that attempts by poorer countries to mobilise domestic resources are frequently thwarted by illicit outflows of capital and related tax evasion. Greece and Pakistan serve as stark warnings of the consequences of allowing wealthy elites to shift their assets offshore and tax evade, with inevitable impacts on the economy and society more generally.

In the case of Sub-Saharan Africa, despite some limited progress in the past decade, the majority of countries are largely unsuccessful at mobilising domestic resources. Although they raise approximately eleven times more revenue from taxation than they receive in overseas aid, a significant proportion of these revenues originate from oil or other natural resources. Overseas aid exceeds taxation in a quarter of African countries, and for half of the countries in the region it constitutes over a third of government revenue. Obviously there are many reasons for this failure, but illicit financial flows and tax evasion are particular problems for countries that rely heavily on extractive industries and commodity exports.

TJN and several of its members participated at the Wilton Park conference, which was jointly organised with the North-South Institute, and included fascinating case study material from Burundi, Cameroon, Ethiopia, Tanzania and Uganda. You can download the conference programme and the papers given at the conference here.

The outcome report is available here.

Written by John Christensen

Follow @FinTrCo