Africa ‘Rising Above Aid’

Nigeria's Finance Minister at the WEC

While the government budget in countries such as Tanzania still depends on donors by around 30 per cent, an increasing number of African countries are beginning to step away from aid dependency, as the domestic private sector becomes the engine of growth across much of Africa.

For many years, aid had accounted for around 40 per cent of the national budget and 80 per cent of development spending in the country.According to figures of the Organisation for Economic Cooperation and Development (OECD), Tanzania received about $39 million (about Sh66.3 billion at current exchange rates) in foreign aid in 1961, but the amount surged to about $2.89 billion (about Sh4.91 trillion) in 2009, making it the top recipient of aid in Africa and third in the world.

Number two was Ethiopia, with $2.422 billion in donations. Number three was Sudan, with $2.104 billion in aid received. Number four was Nigeria, with $2.042 billion in donations received. Number five was Cameroon, with donations of $1.933 billion received.

According to development consultant Aidan Eyakuze of Serengeti Advisers of Dar es Salaam, Tanzania and the whole of Africa can do without aid. He says Tanzania has abundant resources to propel its growth and development.

The challenge, he argues, is deciding how best to make use of these resources, in smart partnership with others (investors, financiers, civil society) to capture the benefits of the resource wealth for all Tanzanians.

“Ending aid dependence is vital if we want to claim true independence. It will take fundamental changes though – a government more committed to serving its people (and thus legitimately demanding that the people pay their taxes); killing corruption (which not only wastes tax revenues but also saps our energy and kills our trust in each other); and unleashing our entrepreneurial energy by cutting red tape (did you know that if you start a business, you have to pay tax even before you have earned your first shilling in revenue) and dumping laws that restrict business activity,” he said in an interview on Sunday.

Economic analysts predict that the ongoing private-public partnerships in Tanzania such as the Southern Agricultural Growth Corridor of Tanzania will make the country more self-reliant.

Currently, at least a third of African countries receive aid that is equivalent to less than 10 per cent of their tax revenue. They include Algeria, Angola, Equatorial Guinea, Gabon and Libya. This is a significant change from years of high dependency on aid.

These are countries that have made the most progress towards replacing aid with domestically mobilised resources. On average, Africa has managed to raise an estimated $441 in taxes per person per year while receiving $41 per person per year in aid, according to a comprehensive look at African resource mobilisation by the African Economic Outlook 2011.

“What this means is that Africa as a whole receives aid that is less than 10 per cent of collected taxes,” says Mr Ken Mwai, a financial analyst and real estate investor in Kenya.

“Although aid exceeds 10 per cent of tax revenue in 34 countries, these countries have shown a progressively higher expansion of their tax base.

“They include countries such as Mozambique that have almost doubled their tax revenue, as well as Liberia which in the last decade has increased tax revenue from six percent to about 20 per cent.”

Botswana is another strong economy whose development is largely driven by domestically raised revenues.

Although countries such as Rwanda raise more resources from donors, that east-central African nation also has a strong focus on foreign direct investment.

Uganda depends substantially on donor funding for development. But like Kenya, aid has gone into building strong infrastructure, which has created an enabling environment for private investment.

Of Africa’s 54 countries, aid exceeds taxes in only 12 extremely poor countries such as Niger. Politically stable and democratic countries in Africa such as Tanzania and Rwanda are now raising alternative resources primarily through increased taxation, trade and domestic borrowing.

In Kenya, leading private companies such as Safaricom, East African Breweries Limited and private banks have widened the country’s tax base by expanding their branches and scope of distribution, consequently increasing the number of people who are employed and, thus, taxed.