Financing for Development
Imbuga City Walk UNDP RwandaMucyo Serge
Sustainability will not be reached by persisting on past formulas that conceive Africa as a continent in need of aid and debt relief, but only if African countries develop and manage their own sources of funding, and are considered as partners with an equal standing to other international stakeholders. Under this concept, financing for development is not any more an external factor and African economies are no longer relegated to be providers of raw materials, in a dependent relationship to their disadvantage. The contemporary African state exists with its alliance with foreign interests. Financing for development becomes a tool for the empowerment of Africa, and that addresses illicit financial flows to enable Africa to manage its development. Financing for development should trigger efforts for a greater coordination and cooperation around key issues and players, including the private sector, governments, international organizations and civil society. Among the different sources of financing that can increase African countries’ domestic resource mobilization capacity, three have been selected for their potential contributions to the sustainability of funding provided a radical shift in paradigm: illicit financial flows, remittances and debt.
Publications
Factsheet: Remittances in Southern Africa
This factsheet is based on the policy paper, Digital Remittances in Southern and Eastern Africa: From Transactions to Transformation.
Over the last decade, remittances from Southern African migrants have increased significantly, reaching around $3 billion in 2023. South Africa continued to receive the lion’s share of remittances to the sub-region in 2023, while Lesotho remains the most reliant on these funds.
However, the high cost of sending money to Southern Africa, averaging around 13.5% in 2023, poses a significant challenge. This is largely due to the high fees associated with bank account transfers. Other barriers include limited access to formal financial services, lack of identification documentation, and low trust in formal financial systems. Digitalization, particularly through mobile money, offers a promising solution for cheaper, safer, and faster remittances. To move forward, regulatory reforms to reduce transaction costs and enhance financial inclusion are essential.
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Factsheet: Digital Remittances in Eastern Africa
This factsheet is based on the policy paper, Digital Remittances in Southern and Eastern Africa: From Transactions to Transformation.
Over the last decade, remittances from Eastern African migrants have tripled in volume, reaching more than $12 billion in 2023. Kenya continued to receive the lion’s share of remittances to the subregion and three countries were heavily dependent on remittances.
However, the overall average cost of sending money to East Africa was the highest in Africa, averaging around 15.7% in 2023. This high cost was largely due to the fees associated with bank account transfers. Despite this, mobile money continued to be the cheapest transfer instrument in 2023. Digitalization of remittances, particularly through mobile money, is seen as the solution for cheaper, safer, and faster remittances. To address these challenges, the factsheet highlights key policy actions to further enhance the efficiency and accessibility of remittances in the region.
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Digital Remittances in Southern and Eastern Africa: From Transactions to Transformation
This policy paper explores the transformative potential of digital remittances in Southern and Eastern Africa, highlighting their role beyond mere financial transactions. Digital remittances have become increasingly significant due to the proliferation of mobile networks, the rise of fintech startups, and government initiatives promoting digital payments. The transition into the digital age and the adoption of digital remittances present a new set of challenges. From regulatory challenges to cybersecurity concerns, the journey toward digital remittances is fraught with hurdles.
Despite these challenges, the paper emphasizes the immense opportunities digital remittances present. These include enhanced access to banking services through mobile platforms, the empowerment of microfinance initiatives, and the potential for integrating insurance and investment products. The paper also identifies the development of digital public infrastructure, innovative financial services, and active engagement with the diaspora as critical enablers for the growth of digital remittances. Addressing the identified challenges and leveraging the opportunities and enablers of digital remittances can significantly contribute to the economic stability and development of Southern and Eastern African countries.
Challenging the Global Narrative on Africa's Debt
This policy paper calls for a paradigm shift in understanding and addressing Africa's debt. It urges a departure from the conventional, technocratic view that frames Africa's economic challenges as stemming from excessive borrowing and fiscal mismanagement. Instead, the paper highlights the structural inequities in the global financial system, which inflate debt-to-GDP ratios by suppressing Africa's GDP growth. It argues that this skewed measure fails to capture Africa's economic potential and overlooks the broader systemic issues hindering its development.
Advocating for a political economy approach, the paper challenges the global narrative around Africa’s debt distress, asserting that meaningful reform of international financial institutions is essential to creating a fairer, more resilient economic landscape. As the world approaches the United Nations Summit of the Future, this paper underscores Africa’s right to a prominent role in shaping global financial reforms, aiming to correct historical imbalances and unlock Africa’s full leadership potential in the global economy.
The Primacy of Domestic Resource Mobilization in Ethiopia
The publication “The Primacy of Domestic Resource Mobilization in Ethiopia” delves into Ethiopia's steadfast belief in the power of domestic revenues as the cornerstone for sustainable development and the realization of the Sustainable Development Goals (SDGs). At the heart of Ethiopia’s fiscal policy lies a robust commitment to bolstering domestic revenue streams, ensuring the judicious allocation and utilization of resources, and upholding a fiscal deficit in harmony with macroeconomic aims. Despite a number of challenges, including the COVID-19 pandemic and internal conflicts, Ethiopia experienced strong economic growth, underpinned by a focus on Domestic Revenue Mobilization (DRM) reforms aimed at fortifying tax administration.
The country worked on initiatives including granting autonomy to the Ethiopian Revenue and Customs Authority, digitizing revenue collection through innovative platforms, and recalibrating Value Added Tax (VAT) policies. In parallel, Ethiopia has also revolutionized its budgetary expenditure management, introducing mechanisms like the Integrated Financial Management Information system and digital payment platforms for government procurement. These transformations highlight the country's drive towards transparent and efficient public spending. The publication also outlines challenges that impede revenue generation, such as tax law enforcement inefficiencies, unchecked tax incentives, and logistical shortcomings. With a clear-eyed recognition of the work that lies ahead, the country remains unwavering in its pursuit of continuous tax policy reforms, tailored to its unique economic landscape.
Remittances in Northern Africa
Remittances have become a vital economic lifeline for many families in North Africa, significantly impacting the region’s development. In 2022, North African countries received nearly $48 billion in remittances, a figure that represents a substantial portion of the region’s GDP. Remittances account for 70% of the total foreign financial sources, while Official Development Assistance (ODA) and Foreign Direct Investment (FDI) make up a smaller portion, at 17% and 13% respectively.
Despite facing various challenges, such as regulatory barriers and informal transfer channels, North Africa is witnessing a rise in initiatives aimed at mobilizing the African diaspora and enhancing the developmental impact of remittances. These efforts are particularly focused on exploiting the potential of mobile money and digital payment systems, which are pivotal in strengthening economic resilience and fostering growth in the region.
Remittances in Western Africa
Remittances represent a critical source of finance for many African economies, particularly in West Africa, where they account for a significant proportion of the sub-region's GDP (7.6 percent). In 2022, the sub-region received nearly $34 billion. In relative terms, these flows represent more than double the amount of Official Development Assistance (ODA) and Foreign Direct Investment (FDI) combined.
Despite the obstacles hindering the growth of remittances, the sub-region has witnessed the emergence of several initiatives centered around facilitating the mobilization of the African diaspora and strengthening the developmental impact of remittances through harnessing the potential of mobile money and digital payment systems.
The policy paper examines the role of remittances in the ECOWAS sub-region and the opportunities and challenges associated with engaging the African diaspora. It advocates redefining remittances as domestic resources, highlighting their potential as a catalyst for long-term growth. By identifying the main obstacles hindering remittance flows and examining selected case studies from the sub-region, the paper highlights the emerging innovative approaches and best practices, providing insights for maximizing and leveraging remittances for sustainable development. Finally, it proposes policy levers to optimize remittances' impact on economic development and achieving the Sustainable Development Goals (SDGs).
Remittances In West Africa: Challenges and Opportunities for Economic Development
Remittances represent a critical source of finance for many African economies, particularly in West Africa, where they account for a significant proportion of the sub-region's Gross Domestic Product (GDP) at 7.6 per cent. In 2022, the sub-region received nearly $34 billion in remittances. In relative terms, these flows represent more than double the amount of Official Development Assistance (ODA) and Foreign Direct Investment (FDI) combined.
Despite the obstacles hindering the growth of remittances, the sub-region has witnessed the emergence of several initiatives centred around facilitating the mobilization of the African diaspora and strengthening the developmental impact of remittances through harnessing the potential of mobile money and digital payment systems.
The policy paper examines the role of remittances in the Economic Community of West African States (ECOWAS) sub-region of Africa and the opportunities and challenges associated with engaging the African diaspora. It advocates redefining remittances as domestic resources, highlighting their potential as a catalyst for long-term growth. By identifying the main obstacles hindering remittance flows and examining selected case studies from the sub-region, the paper highlights the emerging innovative approaches and best practices, providing insights for maximizing and leveraging remittances for sustainable development. Finally, it proposes policy levers to optimize remittances' impact on economic development and achieving the Sustainable Development Goals (SDGs).
Solving paradoxes of Africa's development: financing, energy and food systems
Solving paradoxes of Africa's development: financing, energy and food systems
The report analyzes three paradoxes relating to financing, energy and food systems, that have hampered development in Africa and their impact as of 2022. African countries are rich in financial and natural resources, yet they suffer debt distress, lack energy access and face high levels of food insecurity. Based on this analysis, the present report provides an assessment of the role of domestic resource mobilization as a game changer, of energy and food systems as drivers and of country systems (under Sustainable Development Goal 16) as enablers of development. It also contains recommendations for undertaking the reforms needed to address the three paradoxes to unlock the continent’s potential to achieve sustainable development.
Africa's Fiscal Space, Fragility and Conflict: A Compendium of Papers Presented at the 2022 OSAA-ACBF Academic Conference
The United Nations Office of the Special Adviser on Africa (OSAA), in collaboration with the African Capacity Building Foundation (ACBF), virtually convened an Academic Conference under the theme “Africa’s Fiscal Space, Fragility and Conflict” from 22 to 24 February 2022. The Conference is a new flagship product of OSAA and is linked to its advisory and advocacy functions.
Through the Conference, OSAA aims to establish a platform for academia to contribute towards shaping and influencing the narrative about Africa while providing the opportunity to discuss ways and means to expand fiscal space, advance sustainable development, avert deterioration of fragility, and prevent conflicts on the continent in the context of recovery and building forward better from the pandemic.
This compendium contains the research papers and proceedings of the OSAA-ACBF Academic Conference. The papers were selected by a committee of OSAA and ACBF members, who also chose the topics for the event and selected the panelists.
Available in full colour (Arabic, English, French and Portuguese)
Financing for Development in the Era of COVID-19: The Primacy of Domestic Resources Mobilization
While the pandemic has reshaped the financing for development landscape in Africa and exacerbated existing vulnerabilities, it also provides an opportunity for African countries to strengthen domestic resource mobilization to underpin sustainable development financing. Effective domestic resource mobilization is essential in order to obtain the financing required to effectively drive the continent’s economic growth and development in an inclusive and sustainable manner. Increased domestic resource mobilization would also be fundamental to Africa reclaiming its policy space over its development, channelling resources towards productive capacity development and structural transformation and industrialization. However, for domestic resource mobilization to play an effective role in the continent’s sustainable development agenda, fundamental changes in both policy and institutions will be required, including through improving efficiency in public expenditures, strengthening revenue collection, harnessing private savings and the private financial sector for development and stemming illicit financial flows.
Strengthening the developmental impact of remittances and diaspora finance in Africa
African countries have made efforts to mobilize the resources needed to support the developmental aspirations of African people, and remittances have become an important source of financing for Africa’s development -almost double the volume of FDI. However, they continue to be relatively untapped sources and are therefore unable to fulfill their potential in Africa’s development. Remittances to Africa rose from $67 billion in 2016 to $87 billion in 2019. In 2020, they decreased by 4% due to the COVID-19 pandemic and have recovered in 2021, to grow again by 9%, reaching $91 billion. Remittances have a strategic position in African countries, due to their nature and increased volumes during the last decades. They have proved to be countercyclical and more resilient compared to other sources of finance, especially during economic downturns and crises as was demonstrated during the COVID-19 pandemic.
The international community has recognized the importance of such sources and their potential to contribute to achieving the SDGs. In fact, SDG 10, on reducing inequality within and among countries, refers under goal 10.c to the need to reduce the transaction costs of migrant remittances to less than 3 per cent and eliminate remittance corridors with costs higher than 5 per cent, by 2030. Furthermore, Objective 20 of the Global Compact for Safe, Orderly, and Regular Migration, commits to promote faster, safer and cheaper transfer of remittances and fostering financial inclusion of migrants. However, the cost of sending money to Africa continues to be high— reaching 7.7 per cent in 2021, the highest rate among the rest of the regions, while at the same time the development impact of remittances is not fully exploited.
The policy paper entitled “Strengthening the developmental impact of remittances and diaspora finance in Africa: what is the role of international cooperation?” examines the opportunities offered to further attract remittances and diaspora finance for Africa’s development, by highlighting the critical role of international cooperation in supporting African countries’ efforts in this endeavor and facilitating putting in place the necessary conditions to further attract remittances and diaspora finance and harness their transformative financing capabilities.
Tackling Illicit Financial Flows in Africa Arising from Taxation and Illegal Commercial Practices
Illicit financial flows pose a critical challenge to African countries, as IFFs deny countries the opportunity to generate the revenues required for them to meet their expenditure needs and to fund long-term development plans. UNCTAD has put the magnitude of IFFs in Africa at an average of $88.6 billion per year, which represents about 3.7% of the continent’s total Gross Domestic Product. Curbing IFFs can reduce the region’s financing gap by 33%. IFFs drain foreign exchange reserves, affect asset prices, distort competition, and undermine the capacity of countries to maintain economic and financial stability. Consequently, African countries are constrained in meeting commitments made under various regional and international frameworks, including the 2030 Agenda for Sustainable Development and Agenda 2063.
This report is focused on IFFs linked to aggressive tax planning and other illegal commercial practices in the context of Africa. Commercial practices constitute the largest source of IFFs from Africa (65%), followed by crime (30%) and corruption (5%). The report provides a broad overview of the scale and distribution of IFFs in Africa; discusses different forms of IFFs that arise from tax and illegal commercial practices; and reviews current initiatives for combating tax and commercial-related IFFs in Africa. The report provides the conclusion and policy recommendations for combating tax and commercial IFFs in Africa.
From residual to worthy: enhancing the value of ODA for Africa’s development
Abstract: The excessive focus of Official Development Aid (ODA) targets on the amount of disbursed assistance, instead on of the real impact of the assistance provided, has prevented ODA from playing the role as enabler of financing for development that was aimed when the 0.7 target was first established. In turn, this has undermined the sustainability of development financing and prevented African countries from mobilizing sufficient funds to accelerate the implementation of the Sustainable Development Goals. In order to revert this trend, this brief proposes evaluating ODA by its impact on achieving sustainabil¬ity of financing and development efforts.
Financial Integrity for Sustainable Development - Implementation of FACTI Panel Recommendations in Africa
Illicit Financial Flows (IFFs) are a challenge of global dimension that need coordinated actions by the international community. Complementary measures at the national and regional levels in Africa will help reduce IFFs and promote progress toward the Sustainable Development Agenda, given the disproportionate cost of IFFs to Africa’s development.
This policy paper looks into a set of recommendations by the High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI Panel) that are most pertinent to the African region. It discusses the progress made by African countries in recent years, as well as the key challenges and gaps in implementation. The recommended policy actions and institutional changes proposed in this paper should be considered within the global setting and will need to be complemented and strengthened by efforts from the international community. Read the report in English and French.
Factsheet: Ghana and the Credit Rating Agencies
This factsheet on Ghana and credit rating agencies looks at the downgrade of the country’s sovereign ratings and the impact on the economy and debt situation.
In February 2022 Moody’s downgraded Ghana’s rating, citing challenges related to liquidity, high risk of debt default and weak revenue generation, despite the country’s arguments emphasizing its strong economic fundamentals. Ghana expressed reservations about Moody’s rating assessment based on the agency’s technical inaccuracies and omissions of important information, thus reigniting the debate about the credibility of credit rating agencies while raising questions about the robustness of their methodologies and biased opinions, especially towards African countries.
Available in full colour (English)
More information on this topic is available in the panel discussion on Credit rating agencies, fiscal space and fragility in Africa and the policy paper on Eurobonds, debt sustainability in Africa and credit rating agencies.
Eurobonds, Debt Sustainability in Africa and Credit Rating Agencies
This policy paper assesses the role of Credit Rating Agencies on the cost of borrowing on the international capital markets for African countries and the impact of downgrading on selected African countries that have issued Eurobonds. This has resulted in billions of dollars being lost to fiscal space and service delivery to those most in need.
It analyses the shift in Africa’s debt structure towards an increased share of private financing and the associated risks and opportunities, with a particular focus on Eurobonds. The paper also examines the rising concerns about Africa’s debt sustainability, especially in relation to the upcoming Eurobonds wall of maturities and the risk of debt default.
It assesses the performance of the investment of debt proceeds in infrastructure development and the relationship between public expenditure, governance, and borrowing and underscores the responsibility of African Countries to change their reality by owning their narrative and changing the perception. In conclusion, it provides recommendations to maximize financing opportunities and sustain future access to international capital markets as African countries emerge from the COVID-19 pandemic and build forward better. Read the policy paper in
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- Full colour: English
Study: Intensifying the fight against corruption and money laundering in Africa
Illicit financial flows (IFFs) cost Africa around US$88.6 billion per year. They have hamstrung progress and created poverty, insecurity and financial challenges which today impede implementing the 2030 UN Agenda for Sustainable Development and the AU Agenda 2063: The Africa We Want. IFFs have also driven the African continent towards indebtedness, in addition to eroding funds that could be used for services such as education, health care and infrastructure.
This study focuses on one form of IFF, namely corruption and the resultant money laundering. It describes and analyzes the symbiotic relationship between corruption and money laundering and how they mutually reinforce an IFF ecosystem inclined towards draining resources needed for development. It further proposes measures to enhance the effectiveness of the fight against corruption and money laundering.
This study is produced by the Office of the Special Adviser on Africa (OSAA) within its mandate to support analytical work in improving coherence and coordination of the UN System support to Africa and to facilitate intergovernmental deliberations on Africa
Available in full colour (English)
Read about the author: Lyla Latif
New Partnership for Africa’s Development: eighteenth consolidated progress report on implementation and international support
This report (A/75/918) is prepared in response to General Assembly resolution A/74/301 requesting the Secretary-General to submit on an annual basis a comprehensive and action-oriented report on the implementation of the resolution, based on the provision of inputs from Governments, organizations of the United Nations system and other stakeholders in the New Partnership for Africa’s Development (NEPAD). The present report, which was prepared by the Offce of the Special Adviser on Africa (OSAA), reviews progress in the implementation of four key NEPAD’s priorities that are fundamental to the realization of the 2030 Agenda for sustainable development and the Africa Union Agenda 2063. These are: regional integration; infrastructure development; industrialization; and health in the context of the COVID-19 pandemic.