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Resourcing NEPAD through Domestic Resourcing NEPAD through Domestic Financing Financing

Dr. Patrick OsakweDr. Patrick Osakwe

Chief, Finance, Industry and InvestmentChief, Finance, Industry and Investment

UNECAUNECA

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I. Renewed political commitmentI. Renewed political commitment

A major challenge facing African countries and regional institutions is A major challenge facing African countries and regional institutions is how to mobilize adequate financial resources for developmenthow to mobilize adequate financial resources for development

This challenge is evident in the widening gap between investment This challenge is evident in the widening gap between investment requirements and resource availabilityrequirements and resource availability

Since the adoption of NEPAD, African leaders have renewed their Since the adoption of NEPAD, African leaders have renewed their commitments to closing this financing gap through strengthening commitments to closing this financing gap through strengthening domestic resource mobilization.domestic resource mobilization.

African leaders have also emphasized the need to find more stable and African leaders have also emphasized the need to find more stable and sustainable sources of financing the NEPAD Agency and its sustainable sources of financing the NEPAD Agency and its programmes. programmes.

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II. The rationale for domestic financing of II. The rationale for domestic financing of NEPAD programmesNEPAD programmes

1.1. Domestic finance is less volatile than Domestic finance is less volatile than external financeexternal finance

2.2. It permits country ownership of It permits country ownership of development policies and outcomes.development policies and outcomes.

3.3. Creates incentives for more accountability Creates incentives for more accountability and transparency in use of public resourcesand transparency in use of public resources

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  In US Dollars (Billions)In US Dollars (Billions) 20022002 20072007 20112011

Domestic Domestic revenuerevenue 141.6141.6 403.4403.4 520.1520.1

Private flowsPrivate flows 13.913.9 65.465.4 59.259.2

ODAODA 20.420.4 38.938.9 50.050.0

RemittancesRemittances 13.213.2 37.037.0 41.641.6

III. Facts on Development FinanceIII. Facts on Development Finance

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Savings ratios in Africa are low relative to developing country Savings ratios in Africa are low relative to developing country average as well as domestic investment requirementsaverage as well as domestic investment requirements

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There are several reasons for low domestic There are several reasons for low domestic resource mobilizationresource mobilization

Low income as well as tax baseLow income as well as tax base Reliance on a narrow set of taxesReliance on a narrow set of taxes Undeveloped financial systemsUndeveloped financial systems Capital flightCapital flight Large informal sectorLarge informal sector Weak administrative capacityWeak administrative capacity

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IV. Ongoing Study on mobilizing domestic IV. Ongoing Study on mobilizing domestic resources for NEPAD programmesresources for NEPAD programmes

The study seeks to answer the following questions:The study seeks to answer the following questions:

How can African countries strengthen domestic resource How can African countries strengthen domestic resource mobilization?mobilization?

What are the feasible options for mobilizing domestic resources for What are the feasible options for mobilizing domestic resources for NEPAD Agency and its programmes?NEPAD Agency and its programmes?

What are the advantages and disadvantages of the identified What are the advantages and disadvantages of the identified options?options?

What are the domestic and regional institutions that are needed to What are the domestic and regional institutions that are needed to implement the proposed options? implement the proposed options?

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V. Some policy options being consideredV. Some policy options being considered

Raising more revenue through taxationRaising more revenue through taxation (gap exists between tax potential and tax revenue)(gap exists between tax potential and tax revenue) Property taxes, environmental taxes, airline ticket taxesProperty taxes, environmental taxes, airline ticket taxes

Exploiting the potential of Sovereign Wealth FundsExploiting the potential of Sovereign Wealth Funds Developing public-private partnershipsDeveloping public-private partnerships Reversing and stemming capital flightReversing and stemming capital flight Diaspora bondsDiaspora bonds Issuing bonds on international capital markets Issuing bonds on international capital markets Strengthening domestic financial systems and Strengthening domestic financial systems and

regional capital market developmentregional capital market development

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Obstacles to the use of capital markets for savings mobilization (% of Obstacles to the use of capital markets for savings mobilization (% of respondents to ECA survey)respondents to ECA survey)

Limited Investment Instruments

25.6%

Weak Capital Market

Infrastructure23.2%

Poor Legal and Regulatory Framework

5.6%

High Market Risk4.0%

Corruption and Governance

8.8%

Macroeconomic Instability

8.0%

Lack of Access to Information

15.2%

Low Expected Returns9.6%

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VI. Deliverables and timelineVI. Deliverables and timeline

An interim report based on desk research is An interim report based on desk research is expected in mid-Julyexpected in mid-July

Country surveys and case studies will be Country surveys and case studies will be conducted in selected countries (mid August) and conducted in selected countries (mid August) and the findings will be used with the interim report to the findings will be used with the interim report to prepare a final reportprepare a final report

The final report will be presented to the January The final report will be presented to the January 2013 Heads of State and Government Orientation 2013 Heads of State and Government Orientation Committee SummitCommittee Summit

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THANK THANK YOUYOU