Enhancing the role of domestic financial resources in Africa’s development

Africa has displayed the lowest growth rate in the world since the 1960’s to date. The rate was a mere 0.9 percent per annum which was 1.5percent points below the rate of other developing regions and 3 percent points below that of high performing East Asian economies and even African top performers such as Mauritius and Botswana. In a recent conference held at Laico Umubano Hotel, Kigali it was highlighted that Africa’s slow growth is primarily due to low factor accumulation, particularly capital and productivity and these two factors account for 50percent of the difference in growth rates between Africa and other developing countries. According to Janvier Nkurunziza, the Project Manager for the United Nations Conference on Trade and Development for Africa (UNCTAD), Africa’s savings rate is currently at 20percent of GDP. This is half the rate in East Asia and Pacific region which boosts a rate of 39percent of GDP. “The impact of low levels of savings and investment, has led to low levels of economic development on welfare of Africa’s populations which is staggering,” he said. According to Nkurunziza, the continent of Africa has the highest rate of poverty prevalence, which is well defined as the proportion of people living with an income of less than one dollar per day, and this has remained the case over last 2 decades. “This situation has prevailed up to middle this decade, where 46percent of the African population is poor compared to 29percent in south Asia, the poorest region in the world,” Nkurunziza said. “Africa is the only region where the number of poor people has been increasing at a time when other regions have significantly reduced their proportion of poor people by controlling unnecessary birth rates,” Nkurunziza added. East Asia has reduced the number of its poor people from about 60percent in the 1980’s to about 15percent in 2003, in contrast to Africa’s numbers that increased from 42percent to 46percent over the same period of time. “The 2008 cascading food, fuel, financial and economic crises have even exacerbated these trends and millions of Africans have fallen into poverty in the last two years as a result,” Nkurunziza said. Antonio Pedro, the Director of the United Nations Economic Commission for Africa (UNECA) said that, the continent clearly needs much more resources than it has today if it is to attain MDGs, in particular halving poverty by 2015. “The need for more capital accumulation and its efficient use for productive purposes will make projects reach their goal of mobilizing financial resources on the African continent as well,” Pedro said. The UNECA Project has been assessing two questions of how Africa should generate more financial resources to fund its development needs and what should be done to maximize the efficiency of these resources. Pedro underscores the need for financial resources as one of the available alternatives that do not generate debt. He gave the simple reason that, “people should avoid repeating the experience of the 1970s and 1980s where unwise borrowing and lending led to the infamous Africa’s debt crisis.” “Many African economies are apparently and presently still paying the price due to that infamous crisis that was caused by unwise borrowing and lending,” Pedro said. The UN body says that most of these resources are domestic and include private resources from formal, semi-formal and informal sectors, as well as tax and non tax public revenue. The UNECA project has plans of making discussions on some of the external resources that include primary remittances, which should be considered due to their growing importance in several African countries. “What should be done to increase the productivity of resources in Africa is to base on mobilizing financial resources and efficiently making proper use of them in the continent,” Pedro said. He added that, “Before the current economic crisis that has engulfed all countries in the world, a number of African countries had benefited from the commodity boom and increased their revenue.” Unfortunately, judging from the experience of past booms, countries have tended to increase spending on non productive assets which created a misuse of resources around the continent. Martin Halle, an employee of the UNECA project said that, public resources are supposed to be directed to the most pressing needs of the population and most productive investment. “For investments to produce growth, development and reduce poverty, the tendency to allocate resources based solely on political objectives should give way to economic efficiency considerations,” Halle said. He said that the view that while political imperative may be important for resource allocation, growth can be achieved only if economic factors have precedence. However, he recommended that African countries need to take part in establishing the best institutional framework that will encourage private investors to invest within the continent. Through adopting strategies that increase the development finance envelope in African countries and using them efficiently to put the continent on a sustainable growth path, its imperative that poverty reduction will be achieved when domestic financial resources are properly put to use. karangwa_p@yahoo.com