Foreword

Strong voices from the four corners of the globe have continued to tell the compelling story of an African continent that is resolutely on the rise and within the threshold of economic transformation and take-off. One of the most important planks which supports the growing optimism about Africa’s imminent economic take-off is the continent’s impressive economic growth rates during a greater part of the last two decades. Economic growth has averaged about 5 per cent a year, making it one of the fastest-growing regions. However, some of the shine generated by this impressive economic growth rates has been dulled by its non-inclusive character and because the growth has not been accompanied by economic transformation that generated employment. Increasingly, therefore, various segments of African societies, including its leadership, have come to recognize the imperative of economic transformation as a means of engendering sustainable development on the continent.

Despite the strong consensus around the need for the economic transformation, the challenge of how to finance the transformation is well-known but has yet to be addressed adequately. The financial resources needed for Africa’s structural transformation, including for filling its huge deficits in infrastructure and energy, which are critical for industrialization, are enormous and well documented. The quest for solutions to the resources requirements for Africa’s structural transformation has to be viewed from the prism of the growing unreliability and inadequacy of traditional sources of development finance, particularly those from external provenance, such as foreign direct investment (FDI) and official development assistance (ODA).

Although development assistance and other external sources of development financing continue to be relevant, they cannot be relied upon as the principal sources of funding for the industrialization and economic transformation of African countries. Rather, in light of the scale and scope of the resources needed for transformation and development priorities, the continent’s policymakers increasingly have to prioritize attracting and retaining both new and old domestic sources of finance and developing innovative mechanisms that can leverage hitherto unexplored sources such as remittances, savings from the curtailment of illicit financial flows (IFFs), diaspora funds, better negotiated mineral contracts and the expansion of Africa’s fiscal space. In a nutshell, Africa’s transformation agenda must be met with internally mobilized financial resources, which ideally should only be supplemented by external sources.

This book builds on the issues papers and synthesis of discussions of the Ninth African Development Forum, organized by the Economic Commission for Africa and its strategic African partners, and examines five thematic issues areas of development financing. These are deemed to have the potential to respond to Africa’s quest for alternative and innovative sources of finance to underwrite its economic transformation agenda. The five thematic areas are: Domestic resources mobilization, illicit financial flows, private equity, climate financing and new forms of partnership. These innovative sources of finance offer the continent a range of options and opportunities. If they are properly leveraged, they would considerably reduce its dependence on external resources and provide the requisite resources for the implementation of regional and global development agendas, such as the evolving African Union Agenda 2063 and the post- 2015 global development agenda.

It demonstrates that a number of characteristic features of African economies are at the root of the rather low levels of mobilizing domestic resources, including: low public and private savings rates; narrow tax bases; complex administrative and bureaucratic procedures; corruption; tax evasion; deficiencies in the growth and development of financial systems; and the high levels of dependence on external financing. It makes a very strong case for robust policy measures to alter these features, with a view to enable African countries to be better equipped to capture sources of finance that are currently unexplored or poorly developed, including closing the loopholes that facilitate the haemorrhage of the continent’s financial resources through illicit financial outflows.

The book analyzes the various dimensions, sources and impacts of illicit financial flows from the continent and the strategies that could be deployed to halt and redirect them towards Africa’s development. It demonstrates that the scale of these flows in Africa is higher than the volumes of official development assistance inflows. If Africa could halt illicit financial outflows successfully, it would not need development assistance. The book also provides analysis of private equity. It argues that Africa lags behind other regions of the world in developing this potentially lucrative source of development financing, partly because of the lack of adequate knowledge and understanding. It unpacks the potential benefits of private equity and makes proposals on ways African countries could better leverage them for development.

This book also establishes the critical linkages between Africa’s transformation agenda and climate change and clearly demonstrates the inseparability of climate finance from development finance. It concurs with dominant scientific consensus on the fact that Africa is the region that is most vulnerable to the impacts of climate change and least able to cope with them, owing in part to its relatively low levels of economic development. It highlights the high adaptation costs that the continent faces and the various challenges related to getting access to various global climate funds. The book also documents the commendable efforts that African countries have deployed to address the challenges posed by climate change, including the establishment of the Climate for Development in Africa programme (ClimDev-Africa) and the ClimDev Special Fund.

The book also speaks to the imperative for a paradigm shift in Africa’s partnerships with various global actors, particularly in the area of development finance. It lays bare the shortcomings in current donor-recipient relationships, including the lack of mutual accountability and the reluctance by the more powerful global actors to concede to the reform of existing global trade and financial institutions. It urges a fundamentally different approach to development finance, underpinned by innovative forms of international partnerships that are cognizant of the new realities of the global political economy and which accord Africa its rightful place.

Taken together, the five areas of innovative and alternative sources of financing analysed in this book have the potential greatly to reduce Africa’s dependence on external sources for the resources for its development. More importantly, if these new sources are properly developed and leveraged, they would provide the resources required to finance Africa’s development agenda, embodied in Agenda 2063, and facilitate meeting the ambitious goals set out in the evolving post-2015 development agenda.

It is against this background that we strongly believe that this publication would constitute a useful input into the forthcoming United Nations Third International Conference on Financing for Development, scheduled for Addis Ababa in July 2015.

Carlos Lopes, United Nations Under-Secretary-General and Executive Secretary of the Economic Commission for Africa