View from abroad: New development paradigm

Updated March 08, 2015


Thabo Mbeki
Thabo Mbeki

It used to be so simple: the world was divided into rich and poor countries. The rich provided aid and trade concessions to the poor ones. It was called Official Development Assistance (ODA) and often seen as a panacea for all problems facing “third world” countries. Rich nations promised to spend 0.7 per cent of their GDP as ODA. Developing nations were grateful for the help. It was neat and tidy. Orderly even.

Only of course it wasn’t. It was messy, patronising and based on the notion of charity. Nothing wrong with charity — only that it begins at home. And as the going got tougher at home, growth rates dipped and jobs became scarcer, richer countries were less and less anxious to help the poorer ones.

And then the world turned on its head as poor countries — or at least some of them — stopped being really poor. China, India, South Africa, Brazil began to rise, becoming more self confident and assertive by the day. They asked for stronger representation in international financial institutions, set up their own bank, started investing in and assisting their less well-off friends.

In 2000 amid all the change and shift in power from North to South, the talk turned to achieving the Millennium Development Goals (MDGs) and eradicating poverty. However, it was still about the rich helping the poor, putting conditions on their aid, making sure that there was no wastage, no human rights abuses.

Fast forward to 2015 and the world is a dramatically different place. The talk is of a post-2015 agenda which is about sustainable development in both the North and the South. There is a focus on governance, gender balance, and moving “beyond ODA”.

There is agreement that the 17 Sustainable Development Goals (SDGs) will not be met by ODA alone. Their achievement will require the mobilisation of the private sector, a better use of remittances and philanthropy and more creative thinking about “blending” private and public funds.

And above all there will be a focus on the mobilisation of additional resources by developing countries through domestic resource mobilisation, including through more thorough and efficient national tax collection.

Yes, finally after years of beating around the bush, global attention is turning to tackling tax evasion, by companies and individuals. The question will be high up on the agenda of the third International Conference on Financing for Development which will be held in Addis Ababa, Ethiopia, from July 13 to 16, 2015.

The reason for the focus on domestic revenue mobilisation in developing countries is clearly linked to the fact that ODA is on its way down and traditional donors are getting tougher.

There is good talk about the potential benefits of taxation for state-building and the long-term independence from foreign assistance. It is also of course a question of governance.

Revenue from taxation and customs provides governments with the funds needed to invest in development, relieve poverty and deliver public services directed towards the physical and social infrastructure required to enhance long-term growth.

Strengthening domestic resource mobilisation is not just a question of raising revenues: it is also about designing a revenue system that promotes inclusiveness, encourages good governance, improves accountability of governments to their citizens, and cultivates social justice.

Non-governmental agencies such as Christian Aid have estimated that developing countries, including lower- and middle-income countries, could be losing out on as much as $160bn a year in potential tax revenue because companies are dodging taxes. This was one and a half times the combined overseas aid budget of the whole rich world at the time, and there’s no reason to think the problem has got smaller since then.

In 2011, the United Nations Economic Commission for Africa established a high-level panel to write a report on illicit financial flows (IFFs) in Africa and to come up with ways to combat them.

The panel, presided by the former South African head of state Thabo Mbeki, warned that the cost of IFFs to the continent was around $50 billion each year.

The report states: “Some have estimated that Africa’s capital stock would have expanded by more than 60 per cent if funds leaving Africa illicitly had remained on the continent, while GDP per capita would be up to 15 per cent more.”

Worse still, this sum is even greater than the total official development assistance received by African countries, which was $46.1 billion in 2012.

At a recent conference in Brussels, participants underlined that there was no dearth of money in the world and that in fact Africa was a rich continent. The money was just not in Africa, but hidden and hoarded in tax havens, most of them in rich countries.

—The writer is Dawn’s correspondent in Brussels

Published in Dawn, March 8th, 2015

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