African governments need to find innovative financing models if they are to turn the economic challenges brought on by the Covid-19 pandemic into opportunities.
Speaking on the first day of the 2021 African Economic Conference (AEC) taking place in Cabo Verde, at least two finance ministers said there was a need for African governments to expand the tax base by tackling illicit financial flows and reducing the mounting debt burden to overcome the challenges of the pandemic.
“We are defining new financial mechanisms. We need to use non-conventional models and to think outside of the box, or without even the box,” said Nicolas Kazadi, Finance Minister of the Democratic Republic of Congo.
The finance ministers said that Africa had an opportunity to attract massive foreign direct investments (FDI) by strengthening its institutions and playing down negative publicity, which has been driving up the continent’s risk ratings.
African governments, said the ministers, need to create a society that is ruled by principles, ethics and law.
The 2021 edition of the Africa Economic Conference, which was opened on Thursday, 2 December by President José Maria Neves, takes place amidst the dark cloud of the Covid-19 pandemic which has negatively affected African economies by reducing revenues and triggering a debt crisis.
With these increasing debt levels, the ministers called for the re-organisation of debt, particularly external debt, to free up resources for other critical public services such as healthcare and education.
"The public debt is an atomic bomb that is going towards the African continent,” said Dr Olavo Avelino Garcia Correia, Cabo Verde’s Vice-Prime Minister and Minister of Finance.
“We cannot have an economy that works only to pay debts,” added Garcia.
The minister presented Cabo Verde’s case where 60% of revenue goes towards servicing debt.
“This is not sustainable, not only for Cabo Verde, but also for African countries."
Beyond a debt moratorium, African countries need to restructure and re-organise their external debts.
Garcia added that the debt problem was better solved internally through increased tax collection, while citizens must be guaranteed the transparent use of resources collected.
Kazadi emphasised the role of the private sector in enabling new financing models which, besides FDI, also include remittances.
“We must not ignore the role of the private sector in reducing poverty and development,” said Kazadi.
He added that African governments needed to create strong institutions that were transparent and accountable.
Garcia also cited better governance as the panacea for illicit financing and corruption. “It is up to the African, to build solid institutions that will stop illicit funds and money laundering,” he said.
There was general agreement that African countries needed to diversify to better face future challenges. The continent also needed a voice in global and international financial institutions. “Our institutions cannot stand for only peace and security but also for growth and development,” said Kazadi.
“Finding solutions to debt are with Africans, we just need to do our homework, but partnerships with international partners is important.”
Kazadi said that technology is also there to help Africa.
“I cannot have an inspector behind every tax payer, but profile their travel, shopping, income, everything is registered and the state can intelligently manage information and lessen tax evasion.”
The panel agreed that there is also a need for African states to dialogue among themselves and integrate solutions. This will allow them to reduce poverty.
There is also an opportunity to use international solidarity to overcome Africa’s problems and challenges, but this requires daily engagement and commitment.
Regarding the recent new Special Drawing Rights (SDR) allocations by the International Monetary Fund (IMF), Kazadi encourages countries, particularly rich and developed ones, to redistribute their portions to poor countries that desperately need help.
The AEC, taking place both physically and virtually, has been organised by the African Development Bank, ECA and UNDP.