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MDGs: Aid is only part of, not the whole solution

22 September 2010
by Guest author

 

Today’s post is contributed by Mario Pezzini, Director of the OECD Development Centre, as part of our coverage of the Millennium Development Goals Summit taking place in New York. Click on the logo to go to the Summit website.

With only five years left until the 2015 deadline to achieve the Millennium Development Goals, world leaders are meeting in New York on 20-22 September to agree on an accelerated action agenda. You can expect the usual calls for additional aid money commitments and no doubt new pledges will emerge. But are aid money commitments the core of the matter?

Let’s focus on poverty, probably the most talked-about goal. Rough estimates, based on available data, state that around $80 billion is needed annually to close the poverty gap in Africa alone. And that is just poverty reduction. If you wanted to bridge the infrastructure gap in sub-Saharan Africa, and improve the level and quality of public service delivery, another $80 billion per year would be necessary. To put these numbers in perspective, the total amount of aid flowing into Africa annually is only $40 billion.  Aid alone is not sufficient to sustainably eradicate poverty, let alone achieve other millennium targets such as health, education, and gender equality which indirectly have a strong effect on poverty. 

 So, if aid, necessary as it is, is not enough. What can be done? Many African countries this year celebrated 50 years of independence. And yet, too many African governments have development policies that are funded primarily using foreign aid and not mobilizing their own resources.  In some cases, there are not yet alternatives, but in many others it is possible and urgent to put in place a fairer and more efficient taxation system.

Contrary to aid money, which is likely to remain painfully limited, tax money can make an enormous difference with respect to achieving development goals. Already  the order of magnitude is simply not comparable. The combined fiscal revenue in Africa in 2008 reached over $400 billion. This is ten times the total amount of aid money flowing to the continent. Of course, the amount of tax raised in different African countries varies hugely. In the same year, tax revenue in Burundi, Guinea-Bissau, Sierra Leone and Ethiopia ranged from $20 to $40 per capita, compared to $4866 in Equatorial Guinea, and $11725 in Libya.

Clearly, a number of African countries still need and should receive aid to support the provision of basic services. However, many others including South Africa, Algeria, Gabon, Egypt, Botswana, Tunisia and Morocco have started tackling their developmental challenges independently.

Saying that African countries should rely more on themselves is not the same as saying they should be left to achieve this alone. On the contrary, the responsibility should continue to be shared, but the nature and quality of international engagement should shift considerably. For example, the international community could play a key role in helping African countries to strengthen their tax administrations. Development partners should also support an international tax dialogue where Africa’s concerns on issues such as tax evasion, fiscal havens and abuses by multinationals, particularly those operating in the extraction industry, can be voiced and addressed.

Of course, increasing the amount of taxes collected on the African continent will be important, but it will not in itself help us achieve the Millennium Development Goals; there is much more to it than that. If money is not spent well, it will simply make people poorer, not richer. The quality of public spending is thus equally if not more important. Difficult choices must be made according to every country’s strategic priorities, including striking the right balance between social spending and infrastructural investment.

Regulations need to be reformed so to improve the public sector capacity to invest and to involve the private sector in partnerships. Coherence between national and local actions has to be improved. Monitoring and evaluation of public expenditures should become a normal practice. The more efficient a country’s use of collected taxes, the less taxes it will need to collect to provide decent infrastructure and functioning public services.

Millennium Development Goals help put development in the spotlight. But long–term, sustainable development will always be contingent on local ownership and domestic resources. These in turn need to be supported by informed public policies with a long term perspective. This is the key way in which African countries will be able to diversify their economies and take a more central role in the global economy. Aid helps, but it is not enough.

Useful links

African Tax Administration Forum

OECD work on development issues

OECD Development Centre

OECD Development Co-operation Directorate

The Sahel and West Africa Club (SWAC/OECD)

OECD Global Relations

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