African countries must aim for double-digit growth, says UN report
One way to dramatically increase government revenue is to adopt policies that improve tax collection through digitisation
Africa must digitise its economies, broaden its tax base, prevent further deterioration of fiscal and debt positions, and aim for double-digit growth to realise its potential, according to a new UN report.
While economic growth in Africa remained moderate at 3.2% in 2018 — due to solid global growth and a moderate increase in commodity prices — the continent needs to achieve a fine balance between raising revenue and investment incentives to boost growth.
The “2019 Economic Report on Africa”, which was released over the weekend, is a flagship publication of the UN’s Economic Commission for Africa (ECA). The 2019 report focuses on fiscal policy.
According to the World Bank, growth in sub-Saharan Africa is expected to accelerate to 3.4% in 2019. Growth in Nigeria is expected to rise to 2.2% in 2019, assuming that oil production will recover. A slow improvement in private demand will constrain growth in the non-oil industrial sector. Angola is forecast to grow 2.9% in 2019 as the oil sector recovers and as reforms bolster the business environment. SA is projected to grow modestly at a 1.3% pace, amid constraints on domestic demand and limited government spending.
The “2019 Economic Report on Africa” notes that government revenues are insufficient to meet countries’ development financing needs.
“The report identifies several quick wins in Africa’s pursuit of additional fiscal space to finance its accelerated development,” Vera Songwe, the ECA’s executive secretary said.
“[It also] focuses on the instrumental role of fiscal policy in crowding-in investment and creating adequate fiscal space for social policy, including supporting women and youth-led small and medium enterprises.”
In some of Africa’s largest economies — SA, Angola and Nigeria — the report reveals that growth trended upwards but remained vulnerable to shifts in commodity prices.
East Africa remains the fastest growing, at 6.1% in 2017 and 6.2% in 2018, while in West Africa the economy expanded by 3.2% in 2018, up from 2.4% in 2017. Central, north and southern Africa’s economies grew at a slower pace in 2018 compared with 2017, according to the report.
On the issue of Africa’s debt burden, the report reveals that debt levels remain high as African countries increase their borrowing to ease fiscal pressures.
The report says African countries can increase government revenue by 12%–20% of GDP by adopting a policy framework that strengthens revenue mobilisation including digitisation, a move which could enhance revenue by up to 6%.
“Digital identification can broaden the tax base by making it easier to identify and track taxpayers and helping taxpayers meet their tax obligations. By improving tax assessments and administration, it enhances the government’s capacity to mobilise additional resources.
“Digital ID systems yield gains in efficiency and convenience that could result in savings to taxpayers and government of up to $50bn a year by 2020,” the report states.