Sustainable growth in Africa after COVID-19, improve financing and boost infrastructure, says OECD Development Centre

African economies need to expand their efforts for productive transformation in order to generate economic growth and quality jobs in the aftermath of the COVID-19 crisis, according to a paper released in the run-up to the Summit on Financing African Economies.

The African continent registered the world region’s second-fastest growth over the last decade. However, Africa’s per capita real GDP growth over the period 2009-2019 was 1.3% per year, which is half the global average of 2.5% and insufficient to achieve its development vision, the African Union’s Agenda 2063. A key factor hampering productive transformation and private sector development has been a persistent infrastructure investment gap estimated to range between USD 130 and USD 170 billion per year. The resulting poor logistics reduces firm-level productivity by as much as 40%, below their global competitors, stifling their capacity to generate quality, formal jobs.

According to the report, infrastructure projects yield significant development gains for Africa provided complementary policies, such as the provision of basic social services, are also in place.  The report focuses on three actions that can help African policymakers mobilise investment to advance their development goals:

– First, deepening governments’ engagement with peers and the private sector will help them identify better policies to improve their public finances. This requires strengthening Pan-African policy dialogue on taxation, working with international partners to co-operate on the production of up-to-date and comparable statistics on domestic revenue mobilization and enhancing cross-border tax information sharing. And also providing assistance to efforts to build tax administration and auditing capacity.

– Second, governments can strengthen institutions to attract private investment and enhance the effectiveness of public investment and services. Conditional on solid economic governance systems, national investment promotion agencies can improve investor confidence by acting as interlocutors between governments and foreign businesses, and monitoring policy reforms. Co-ordinating policies more effectively at a regional level, notably through the African Continental Free Trade Area launched in January 2021, by identifying investment priorities and marketing African countries to investors, can generate substantial advantages of scale.

– Third, governments must create an African Infrastructure Ecosystem to accelerate and scale up pipelines of bankable quality infrastructure projects. Rigorous standards of quality, such as applied by the AUDA-NEPAD’s PIDA Quality Label, can both enhance the quality of project preparation, and reassure investors in support the continental integration agenda. Improvements in infrastructure project design and implementation will also come from better capacity building by developing a community of practice of African infrastructure experts, such as through the African Infrastructure Knowledge and Learning Platform.

 I.  Increase domestic resource mobilisation through peer learning and exchange of information

Public revenues per person have been trending downwards, but peer learning can help African policy makers find their own solutions to improving collection.

1. Strengthen the Pan-African policy dialogue on taxation, the joint production of up-to-date and comparable statistics on domestic revenue mobilisation, and cross-border tax information sharing.

International co-operation to improve tax data allows governments and tax authorities to improve policies for domestic revenue mobilisation. Recent initiatives bringing African countries together to gather and harmonise data on tax systems include:

• the African Tax Outlook (ATAF, 2020), compiling and analysing indicators on African tax administrations, tax policy and tax revenues;
• Revenue Statistics in Africa (OECD/AUC/ATAF, 2020), producing detailed and comparable data on levels and structures of tax and non-tax revenues in African countries, also enabling detailed comparison with the other world regions; and
• the Africa Initiative of the Global Forum on Transparency and Exchange of Information for Tax Purposes, which works to improve transparency and information sharing within African tax administrations, in order to reduce tax evasions and illicit financial flows. It also monitors progress through an annual Tax Transparency in Africa Report, jointly published with the African Tax Administration Forum (ATAF) and the AU Commission.

2. Support efforts to build tax administration and auditing capacity

An efficient way to improve the performance of tax administrations without engaging in policy changes or administrative reforms is to target the improvement of tax audits. For instance, the joint OECD/UNDP Tax Inspectors Without Borders (TIWB) initiative deploys tax experts into the tax administrations of developing countries. They conduct tax audits with local officials in international tax areas, transferring hands-on knowledge and skills. Additional tax revenues attributable to TIWB programmes in Africa, including anonymised casework conducted during workshops by ATAF, OECD and the World Bank Group (WBG), amount to USD 354.1 million. The  programme led to overall increases of tax assessments in excess of USD 1.58 billion up to 2020 (OECD/UNDP, 2020).

     II. Strengthen institutions to attract private investment and enhance the effectiveness of public investment and services

For a sustainable recovery, African governments need to increase investment in high-value sectors. Public investment and efficient public institutions have a crucial role to play, including encouraging private investment.

1. Empower national investment promotion agencies, as part of productive transformation strategies

Investment promotion agencies (IPAs) must co-ordinate effectively with governments in the context of national productive transformation agendas. They can encourage foreign investors to transfer knowledge to local companies by employing, training, and subcontracting locally: the Tangier automobile cluster in Morocco is a case in point (AUC/OECD, 2018). By providing financial assistance, market intelligence, branding, investor aftercare, and assisting with overseas expansion, they help develop local business ecosystems. Their action can be supported by policies for industrial clusters and value-chain development.

2. Develop international platforms to identify priorities and co-ordinate investment

The implementation of the African Continental Free Trade Area (AfCFTA) is a new opportunity but calls for greater continental co-ordination. Most African economies are too small to attract significant investment unless they become parts of integrated economic corridors. The AUC-OECD Development Centre Platform on Investment and Productive Transformation can facilitate dialogue between African governments, Regional Economic Communities (RECs), development partners and the private sector to better attract and co-ordinate investment.

   III. Create an African infrastructure ecosystem and grow pipelines of bankable quality infrastructure projects

At the African Union summit in February 2021, leaders agreed to prioritise 69 cross-border projects as part of the PIDA-PAP 2 Process (2021-2030). Although in principle these are aligned with the goals of the AU’s Agenda 2063 and selected based on positive prospects for financing and implementation, the AU considers that they need extra nudging to advance past the planning stage (AUC, 2020).

1. Fast-track the application of AUDA-NEPAD’s PIDA Quality Label

By providing screening and appraisal tools to fast-track early-stage advisory work, the PIDA Quality Label (PQL) of the African Union Development Agency (AUDA-NEPAD) holds the promise of making infrastructure development projects more attractive for private investors. Applied to projects emerging from the PIDA 2021-30 selection process, the PQL can become an internationally recognised African brand for infrastructure projects (OECD/ACET, 2020[14]). Expanding the use of the PQL will help align them with AU members’ strategic development objectives. Global appraisal tools such as the Blue Dot network, SOURCE or the IMF’s Public Investment Management Assessment (PIMA) could support the successful implementation of such African instruments.

2. Develop the African Infrastructure Knowledge and Learning Platform as a base for an expanding community of African infrastructure professionals.

In order to help create a healthy African infrastructure ecosystem, the AUDA-NEPAD, the African Centre for Economic Transformation (ACET) and the OECD launched together an African Infrastructure Knowledge and Learning Platform. By bringing together existing, fragmented initiatives, the Platform aims to facilitate real-time information, knowledge sharing and capacity building at continental level  (OECD/ACET, 2020). It can also strengthen data collection and provide infrastructure benchmarking to improve transparency and monitor progress.

Encouraging public-private dialogue can also reduce risk perceptions and unlock additional finance, especially from the private sector. In this context, the Continental Business Network (AUCBN) launched by AUDA-NEPAD in 2015 to crowd-in financing for infrastructure project already facilitates partnerships between the public and private sectors (AU-PIDA, 2015). The AUCBN can assist in achieving the AUDA-NEPAD’s “5% Agenda”, which aims to increase to 5% the contributions of institutional investors and pension funds to infrastructure financing, from its current level of approximately 1.5% (AUDA-NEPAD, 2017)
SOURCE: OECD Development Centre – Paris