Tag Archives: domestic resource mobilisation

Call to consider domestic funding

13 Nov

Flag-map-of-ZimbabweTHE single biggest challenge to efforts aimed at setting Zimbabwe back on a sustainable path to economic recovery and growth after a decade of recession to 2008 is lack of access to affordable medium and long term funding. Zimbabwe faces a peculiar situation where it has to deal with a multiplicity of problems including power deficit, external competition, high cost of labour, utilities and raw material scarcity as it battles to bring the economy back on the rails.

Economic analysts believe that no matter how brilliant Government policies will be, without access to reasonably priced long term finance economic will not succeed. Billions of dollars are required to rehabilitate and put new infrastructure from water and sanitation to roads, airports, railway lines, power stations, electricity transmission lines to industrial machinery and equipment to enhance productivity.

Other productive sectors of the economy namely agriculture, mining and tourism equally require significant funding to escape the quagmire of the decade of recession. While the economic problems are varied and distinctly separable, the bottom line is that their size and magnitude has been fermented by lack of access to affordable medium to long term funding especially after dollarisation of the economy.

The scenario has constrained the country’s capacity to regenerate its productive capacity. One of the questions that have popped up is whether it is not possible to vigorously pursue innovative ways to enhance domestic liquidity mobilization to support productivity with as much as US$3 billion thought to be speculating informally.

This is not however to underestimate the amount of money required to revive the economy. Infrastructure alone, according to the African Development Bank needs US$14 billion, agriculture US$2 billion annually, industry US$2,5 billion for retooling and mining requiring US$5 billion to US$7 billion over a 7 year period.

It should be noted that building confidence in the country’s financial system will be key to efforts Government will undertake to mobilise domestic resources considering the critical intermediary role of banks in oiling economic activity. Apart from exports the other source of liquidity would be foreign direct investment. But due to Zimbabwe’s perceived risk profile, this has not worked despite the Southern African region having received over US$10 billion in FDI in 2012.

Whereas under normal circumstances Zimbabwe like many other members of multilateral lenders could also turn to global lenders for funding assistance the avenue is shut out as the country is not eligible due to arrears from previous loans. Further, most other bilateral lenders take a cue from the International Monetary Fund and the World Bank that obviously are controlled by Western countries with which Zimbabwe currently does enjoy very cordial relations since the fall out in 2000 when it redistribute whites occupied land to majority blacks.

It means Zimbabwe might not be getting any funding from Bretton Woods institutions and related lenders remote controlled from the West for as long as it will also not be able to freely deal with the countries minus the economic embargo.

But with such a scenario, Finance Minister Patrick Chinamasa has pleaded with the global lenders to at least consider shifting from insisting on the country clearing its arrears first before being eligible for low priced long term funding once again. But without ruling anything out, this remains a tricky issue.

SOURCE: http://www.herald.co.zw/call-to-consider-domestic-funding/


Zimbabwe should…

30 Oct

Zimbabwe should engage China, with about US$36 billion for investment in special economic zones, to attracting foreign investment to resuscitate critical sectors of the economy-Comesa secretary-general Dr Sindiso Ngwenya

Should African countries look for Foreign Direct Investment (FDI) or mobilise local resources?

Send your comments to: info@afrodad.co.zw

AFRODAD engages Tanzania Parliament over Domestic Public Debt Management

2 Sep


Officials from the African Forum and Network on Debt and Development (AFRODAD) and the Tanzania Coalition on Debt and Development (TCDD) met Tanzania’s legislators on the 31st of August 2013 to discuss findings of a study conducted by the former on the country’s domestic public debt management. AFRODAD also took the opportunity to promote best practices of borrowing in the form of a charter of principles developed from its experience in lobbying on debt cancellation over the past 17 years.

Commenting on the development, AFRODAD’s Executive Director Collins Magalasi said the organisation had launched studies into domestic debt management in 2012 after noting trends pointing to increased dependence on that source of finance. He said the lack of resources available to poor countries in recent years has forced some governments to turn to new ways of raising finance such as borrowing from domestic markets. AFRODAD links the increase in domestic borrowing by some countries to the drying up of concessional loans and the reduction in aid caused by the global financial crisis among other factors.

“Unfortunately policy discussions in Africa have mainly focused on external debt, mainly to debt relief under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI). AFRODAD now believes that it’s just as important for governments to assess the sustainability of total debt (both external and domestic debt),” said Magalasi. Magalasi further bemoaned the fact that there is no internationally agreed benchmark for assessing the sustainability of domestic debt unlike in the case of external debt. “The result is that no clear guidelines exist on what poor countries should do with their domestic debt markets,” he said.

The research report (Domestic Debt Management in Africa: The Case of Tanzania) reveals that money and capital markets in Tanzania were generally non-existent during the era when the country pursued socialist principles of economic management. However the government launched financial sector reforms aimed at supporting a stable macroeconomic framework in 1991 reversing this approach. This included the development of a national debt strategy in 2002, which was later revised in 2011.

Using the provisional benchmarks suggested by Debt Relief International (DRI), Tanzania would seem not to have any domestic debt sustainability problems from the Domestic Debt/Gross Domestic Product (GDP) and Domestic Debt/ Government Revenue perspectives. However, the country’s Domestic Debt Interest Payments/ Government Revenue give a different picture. According to the DRI ratio interpretation, Tanzania can be considered to have a potentially unsustainable domestic debt burden.

“The approach of this ratio to the potentially unsustainable range should sound as a warning of the increasing domestic debt burden in the country and should thus be treated with caution,” says AFRODAD. The report also raises concern that interest payments on domestic debt have been commanding an increasing proportion of both government revenue and recurrent expenditure compared to external debt interest payments, from a cost perspective. Furthermore, the banking system is by far the dominant holder of government issued securities in Tanzania. According to this report by AFRODAD, there is excessive domination by one sector in the purchase of government securities does not augur well from a “systemic risk” point of view.

The report also notes that information on the liabilities of state owned enterprises is not included in publicly available sources of data. In principle, when government makes guarantees for non sovereign borrowings and liabilities of regional and local governments, and public/private sector enterprises it adds onto the domestic debt as contingent liabilities when they fail to pay. AFRODAD argues that the government must publish the size and attributes of contingent and other fiscal risks in line with full disclosure of fiscal information.

Notably, Tanzania has the basic legal and institutional framework to manage domestic public debt. However AFRODAD has identified some areas which merit some reforms through appropriate amendments. For instance, it asserts that domestic debt should be mentioned more explicitly in the relevant sections of the constitution, which should also clearly extend the authority of the Union’s National Assembly over that aspect of borrowing. AFRODAD also notes that the constitution does not mention the existence and the roles of the central bank, which is a key actor on domestic debt management. AFRODAD believes parliament needs to play an effective oversight role over domestic debt but they lack the capacity to play an effective role in controlling government’s loan contraction activities. AFRODAD therefore calls for Parliament to be assisted with extra research capacity to carry out budget analysis.

Additionally the report shows that other stakeholders such as civil society currently play a marginal role on the issue of domestic debt. AFRODAD implores civil society to build its capacity on this issue to enable it to play an effective watchdog role and also ensure extensive economic literacy on public debt targeted at the public. The organisation also says that legislative reforms are needed to give civil society legal and institutional recognition in the process of public loan contraction and debt management.

AFRODAD, which is a pan African civil society organisation that has lobbied for debt cancellation and addressed other debt related issues since inception, has also carried out similar studies in Kenya, Senegal, Ghana, Malawi and Zambia. It works in close partnership with likeminded local organisations such as the TCDD to encourage African governments to manage borrowed resources better. The TCDD is a coalition of CSOs that was established in Tanzania in 1998. TCDD campaigns for sustainable foreign and domestic public debt. It also campaigns for meaningful civil society involvement in the formulation, implementation and monitoring of pro-poor government policies.

6th Joint Annual meeting of the AU Conference of Ministers of Economy and Finance and the ECA Conference of African Ministers of Finance, Planning and Economic Development.

5 Apr


By Dr. Collins Magalasi

Abidjan, Cote d’Ivoire

 Opening Remarks

On behalf of the African Forum and Network on Debt and Development (AFRODAD) Board, Management and Staff, I would like to thank the African Union (AU) and the Economic Commission for Africa (ECA) for inviting AFRODAD to the Conference and also for the opportunity to contribute to the discussions. I have a few points to state and suggest on, but first a short background.


AFRODAD is a Pan African Civil Society institution born of a desire to secure lasting solutions to Africa’s debt and development problems which has impacted negatively on the lives of the continent’s citizens and the future generation. AFRODAD’s strategic goal is to support ‘African Governments institute and implement policies and practices that enable African countries to develop without indebtedness.

 The African continent is richly endowed with high value natural and human resources including gold, platinum, diamonds and other precious metals, timber, gas and oil. Paradoxically Africa is the poorest continent on earth, and yet highly indebted to the developed countries. Many African countries have become heavily indebted in the process, or as a result of following western prescribed policies and programmes such as Structural Adjustment Programmes (SAPs). Three quarters of Africa’s population, whose majority are women and youths are poor and lack basic services such as food, clean, water, shelter and clothing.1 Unfortunately, poverty makes these majority of the citizens disempowered and are unable or prevented from decision making processes largely due to structural reasons.

Africa has for long wished and discussed the need for industrialisation. The African Heads of State and Government, at January 2008 Summit of the African Union, endorsed the resolution of the 2007 Conference of African Ministers of Industry (CAMI) themed “Africa’s Industrialisation”  and resolved to put into action the Accelerated Industrial Development of Africa (AIDA).

 In 2013 the 6th Joint Annual meeting of the AU Conference of Ministers of Economy and Finance and the ECA Conference of African Ministers of Finance, Planning and Economic Development are meeting in Abidjan, Cote d’Ivoire to discuss the operationalisation of “Industrialisation for an Emerging Africa.”

 AFRODAD was officially invited to the aforementioned 2013 Joint Annual Meeting and is participating as an “Observer” and is entitled to making contributions to the Committee of Experts that prepares reports for adoption by the Conference of Ministers. Following therefore is the submission that AFRODAD and its partners make to the Committee of Experts and subsequently to the Conference of Ministers.

  1. 1.       AFRODAD is fully in support of the industrialisation of Africa.

Literary, all developed countries are industrialised; and evidence shows that their industrialisation came about through specific trade, industrial and technology policies and institutions that protected their national infant industries. AFRODAD therefore calls on African governments to resist and desist any irresponsible western-type laissez-faire and free market dogma, and take responsibility and deliberate actions to promote African institutions to industrialise, including small and medium enterprises (SMEs).

  1. 2.       Enough lessons should have been learned from Africa’s experience under the painful Structural Adjustment Programmes (SAPs) which focused on creating macroeconomic stability and structural reforms conducive for foreign firms at the expense of Africa’s own home grown firms. SAPs made Africa withdraw its support to infant domestic firms in the presence of pervasive market failures and unfair trade liberalization. New SAPs, in whatever forms or languages must not be entertained.
  1. 3.       AFRODAD is aware that the industrialisation of Africa faces many challenges, among them (a) poor infrastructure, (b) Inadequate or poor access to finance, (c) low labour productivity, (d) high uncertainty and investment risks (both perceived and real), (e) lack of capacity to improve, certify and assure quality and standards of Africa’s industrial products, (f) limited technology, and (g) threats of climate change. We call on African governments to work on these challenges and others expediously.

In this regard, AFRODAD recommends that studies and decisions must be documented on the following areas:

  • Lessons that Africa has learned from its past efforts on industrial policy, in order to design, implement, monitor and evaluate its new industrial strategies.
  • Lessons that Africa can draw from the industrialization of East Asia (as their conditions are similar).
  • Define in clear terms what role the governments and other stakeholders will play in addressing the above constraints.
  • Agree on how Africa can stand against the pressure against Africa’s industrialization that is exerted in the World Trade Organisation talks.


  1. 4.       AFRODAD is also fully aware that financing the industrialization drive is killer challenge. With gross savings in Africa at only 17.6% of GDP (compared to South Asia’s 26%, Latin America’s 24% and East Asia’s and Pacific’s 42.9%),[1] innovative financing is needed for the industrialization, and in Africa the financing mechanism that is needed is one that promotes savings and investment in the economy. Areas to consider seriously include Financial Intermediation and a well functioning financial system that can mobilize resources and allocate them to productive investments.


The following are areas that Africa should concentrate in raising the innovative finances for industrialisation:

(a)   Domestic Resource Mobilisation

Africa can easily have resource-based industrialization. In this regards, governments must put in place policies and strategies that allow financial and capital markets to make credit available to SMEs, who constitute over 75% of Africa’s intra-trade is with SMEs. In addition, Africa needs to build on the progressive growth of stock markets, development and capitalisation of Development Financial Institutions[2] and consider establishment of National Sovereign Wealth Funds.[3]

(b)   Continental Resource Mobilisation

The African Union has been considering the establishment of a continent wide fund for industrial development in Africa. It is time for action and make this plan a reality. The African Union Industrial Development Fund must have special purpose funds that can be tapped at regional or national level, especially to finance machinery and equipment, which accounts for over 80% of any industry set ups.[4]

(c)    International Resource Mobilisation

For over half a century, Africa has been duped by foreign investors. In the bid to attract these FDIs, Africa has lost its control over its development agenda and lost trillions of dollars that could have been reinvested in Africa. AFRODAD recommends that the AUC and UNECA should study the cost that Africa pays for attracting FDIs. Governments must withdraw tax incentives and holidays given to FDIs and promote local firms.[5]

Much as FDIs to Africa have increased over the years, it is regrettable that most of these have gone into natural resource exploitation. African government need to be in the driving seat and direct the quality of investment flows into their countries towards productive and value addition sectors.

In addition, deliberate actions must be taken to promote local enterprises to become suppliers or subcontractors to Multinational Companies (MNCs).

Every effort must be made to stop MNCs from illicit financial flows. In this regard, Africa must demand closure of tax havens and ensure country-by-country reporting.

(d)   Hybrid Savings and Investment Resource Mobilisation

One innovative source of financing for Africa’s industrilaisation is savings from Africans living in diaspora. It is estimated that between 2012 and 2014, a whooping US$75 billion will be sent to Africa from Africans in diaspora.[6] This is more than half of the net aid expected from donors in the same period.[7]

AFRODAD is pleased to note that the African Union has been championing the setting up of a facility that would leverage diaspora resources. We note however that at the moment there is no Diaspora policy that would guide the relationship between Africans in diaspora to their home countries and we call for development of Diaspora Policy to be developed as a matter of urgency.

All of the above innovative sourcing of financing requires, as a preliquisite, review of legal and institutional frameworks of African countries in order to be able to stimulate sustainable access to credit and private financial resources.

With the debt crisis fresh in the memory of every African, it is imperative that financing of this ‘new African’ industrialization must not lead to continent back into the debt trap. In this regard, we propose that the AUC and UNECA should conduct study on Debt and Industrialisation.

Conclusion and Closing Remarks

In conclusion, AFRODAD fully supports our leaders’ commitment to industrialise Africa. We believe in the saying that “where there is a will there is always a way” and we hope our leaders know that it is time for ACTION, and not just talk. Africa’s wise leaders Kwame Nkrumah and Julius Nyerere gave the scenarios for industrialisation and our generation therefore has the motivation to do things differently. AFRODAD appreciates the growing relationship with the AUC and ECA, Regional Economic Blocks in Africa and individual African governments. Together, we can.

Thank you

Dr. Collins Magalasi and Ms. Nyasha Munditi

Abidjan, Cote d’Ivoire, 23rd March 2013


[1] World Bank, 2011

[2] Such as Development Bank of Southern Africa, IDC, PTA Bank, Islamic bank, AfDB etc

[3] Lessons can be learned from the Norwegian Oil fund , for example

[4] UNCTAD, 2012

[5] Tax incentives given to FDIs are subsidies that poor people make to the rich foreign investors.

[6] World Bank estimates that in 2012 remittances will be $24 billion, 25 billion in 2013, and up to $27 billion in 2014. See http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22141991~menuPK:34480~pagePK:64257043~piPK:437376~theSitePK:4607,00.html accessed on 2nd March 2013.

[7] See OECD/DAC, 2012