African Economic Outlook 2010

Gregory De PAEPEPolicy Analyst

OECD Development centre

September 15th , 2010

UNECA

Public Resource Mobilisation and Aid in Africa

Financial partners (European Development Fund)

Other partners

UNECA

Lead partner(since 2007/08)

Experts Network= 10 Independent African Think Tanks

From 47 to 50 countries

= 99.5% of Africa’s GDP

= 97.3% of its population

AEO partners + coverage

Focusing on key structural issues every year

Special annual focus:

2003: Privatisation2004: Energy2005: SMEs2006: Transport2007: Water and sanitation2008: Technical & vocational skills development2009: Innovation and ICT

2010: Public Resource Mobilisation and Aid

Public Resource Mobilization and Aid

Why Public Resource Mobilization

Taxes in Africa: some stylized Facts

1

2

3 Policy options

Mobilising one’s own

resources for development

Building accountable

states

Big bang for your

aid buck

Ownership & governance

The cornerstone of broad-based development

ODA < 50% tax revenue

ODA > 50% tax revenue

No available data

Source: Development Centre, based on AEO country survey’s, 2010.

1. WHY PUBLIC RESOURCE MOBILIZATION

Liby

aEq

uato

rial G

uine

aSe

yche

lles

Gab

onAl

geria

Ango

laBo

tsw

ana

Sout

h Af

rica

Cong

oM

auriti

usN

amib

iaSw

azila

ndTu

nisia

Cape

Ver

deM

oroc

coAF

RICA

N A

VERA

GE

Nig

eria

Egyp

tLe

soth

oSu

dan

Chad

Djib

outi

Zam

bia

Sene

gal

Cam

eroo

nKe

nya

Mau

ritan

iaCô

te d

'Ivoi

reSã

o To

mé

& P

rinci

peAF

RICA

N M

EDIA

NBe

nin

Gha

na**

Com

oros

**M

ali

Gam

bia

Togo

Burk

ina

Faso

Tanz

ania

Gui

nea

Uga

nda

Moz

ambi

que

Rwan

daM

adag

asca

rLi

beria

Mal

awi*

Cent

ral A

fr. R

ep.

Nig

erEt

hiop

iaSi

erra

Leo

neCo

ngo

Dem

. Rep

.G

uine

a-Bi

ssau

Buru

ndi 0

400

800

1200

1600

2000

Tax revenue per capita

ODA per capitaUSD

Mobilising Africa’s public resources: can and must be achieved

Median

Average

Source: Development Centre, based on AEO country survey’s, 2010.

2. SOME STYLISED FACTS

19961997

19981999

20002001

20022003

20042005

20062007

10

15

20

25

30

35

40

Taxes as a share of GDP in Africa% GDP

0

500

1000

1500

2000

2500

3000

3500

Average tax collection per capita in Africa

Upper Middle Income Lower Middle Income Lower Income

USD per Capita

Source: Development Centre, based on AEO country survey’s, 2010.

Encouraging trends considering income levels

≈ USD 3000

≈ USD 500

≈ USD 70

2007 2007

2. SOME STYLISED FACTS

Source: Development Centre, based on AEO country survey’s, 2010.

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20070

2

4

6

8

10

12

14

16Resource taxesTaxes on personal income and profitsVAT and excisesImport duties

% G

DP

But driven by volatile and unbalanced sources of income

Tax share = 36.4% of GDPTaxes on income and profits = 11.6% of GDPVAT = 10.5% of GDPResidual taxes = 14.3% of GDP

Compared to Germany:

2. SOME STYLISED FACTS

Some non resource-rich countries have performed better in terms of tax effort (Tax effort = actual tax revenue/potential tax revenue)

Leso

tho

Swaziland

Liberia

Comoros*

Namibia

(oil)South Afri

ca

(oil)Kenya

Morocco

Ghana*

Cape Verde

Senegal

Malawi

Gambia

Zambia

Ethiopia

Botswana

Uganda

Rwanda

Guinea-Biss

au*Mali

Burkina Faso

*

(oil)Egyp

t

Mozambique

Tanzania*

(oil)Maurit

ania

(oil)Côte d'Iv

oire

Mauritius

(oil)Cameroon

(oil)Tunisi

a

Sierra Le

one

Central A

fr. Rep.

(oil) Congo Dem. R

ep.

Madagascar

Guinea

(oil)Sudan

(oil)Gabon

(oil)Algeria

(oil)Nigeria

(oil)Congo

(oil)Angola

(oil)Chad*

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Tax effort index excl. resource taxes

Source: Development Centre, based on AEO country survey’s, 2010.

Yet several reformers show resource abundance not necessary

Oil exporters usually show low tax effort

African average =1.09

2. SOME STYLISED FACTS

Four Challenges for African Tax Policy Makers

Source: Centre de Développement, sur la base des notes pays des Perspectives économiques en Afrique, 2010.

1. Inadequate capacitySmall staff, low pay, IT, governance …

2. Low to very low fiscal legitimacyHealth, infrastructure, education …

3. Shallow tax baseInformal sector = about 75%

4. Unbalanced tax mixSome overtaxed, some undertaxed

3. POLICY OPTIONS

Micro, small and medium enterprises = low fiscal potential

• High collection costs• Low fiscal returns• Already pay VAT

Formal SMEsMicro / small informal

• Few exemption benefits• Tend to be abusively taxed• « Missing middle »

3. POLICY OPTIONS

Big transactions and enterprises have a high fiscal potential

Multinationals

• Fraud and exemptions• Effective tax rates < nominal tax rates

• Lack of transparency

Big informal transactions

Low collection costs

High fiscal returns

3. POLICY OPTIONS

At national level

3. POLICY OPTIONS

In the medium / long run

• Stimulate private sector development

• Moderate, broad-based effective tax rates

• Strengthen administrative capacity

• Build fiscal legitimacy by improving quality of expenditure

In the short run

• Tax big informal and formal transactions better

• Fight fraud and fiscal evasion

2%

98%

Technical cooperation to "Public Sector Financial Management" in Africa

Total technical cooperation to other sectors in Africa

Source: OECD/DAC 2010

Country Average Cost - revenue

ratioSudan 5.7%Ethiopia 5.3%Congo RDC 5.2%Rwanda 3.2%Tanzania 3.2%South Africa 1.2%ArgentinaEcuadorCosta Rica

1.8%1.0%0.8%

A high multiplier, yet neglected in technical cooperation

yet

Collection costs as a % of collected tax revenues

3. POLICY OPTIONS

www.AfricanEconomicOutlook.org

UNECA

Thank you

The voice of Africa must be heard in the international tax dialogue

CHANGE GLOBAL

RULES OF THE GAME

Country-by-Country MNEs

reporting…

Dealing with misuse of transfer pricing by MNEs

Participation in International Tax

Dialogue

Regional initiatives: African Tax Administration Forum

Local International

= OECD : tax havens…

= OECD : capacity building + peer learning

Being studied as a potential solution =

= Capacity issues

3. POLICY OPTIONS

Untapped resources for resource-rich countries…

• Some non resource-rich countries have performed better in terms of tax effort (Tax effort = actual tax revenue/potential tax revenue)

Source: AEO, 2010.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Including resource taxes Series3

Tax

eff

ort

Resource dependent

PART 2: SOME STYLIZED FACTS