What global financing for development agenda means for Africa

As this article is being read, the world’s leaders, including President Paul Kagame, will be nearing the point of formally adopting the final Outcome Document of the Third Financing for Development Conference (FfD), being held in Addis Ababa between 13 to 16 July. As many readers of The New Times and observers are aware by now, this Conference is one of the key milestones on the path towards the adoption at the September 2015 UN General Assembly of the new global development agenda and its underpinning 17 Sustainable Development Goals (SDGs). Much has also by now been written on, and communicated about, the SDGs. Suffice to recall that the new global development agenda they will be underpinning are much more ambitious than the Millennium Development Goals (MDGs). In the preamble of the Outcome Document of the Addis Ababa FfD Conference, the Heads of State and Government and High Representatives themselves clearly put it as follows:“ We have gathered in Addis Ababa, Ethiopia, from 13 to 16 July 2015, to address the challenges of financing for sustainable development in the spirit of global partnership and solidarity … Our goal is to eradicate poverty and hunger in this generation, and to achieve sustainable development through promoting inclusive economic growth, protecting the environment, and promoting peaceful and inclusive societies. We commit to ensure gender equality and women’s and girls’ empowerment, to promote and protect all human rights, including the right to development, and to build an inclusive and equitable global economic system where no country or person is left behind, enabling decent work and productive livelihoods for all, while preserving the planet for our children and future generations.” The other important distinguishing feature between the MDGs and SDGs is the huge financing requirements of effective implementation of the latter.For instance, rough calculations from the UN intergovernmental committee of experts on sustainable development financing have put the cost of providing social safety nets through social protection programmes,for eradicating extreme poverty around the world at about US$66 billion a year, while annual investments in infrastructure improvements and development (water, agriculture, transport, power) could add up to a total of US $7 trillion globally. We will of course have to update the corresponding figures for Africa, particularly after the adoption of the Addis Ababa FfD Outcome Document but undoubtedly they will also run into billions of US $ annually. The question that arises, and, in fact, has been posed by numerous observers, is where will all these resources come from? It is comforting that, as opposed to the case of MDGs, when the dialogue on the possible sources of MDGs took place at Monterrey only two years after the Millennium Summit, the debate about ensuring the sustained financing of the SDGs actually started well ahead of the expected adoption in September of the new post-2015 development agenda. The start-up of this process could be traced to at least two years ago. The dialogue on the financing for the new goals, which has been taking place between the UN Member States, including Rwanda, the international financial institutions, international trade organizations as well as NGOs, could be said to have reached the peak in May 2015, when the final draft of the Addis Ababa Outcome Document was elaborated. This brings us to the other distinguishing feature of the expected modes of financing the SDGs from that of the MDGs: in the case of the SDGs, there is much more emphasis on recourse to funding avenues other than official development assistance (which was the expected major source for financing MDGs), notably more aggressive approaches to domestic resource mobilization, domestic and international private sector investment promotion, regional and global trade expansion, as well as increased mobilization of resources from such non-traditional sources of funding as foundations and philantropist organizations. As the Addis Ababa Outcome Document itself states it, external public aid (ODA) will no doubt continue to be important for funding the SDGs in many countries, but the relative share of it in the total financing packages is expected to decrease significantly over time. Countries where ODA will continue to play such a critical role include LDCs, land-locked countries, small island developing countries, fragile and conflict affected countries and some vulnerable middle-income countries. In many of these countries, external aid in the initial years could actually play a catalytic role in aiding them to reduce dependence on it. But for this to happen, deliberate strategies and policies have to be deployed towards enhancing significantly aid and development effectiveness and self-reliance, as Rwanda has been broadly known by now to be doing effectively. This is imperative because the secular decline in ODA and its lack of predictability are expected to continue through the implementation period of the SDGs. Most of the OECD countries have significantly fallen short of meeting their commitments to allocate at least 07 % of their gross national incomes (GNI) to ODA for developing countries, with the actual average rate currently standing at 0.20 % of their GNI. The other important potential new sources of ODA and other types of external public funding for SDGs include climate and environmental protection financing, funding for supporting humanitarian responses and fighting epidemics, new and old, for ensuring food security, innovative financing and blended and more concessionary support from regional and multi-lateral development financial institutions, notably the EADB, PTA Bank AfDB and the World Bank. But much more recourse than ever before is expected to be made to enhanced domestic resource mobilization. The Addis Ababa Outcome Document itself aptly puts it as follows: “For all countries, the mobilization and effective use of domestic resources is at the crux of our common pursuit of sustainable development and achieving SDGs), underscored by the principle of national ownership”. The specific sources of such domestic resource mobilization are as follows: enhanced tax revenue collection through modernized and progressive tax regimes, which are also fair and transparent, underpinned by broadening of the tax base and much more improved tax collections; increased domestic savings, through financial deepening, financial inclusion and appropriate monetary policies; clamping down on illicit financial flows (which currently amount to billions of US$); more rationalized incentives for foreign investors; and domestic and regional capital markets development. For many developing countries, notably African countries, these shifts will pose serious leadership and macroeconomic and sectoral policy challenges. But Rwanda’s budding experience and relative success in many of these areas demonstrate that it is doable. The new financing for development agenda for the SDGs also envisages significant expansion in the domestic private sector and attraction of foreign direct and portfolio investments. Success in these areas will require the proper symbiotic relationship between public policies and sector on one hand private sector development on the other. Domestic entrepreneurial development, reinforcement of predictable investment environments and institutional reinforcements will be imperative for this. Again Rwanda’s new investment code and policy package and export promotion initiatives are pointers to what African countries could do to guarantee success here. Another major funding area for the SDGs is expansion of international trade. Over the years, Africa’s share of global trade has witnessed considerable declines. Many studies indicate that even a few per centage improvements in the continent’s share in world trade could significantly exceed current levels of ODA. But trade expansion will require transformation of African economies, modernization of the agricultural sector, innovation and transformation of service sectors. External policies are also crucial, notably the conclusion of the Doha Round of trade talks and stepping up of regional integration. Remittances from migrant workers could also be important sources of financing for the SDGs, especially for increased household consumption, investment in real estates and education and health care services. But the already identified constraints in this sector, that include high transfer fees and low quality of services, need to be decisively addressed. Foundations and philantropist organizations will also increasingly be important sources of financing of SDGs as underscored by enormous support provided to many countries by Bill and Melinda Gates Foundation,the Clinton Global Foundation and Micro-Soft Foundation. In conclusion, the successful implementation of the SDGs will require enormous financial resources, and will therefore pose serious leadership, policy and strategy challenges for many developing countries, especially those in Africa. It is for this reason that the serious reflections that the global community has already made on these issues have been pertinent and well-placed. Hopefully, the final outcome document of the Addis Ababa FfD Conference will shed further light on the more concrete solutions to the problems that will have to be decisively tackled if the SDGs will record far better success than the MDGs. In the meantime, Rwanda’s experience in the above areas provides useful glimpses into what most African countries could do to ensure that success. What will be required in the immediate post - FfD Conference period include more empirical research into the issues, success so far and the strategy requirements in each of the expected major financing sources for the SDGs.

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What global financing for development agenda means for Africa