Development Strategies and Financing

Background

The on-going global financial and economic crises will reduce ODA flows to Africa. Countries will have to look to domestic resource mobilization and private sector inflows to make up for the sharp decline in foreign support. However, historically, domestic saving as a source of financing development continues to be limited. Private domestic investment is being revived in only a few countries, and inefficient financial systems and weak tax collection mechanisms heavily reliant on narrow tax base undermine domestic resource mobilization. Many countries do not have well-defined strategies to take advantage of the present commodity boom; and have failed to exploit the advantages offered by the international trading environment due to weak productive capacities. Currently ODA finances up to 60% of domestic budgets of some countries in Africa.

Although Africa has enjoyed a decade of robust growth, the good performance has not translated into structural change of the African economies. The impact on poverty reduction has been limited, while inequality has increased markedly. There clearly need to improve financial intermediation to enhance domestic resource mobilization and access to credit and meet the long-run financial resource needs of investors. That would also be critical to reducing high commercial interest rates found to be too high for profitable private investment. African countries should utilize fully the opportunities created by globalization and use international trade negotiations and mechanisms to tap fully into ever-increasing South-South trade flows.

Guiding questions

Against this background, participants in the session will be invited to consider the following guiding questions:

  • How can the role of FDI in financing development be better harnessed in the future?
  • ODA and domestic resource mobilization have been quite central to the financing of development in Africa, are there new and innovative forms of financing development that can readily be explored?
  • How did the financial institutions on the continent largely evade the direct impact of the global financial crisis?  
  • Do African countries desire new vehicles for resource mobilization, such as issues of infrastructure bonds?

In their own words

"In our continent, growth has generally remained robust against a backdrop of sluggish global economy"

Read AfDB Chief Economist interview

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