Making greater use of domestic resources can help African countries achieve sustained and higher economic growth and over the long term will reduce overdependence on donor funding and on the rules that apply to it, a new UNCTAD report says. The report argues that increased use of domestic financial resources and more productive investments would provide African leaders the ”policy space” to define development programmes that reflect their countries´ genuine priorities, giving true meaning to the rhetoric of ”ownership” of economic policies. ”Developmental states,” in which governments actively manage economic policy to encourage greater economic diversification, are in a better position to implement this agenda, says the UNCTAD.
If appropriate measures could be taken to formalize economic activities, a larger tax base would potentially increase the continent’s development resource base. This would increase the capacity of the formal sector to finance the productive investments needed to sustain higher rates of economic growth. Remittances are non-debt-generating, are free of conditionalities, and suffer from fewer ”leakages” in the form of transfer inefficiencies and corruption. Channelling more remittances through African countries´ formal banking systems would increase their developmental impact considerably, the report says. Most remittances now spur consumption, but governments could encourage their greater use for investment.
Economic Development in Africa 2007: Reclaiming Policy Space:
Domestic Resource Mobilization and Developmental States