Remaking Africa’s tax system

A digital overhaul of Africa’s tax system is needed to boost revenue collection, regional coordination and financing, Adam Elhiraika, Director of Macroeconomic Policy at the Economic Commission for Africa says in conversation with Shoshana Kedem.

The Conference of African Ministers of Finance, Planning and Economic Development kicked-off in Marrakech on Wednesday with a session focussed on the economic and social trends sweeping Africa over the last seven years.

A panel of experts including the director of the macroeconomic policy division of the UN’s Economic Commission for Africa (UNECA), Adam Elhiraika, debated the reforms and legal frameworks needed to remake Africa’s tax collection system with country delegations.

In conversation with African Business, Elhiraika said that while some countries aren’t ready for digital reforms, digitalization can go a long way in resolving the region’s fiscal woes.

What were the key highlights of today’s session on recent economic and social trends in Africa?

The key highlights from today’s discussion relate to recent economic and social developments in Africa. We looked at how Africa performed in 2018, in terms of growth. The continent grew at 3.2% in 2018 down from 3.4% in 2017, but growth is expected to increase again to 3.4 in 2019 and 3.8 in 2020.

What are the main growth drivers in the region?

The main growth drivers are recent increases in investment and commodity prices, especially oil prices, and continued improvement in macroeconomic management and increase exports in particular. And the continent benefited from relatively strong global growth. The conversation highlighted the need for Africa to treble its growth rate to grow at 9-10%, at a minimum of 6% in order to make considerable progress in achieving their sustainable development goals.

Can all African countries leapfrog into the digital age when they are grappling with domestic realities such as budget deficits sand poor infrastructure?

 The problem of budget deficit has to do with outdated fiscal systems in many African countries, and so digitalisation and leapfrogging and building infrastructure will help countries eventually address the issue of budget deficit. We are saying African countries have the potential to at least double their current tax GDP ratio of 15.4%.

Ten years ago, African tax GDP ratio was about half of what we have today, and the potential is still there to double it to 30% over the next 5-7 years.

So there are two forms of interventions governments need to put in place to make use of digitalisation: First we need legislations and institutional changes, and second we need soft systems, not new hard infrastructure.

It shouldn’t cost African countries much to digitalise their tax and fiscal systems.

For some countries it [digitalisation] is jumping the gun, but for others its not. Some countries like South Africa, Rwanda, Kenya and Morocco already have very modernized fiscal systems.

As the youngest continent in the world, saturated with digital skills but slim on employment opportunities, how does this theme address youth unemployment, and what solutions do you envisage for proposal and discussion at this conference?

We count a lot on digitalisation, which offers a lot of opportunities for African countries to modernize their tax systems and mobilise more government revenue for tax, sources and better manage government expenditure to build infrastructure and an environment that is conducive to private investment. And all that is important for job creation is important for job creation for African youth. So what we are saying is that finance is the main constraint to investment and development in Africa.  

If you address the financial constraints we’ll be able to analogue opportunities in many other areas and be able to address issues of social development, employment and so on.

How will Brexit affect trade with African countries and what opportunities does it present?

We already adjusted to Brexit when it was first discussed three years ago, so I don’t see an immediate effect on Africa in the short-run.

Maybe in the long-run countries might engage with the UK and EU under new agreements that will effect how they cooperate with the UK vis-a-vis the EU. New data will tell which sectors and countries will present the best opportunities.