Innovative development financing in Africa

1852367421Many different financial instruments coexist to support the development of the continent. The main source of funding development in Africa is the public development aid which has already provided 125.6 billion USD dollars to 160 countries. Other sources that are not linked to any multilateral organisations also exist. Some are developped by the recipient countries themselves, such as public-private partnerships and recourse to debt. Other sources involve the transfer of funds by the African diaspora. According to the World Bank, these funds reached 351 billion dollars in 2011. It represents more than the double of the public development aid.

These financial flows have a mixed impact on development. The efficiency of multilateral development aid is questioned. A growing number of donors are intervening to increase the efficiency of multilateral aids, improve information and predictability and reduce the amount of multilateral funds while providing funds to more countries. Some vulnerable countries do benefit from voluntary aids called New Deals. It has been observed that since the 1980s and 1990s, private investments have taken the lead on public aids. More and more public-private partnerships have been developped by individuals and companies. Thus, more and more innovative sources of funding of development have been implemented. They are more consistant and predictable than the public development aid. These innovative systems involve public and private entities that fund local companies in a more sustainable way. For instance, Danone Communities is an investment fund that has shown great results. The aim of these new funding mecanisms is to reduce poverty and inequalities and compensate for the financial deficit, in accordance with the Millenium Development Goals. It is crucial to reach these goals in a context where the needs of the countries are increasing while budgets for public development aid are tightenning.

There are four main types of innovative funding.

1. Voluntary contributions : they are implemented by the Millenium foundation to improve health system. It also includes the funds immigrants invest in their home country.

2. Compulsory contributions : these are taxes on national and international financial transactions (taxes on air tickets and possibly on financial transactions).

3. Loan guarantees : these are pre-funding mecanisms on financial markets covered by a public guarantee.

4. Various market-based mechanisms such as auctions of carbon dioxyde emissions.

There is a controversy over taxes on financial transaction. This tax is an efficient way to raise money without weighing on financial markets. At a rate of 0.005 %, it could help raise 30 billion dollars annually. Nevertheless, this tax is very controversial because of its public opportunity.

Other innovative sources of funding include Output Based Aid programs of the World Bank and mechanisms of decentralised cooperation and carbon compensation by companies. Thus, the GERES NGO intervenes in Cambodia and Africa since 1987 to manufacture and sell solar ovens.

These innovative fundings are all the more important since public development aid is lessening. The African continent is attracting new donors such as China, Brazil, Russia. However, South-South funding follows a different set of rules. These countries invest in building infrastructures from the profits of natural ressources, develop the private sector and give priority to turnkey projects. They are more flexible and demand less in return from the countries they invest in. These new investors tend to develop the private sector and favour projects directly involving companies. These projects are on the rise but also more likely to suffer from corruption. It is difficult to gauge the actual impact of these investments for the development of the continent. These innovative sources of funding are crucial to compensate for the lessening of funds available to support development. Although the public development aid has a central place in funding the development of African countries, other innovative sources are essential to raise consistant and sustainable funds. However, the real issue here is whether these funds are really appropriate for the needs and economies of African countries.

Translated by Bushra Kadir