FINANCING PUBLIC SERVICES TO ATTRACT PRIVATE INVESTMENTS

During a side-event roundtable dialogue of African Central Bank Governors on Monetary and Exchange Rate Policy, Debt Sustainability Amidst Global and Economic Slowdown, on the 3^rd of April, 2016 at the ongoing African Development week (#ADW2016) in Addis, Ababa-Ethiopia, it was established that 2016 has been a challenging year for Africa and even promises to be one of the worst years economically since the 1980s.

During his official opening statement at the beginning of #ADW2016, H.E Dr. Anthony Mothae Maruping Commissioner for Economic Affairs, African Union Commission , stated that a lot of African countries are facing fallen demand in export commodities resulting in fall of prices, eroded tax bases and the strengthening of the US Dollar against African currencies.

When prices of export commodities fall, it creates significant shocks to local markets. Finance ministers then need to come up with plans to mitigate these shocks to stabilize currencies through foreign exchange policies and then manage inflation from getting out of hands. The answers increasingly are coming from central banks through providing interesting alternative for raising capital.

Dr. Carlos Lopes who is the Executive Secretary of the United Nations Economic Commission for Africa, acknowledged the unprecedented disconnect between financial and real sectors, which are altering global structural relationships and complicated development policy. In 2014, African currencies depreciated by 10.4% against US dollars and increased to about 20% in 2015 for some countries.

Nigeria in particular saw 15 billion Dollars wiped off from its reserve and 3.4% reduction of GDP growth it was experiencing. Dr. Lopes’s position that, fiscal tax policy should become more center stage than development aid is thus a welcome one.  I’ll explain.

I am armed with the presentation of Professor Njuguna Ndung’u, the former governor central bank of Kenya and one of the governors present at the round table. To assert the 21^st century he mentioned some steps Africa needs to take which include; improving governance and resolving conflict, reducing aid dependence and strengthening partnerships.

To invite partnerships and investment, to reduce aid dependence we need good infrastructure delivery which needs good governance as a necessary condition. When we have good infrastructure to aid business transactions, it wouldn’t be much of a stretch to attract foreign investments without necessarily enticing them with harmful tax incentives.

This means that Public investment is very important; to give us the leverage we desperately need to bring in private investments into our continent.

According to the High Level Panel on Illicit Financial Flows, a poor business environment may encourage IFFs when people find it easier to make money through illicit activities than through legitimate business.

The question then becomes how to finance the public investments, a brilliant idea was raised. Central banks need to do more to support the governments fight to stem illicit financial flows.

Strong legal frameworks and enforcement agencies make it difficult for individuals and companies to move illicit resources.

There also should be long term sustainability, building resilience in African economies, transformative financial system brought about by policy lessons: conditioned by exchange rate regime, structure of markets, financial market development, and legal frameworks.