Citing low tax revenue as one of Africa's biggest economic problems, the OECD, UN and Africa Development Bank are reporting that Africa's growth rate has more than halved due to global economic recession from 6 to 2.5 per cent.
In the African Economic Outlook 2010 published yesterday, the institutions admit that this has “brought poverty reduction to a halt” in Africa. International development charity ActionAid says that this means the financial crisis cost Africa at least US$41 billion in 2009.
ActionAid points out that the crisis has increased demand on already overstretched governments in Africa at the same time as it has reduced their revenues.
Tax revenue holds the key
The charity says that without radical steps to increase tax revenues – in particular to prevent tax dodging by multinational companies – haemorrhaging of money from the continent will continue.
Despite the new report's in-depth analysis of the challenges facing Africa, ActionAid is disappointed that it fails to articulate viable ways to combat the problem of tax evasion.
Martin Hearson, ActionAid tax policy adviser said: “The report is an important wake up call. It shows how governments could raise billions of dollars of tax revenue to replace the revenues they have lost through the financial crisis.
“Yet, because of tax avoidance and evasion by multinationals, money is haemorrhaging out of the continent.”
ActionAid is also deeply concerned that the review effectively endorses a one-size-fits-all model of low taxes on multinationals, which in many countries provide the lion's share of tax revenues.
“It is nonsensical to argue for a more effective taxation on one page and then quote from an index that rewards countries for lower corporate tax rates on another. Each country needs to find its own approach,” said Martin Hearson.