Securing Sustainable Solutions to the African Debt Crises

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As the world prepares to converge on Addis Ababa, Ethiopia, in July for the third Financing for Development Summit, evidence has shown that the health sector has delivered successful campaigns and partnerships to implement the Millennium Development Goals.

Africa is now at a critical stage in its development trajectory. Since 2000, the continent has registered remarkable progress in a number of sectors. Political conflicts have declined, economic growth has increased, and economic management has improved. Governance and political stability in most countries have contributed to Africa’s development.

But while progress on socio-economic indicators has been positive, it has not been enough to achieve the MDG targets. Of particular concern are the high rates of child and maternal deaths, as well as communicable diseases such as HIV and AIDS, malaria and tuberculosis.
Yet, the sustainable development goals present fresh impetus on how to finance health.

Africa has established a common position on the post-2015 agenda, to speak with one voice and facilitate the global consensus on the SDGs. The Chatham House report recommends $86 per capita will be needed to finance health, which for sub-Saharan Africa comes to $80 billion or 5 percent of gross domestic product. Therefore, it is vital that African countries meet the Abuja commitment of 15 percent of budget expenditure on health leading up to the summit.

Domestic resource mobilization is critical to financing the health SDGs. Reforms on tax legislations, systems and structures will ensure that more funds are allocated to the health sector, as well as address the issue of illicit financial flows and losses through transfer mispricing, corruption, double taxation agreements and tax evasion.

This would require international tax cooperation through the implementation of the Mbeki report on illicit financial flows for Africa. Increasing tax on items like tobacco and alcohol, foreign exchange transactions, air tickets and mobile phones, in addition to stricter taxation laws on harmful greenhouse gases, is an innovative way to raise funds for health budgets.
Domestic public finance has increased, but for most countries it remains low. Trade can boost domestic production and generate critical revenue for health; yet, tariff-free trade to developed countries ends up costing the export country. The summit should ensure that these transaction costs are lowered.

Remittances are also key. For example, Nigeria and Senegal receive 10 percent of GDP from remittances annually. However, the cost of remitting funds to Africa remains extremely high, even within Africa. These barriers must also be reduced.

Official development assistance remains a critical funding source, particularly for low-income countries, providing 70 percent of all external funding, as well as a third of public expenditure available to governments. ODA continues to provide financial and technical cooperation from both OECD donors and emerging donors.
However, over the past 40 years the Organization for Economic Cooperation and Development has fallen short of the 0.7 percent of gross national income commitment. It is vital that the summit address the need for donors to meet these commitments.

ODA must also complement national DRM efforts, and the summit should also ensure better financial reporting by establishing binding timetables supporting inclusive development in the most efficient way. Pooled resources and multistakeholder partnerships that bring together governments, civil society, the private sector, and donors such as Gavi, the Vaccine Alliance, Global Fund to Fight AIDS, Tuberculosis and Malaria, U.N. Population Fund and UNICEF need to be strengthened post-2015.

The private sector too plays an important part by focusing on infrastructure, energy, agriculture, urban development, water systems and technology. There is a need to align private incentives with public goals thus creating a policy framework that encourages for-profit investments in these areas. Initiatives such as the U.N. Global Compact can be utilized by African governments to partner with private sector and mobilize finance to achieve the SDGs.

Pension funds, insurance companies and sovereign wealth funds are also a potential funding pool, although it incorporates risks such as a lack of feasibility studies and bankable projects, expertise to finance infrastructure projects, and adequate governance mechanisms.

One of the major engines of external financing to sub-Saharan Africa is foreign direct investment amounting to 19.5 percent per year. In 2010, BRICS countries contributed 25 percent of sub-Saharan African FDI and their share is growing.

However, despite these gains, FDI flows are mainly going to resource-rich countries and extractive industries. Discussions in Addis Ababa should ensure that FDI allocations are spread evenly.

South-south cooperation plays a pivotal role in financing the health sector, as countries continue to share experiences and promote common development. It is commendable that African countries are well-coordinated through the African Union. However, mobilization of the above resources can be negatively impacted by environmental disasters, and now, Ebola, as well as global economic and financial turbulence.

Discussions in Addis Ababa must critically address the above challenges. After all, the SDGs evolved from a consultative process; hence all actors should play an important role in financing them.

This article was published in “Health Matters,” a news bulletin commissioned by Action for Global Health for European Health Month, as part of the European Year of Development 2015. The paper brings together key stakeholders working on health to confront the challenges of the post-2015 framework, provide recommendations on the means of implementation, and raise awareness on the importance of health for all.