Africa's future: jobs and taxes | beyondbrics - Blogs - Financial Times

Amid the excitement about Africa?s growth potential, it?s worth keeping things in perspective. Without wanting to dampen the mood too much, the The African Economic Outlook for 2012 does quite a good job of providing a counterpoint to the Africa bulls.

Specifically? Concerns over capital flight, jobs, taxes and foreign direct investment.

First, the report, which is overseen by four multilateral bodies*, runs through the expected growth figures: overall GDP growth for Africa of 4.5 per cent in 2012 and 4.8 per cent in 2013, with the usual caveats over the eurozone crisis and other global risks. Then it gets more interesting.

There is a rather rueful what-if section on capital flight:

Africa lost about $700bn between 1970 and 2008 as a result of capital flight. If flight capital had been reinvested in Africa with the same level of productivity as that of actual investment? the rate of poverty reduction could have increased 4-6 percentage points a year, on average, over the period from 2000 to 2008.

That?s a big miss. African countries could collectively have reached the Millennium Development Goal of halving the 1990 level of poverty by 2015. They won?t make it at the current rate of poverty reduction.

If money leaving Africa has been a wasted opportunity, more worrying is the availability of jobs, especially for young people.

The north African protests that morphed into the Arab Spring were in part due to the high levels of youth unemployment, as the report warns. So some of the statistics are alarming.

Africa has 200m people aged between 15 and 24?and this is set to double by 2045. Education has improved substantially, with 59 per cent of 20-24 year olds expected to have a secondary education in 2030, compared to 42 per cent now.

But will that education be wasted? Between 2000 and 2008 Africa created only 16m jobs for young people aged between 15 and 24. The report notes:

As a result, many young Africans find themselves unemployed or, more frequently, underemployed in informal jobs with low productivity and pay.

There is little scope for expanding public sector jobs and the private sector is growing but from too small a base.

This adds up to a potential employment crisis. Creating jobs is crucial for African development.

Of course, people in jobs can pay taxes ? something the report?s authors see as a vital source of finance.

Partly, this is because inward FDI is tailing off, as the chart below shows. The report argues that African governments and their partners must increasingly look at remittances and tax revenues as sources of finance. In any case, FDI isn?t always what it?s cracked up to be. As the report says:

The increase in investment in recent decades did not produce more inclusive growth or sufficient jobs as most of the finance went on the hunt for resources. Africa needs to attract more productive FDI to diversify its economy and benefit from technology transfers and spill over effects.

Source: African Economic Outlook 2012

Which is where tax comes in. Although tax collection has gone from an unweighted average of 18.1 per cent of GDP in 2000 to 19.9 per cent in 2009, much of the increase is due to resource-related taxes in oil-exporting countries.

Tax revenues complement external financial flows by helping states to provide quality public services and pursue economic policies that are conducive to raising growth and attracting finances from abroad.

Finally, a word of caution about the relationship with big emerging markets ? namely China, India and Brazil.

It is as yet uncertain what African nations aspire to gain from the emerging economies, although the latter seem to know what they require from the former? It is imperative that the ?resource-for-infrastructure? trend witnessed in a number of African countries during the past decade go beyond such an exchange so as to incorporate upgrading the skills of the domestic workforce, local content requirements and, crucially, technology transfer.

* The report is co-written by the African Development Bank, the OECD Development Centre, the United Nations Economic Commission for Africa (UNECA) and the UN Development Programme (UNDP).

Related reading:
The rise of intra-Africa FDI, beyondbrics
Africa: trade with your neighbours, beyondbrics

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