G20 Summit: A Mountain to Climb for Africa
Ashraf Patel
South Africa and Africa host the G20 under severe geopolitical and geoeconomic storms from trade wars to massive cuts in ODA from the US and EU. In this context, development finance, debt and, international tax policy intersect on a fraught vortex, one that needs resolution.
From the UN Tax Convention and G20 Common Debt Frameworks and the IMF-World Bank Spring meetings, global policy elites, under severe pressure need to find ways to achieve resource mobilisation targets for the UN SDGs.
As SA hosts the G20, the addition of the G20 Expert panel also adds urgency to the need for financial and development consensus. The UN's Seville Finance for Development Summit in June, held once a decade will provide the 'broad global consensus on Finance'. Will the G20 cohere or derail at a time when the geopolitics are fracturing at a velocity unseen in decades?
The issue of the African debt crisis, Illicit financial flows, the UN Treaty and the G20 Common framework are key areas that will occupy finance ministers in finding consensus. The High-Level Panel Report on illicit financial flows from Africa (Mbeki Panel Report) and the High-Level Panel on International Financial Accountability and Transparency (FACTI Panel Report), have extensively outlined strategies to combat IFFs.
Unpacking the Challenges:
Global bonds: US borrowing costs are hurting the rest of the world
Last week, African Development Bank AfDB President Dr Akinwumi Adesina, at the launch of Macroeconomic Performance and Outlook (MEO) of the African continent on April 12, was vocal against the unfair allocation of the International Monetary Fund's (IMF) Special Drawing Rights (SDRs), noting that the continent received a measly $33 billion from the global lender, 4.5% of the $650 billion issued globally. Hence, the African agenda at the G20 is a mountain to climb.
In the same week, a new Cost of Capital, report by Jeffry Sachs et al of Columbia University was more concerning:
Within the African context, Africa's median public debt ratio has been on an upward trajectory since the beginning of this decade from 54.5% of GDP in 2019, to 64% in 2020, moving to around 63.5% from 2021–23 according to the Africa Economic Outlook 2024 report. In addition to this, the flow of FDI, ODA, portfolio investments and remittances dropped by 19.4 % in 2022. With high debt servicing costs, and strained tax capacities as evidenced by a median of a tax to GDP ratio of 14% in Africa, this region is experiencing constrained fiscal space which is crowding out financing for critical public services such as health and education. On the streets of African capitals, cost of living riots are mushrooming. These macroeconomic outlook indicators are grave and if the world economy faces a recession many nations in the global South and within Africa will be at depression-era levels. ( Sachs et al, Caos of Capital report, Columbia University)
The unfortunate truth is that both public and private resources have not been enough to finance the development needs of Africa and other Global South countries, especially in the wake of major economic shocks. Access to finance through the global financial architecture has been particularly difficult for many developing countries with little to no access to concessional loans/grants, higher financing costs and limited representation in international financial institutions. Back to basics.
Bold solutions needed from South Africa's G20 2025 leadership
So given the deepening policies especially in the context of Trump 2.0 trade wars and EU Development aid budget cuts, which may see many regions going into recession, bold and even radical solutions are needed. Some suggestions:
Tobin Tax on Financial Transaction
At the dawn of the Millenium, the global community began discussion on supporting the UN Millenium MDGs, during the African debt crisis, there was a robust debate on the potential of a Tobin Tax on financial transaction. Named after Nobel laureate Dr James Tobin, the debate was shelved, but it is still relevant.
In the current polycrisis, a currency tax is a levy on international capital flows and, as such, is a regulatory and fiscal counterpart to capital liberalisation and globalisation. In an environment of diminished nation-state economic sovereignty, the idea offers the opportunity to restore some of governments' lost taxation power and potentially raises the challenge of supranational taxation and redistribution of revenues within the international community. It has the additional advantage of being a levy on a sector that is relatively under-taxed at present. (Oxfam Tobin Tax Report, 1999)
The report cautions that there needs to be a trade-off between the aims of stabilisation and development funding. According to its advocates, a currency transaction tax would be a strategic element of global financial management since it can: a) reduce short-term, speculative currency and capital flows b) enhance national policy autonomy c) restore the taxation capacity of nation-states affected by the internationalisation of markets. The tax is an attractively simple formula for reducing destabilising flows. (Oxfam, 1999)
The profitable = revenue base of financiers and bankers consists of very short-term, two-way speculative and financial arbitrage transactions in the inter-bank market. The greater the frequency of transactions, the higher the tax charge can be applied to reduce speculation. This policy intervention appeal consists of being a disincentive to short-term transactions while not inhibiting international trade, long-term capital flows, or currency price adjustments based on changes in the real economy.
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