HomeOpinion & AnalysisColumnistsExploring domestic resources as a viable financing option

Exploring domestic resources as a viable financing option

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“The problem with the government is expenditure management, people just spend money as if there is no tomorrow, there is no relation at all between the debit side and the credit side. . . Like if we are to start a project, where is the money coming from, especially in an environment where we are not able to print our own money and we are waiting for one source, that is the Zimbabwe Revenue Authority? I have highlighted in other fora that we suffer from a disease called ‘fiscalitis’ where we just spend and spend,” Finance minister Tendai Biti lamented recently.

While the curious case of how the government spends its money is obviously of topical interest as the nation waits with bated breath for what is in store for them in the 2012 Budget of $3,5 billion, I quote Biti’s lamentation in the context of the source of money he requires to balance the Budget not in the context of how he will spend it.

Under normal circumstances external sources of budgetary support would be available to him in the form of foreign direct investment and official development assistance to complement domestic resources such as the country’s pool of savings and tax revenues.

Given the current underperformance by external sources of budgetary support, domestic sources of financing are assuming greater importance not only in Zimbabwe, but in other parts of Africa as well, as the aftermath of the global financial crisis wreaks havoc in the West.

Accordingly, this week the focus is on a growing school of thought that seeks to turn its back on the aid bandwagon and place greater emphasis on domestic resources as a viable option for budgetary support.

Foreign aid not a panacea

Over the years, many African countries have relied significantly on foreign aid for budgetary support, but this has tended to leave them vulnerable to the shocks that accompany arbitrary withdrawal of such support.

A case in point is Malawi, for which development aid was recently withdrawn by the UK government following a diplomatic row. The country is now experiencing a serious shortage of foreign currency and social unrest as fuel and other shortages foment hardship.

To characterise the unreliable nature of foreign aid, as Malawi may very well have realised by now, Hussein Abdi Dualeh, the Somaliland Mining, Energy and Water minister recently said:

“I’m not a huge believer in foreign aid. How many countries have moved ahead and developed with international aid? It is not the formula for development. There’s an aid lobby that feeds on this. For every dollar put in by taxpayers, so little gets to the intended destination. The aid groups feed off the photo ops. I hate to say it, but they love starvation.”

Nurturing alternative fiscal policy directions
Even former British Prime Minister Tony Blair recognises Africa’s aid dependency is not sustainable hence the continent should look within for survival.

He holds out the prospect that aid for Africa could be phased out within a generation as a new wave of determined and self-reliant leaders emerges on the African continent.

“Ending aid dependency in a generation is not an idle dream; it’s an idea whose time has come,” says Blair.

However, for this to happen, those holding Africa’s economic reins must aim not to deliver policies that will make the continent worthy of further financial aid from such bodies as the World Bank and the International Monetary Fund, but to help sire an indigenous policy direction that can make it self-sufficient with reasonable ability at self-sustenance, according to one Charles Iroh from Nigeria.

Alternative fiscal policy directions must be explored and nurtured. The handout mentality must be rooted out.

ReNaissance Capital, the Russian investment bank which has operations in Zimbabwe, sees domestic financing as a viable option for more and more African governments as they seek capital for investment.

Kenya for example, can now borrow for 20 years in local currency, which could help pave the way for long-term investment projects to be financed locally.

This, according to the African Development Bank, follows a realisation by African countries that grants and aid resources alone will not be sufficient to finance the huge infrastructural financing needs of Africa and the resources required to implement poverty reduction programmes.

More African countries are seeking credit ratings to help them unlock funding from both international and domestic sources in order to finance these development needs.

Pension funds as a driver of a new growth path
Bobby Godsell, the chairperson of Business Leadership, South Africa, submits that the economic growth of the modern world is “being funded by pensions and provident funds of employees and from the contributions to life insurance policies.”

This view is supported by David Ashiagbor, economic advisor at the Commonwealth Secretariat who argues “governments should remember that no country has been developed on the back of foreign investment alone – there are domestic resources that can and should be mobilised such as pension funds”.

In Zimbabwe, we have already seen the trend of deployment of pension funds for development purposes taking shape. Of the $40 million recently allocated to Bulawayo under the Distressed and Marginalised Areas Fund, $20 million came from Old Mutual while the other half was provided by government.

National Social Sescurity Authority continues to avail funds to banks meeting certain criteria for on-lending to corporates, small-scale enterprises and retrenchees at prescribed, largely concessionary interest rates.

Experts suggest by exploiting natural resources, African countries could create a tax base, raise revenue and develop social services such as health and education. And perhaps this explains the rush of resource nationalism that is sweeping across Africa’s mining sector.

That perhaps, is also why Zimbabwe’s resource wealth that includes diamonds and platinum holds so much promise as a truly domestic source of finance which should be accounted for in a transparent manner.

Weigh in with your insights on omen.muza@gmail.com.

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