The Prepaid Economy: African Edition

An increasing number of African countries are beginning to step away from aid dependency, as the domestic private sector becomes the engine of growth across much of Africa.

Currently, at least a third of African countries receive aid that is equivalent to less than 10 percent of their tax revenue. They include Algeria, Angola, Equatorial Guinea, Gabon and Libya.

This is a significant change from years of high dependency on aid. These are countries that have made the most progress towards replacing aid with domestically mobilised resources.

On average, Africa has managed to raise an estimated 441 dollars in taxes per person per year while receiving 41 dollars per person per year in aid, according to a comprehensive look at African resource mobilisation by the African Economic Outlook 2011.

“What this means is that Africa as a whole receives aid that is less than 10 percent of collected taxes,” says Ken Mwai, a financial analyst and real estate investor in Kenya. “Although aid exceeds 10 percent of tax revenue in 34 countries, these countries have shown a progressively higher expansion of their tax base. “They include countries such as Mozambique that have almost doubled their tax revenue, as well as Liberia which in the last decade has increased tax revenue from six percent to about 20 percent.”

Botswana is another strong economy whose development is largely driven by domestically raised revenues. Although countries such as Rwanda raise more resources from donors, that east-central African nation also has a strong focus on foreign direct investment.