Africa has sustained gains in domestic resource mobilisation made since 2000, as tax revenues remained stable in 2016, according to Revenue Statistics in Africa 2018. Providing internationally comparable data for 21 participating countries, the report finds that the average tax-to-GDP ratio was 18.2% in 2016, the same level as in 2015, which represents a strong improvement from 13.1% in 2000.
The third edition of Revenue Statistics in Africa, released today in Paris during the 18th International Economic Forum on Africa, shows that tax-to-GDP ratios varied widely across African countries, ranging from 7.6% in the Democratic Republic of the Congo to 29.4% in Tunisia in 2016. Six countries -Mauritius, Morocco, Senegal, South Africa, Togo and Tunisia- had tax-to-GDP ratios greater than or equal to 20% in 2016. In comparison, the average tax-to-GDP ratio for Latin America and the Caribbean was 22.7% and 34.3% for OECD countries in 2016.
Revenue Statistics in Africa is a joint initiative between the African Tax Administration Forum (ATAF), the African Union Commission (AUC) and the Organisation for Economic Co-operation and Development (OECD) and its Development Centre, with the support of the European Union.
The publication, which now covers 21 countries, shows that revenue trends are mixed. Between 2015 and 2016, the tax-to-GDP ratios of 11 countries increased while those of 10 countries in the sample decreased. Botswana registered the highest increase (1.3 percentage points) followed by Mali (1.2 percentage points). The largest decreases (of over 2.0 percentage points) occurred in the Democratic Republic of the Congo and Niger. The changes in tax-to-GDP ratios were primarily due to economic factors. Declines in oil prices coupled with lower activity among mining and oil companies contributed to the decreases in the Democratic Republic of the Congo and Niger, while a significant increase in the sale of diamonds in Botswana has increased revenues. In contrast, the increased tax-to-GDP ratio in Mali is partly explained by improvements to tax administration.
African economies continue to rely heavily on taxes on goods and services, which accounted for 54.6% of total tax revenues in the Africa (21) average. Value-added taxes (VAT) alone accounted for 29.3% of revenues. However, the contribution of income taxes is increasing: taxes on income and profits accounted for 34.3% of total revenues across the Africa (21) in 2016 and have contributed the most to growth in tax revenues since 2000, increasing by 2.6% of GDP to reach 6.2% of GDP in 2016. Corporate income tax revenue increased by 1.4 percentage points over this period to 2.8% of GDP, while revenue from personal income tax rose from 2.1% to 3.0% of GDP in 2016, a historic high.
The report also contains data on non-tax revenues, which continued to decline across the 21 countries on average in 2016 but remain an important source of income in certain countries. These revenues, which include income from natural resources and grants, exceeded 5% of GDP in nine of the 21 countries.
Revenue Statistics in Africa is an important part of the African Union’s Strategy for the Harmonization of Statistics in Africa (SHaSA) and is aligned with the African Union’s Agenda 2063 and SDG 17.1. This edition contains a special chapter on SHaSA, identifying its approach to establishing an efficient statistical system that covers the political, economic, social, environmental and cultural development and integration of Africa, as well as the role of Revenue Statistics in Africa in this strategy.
Tax revenues as a percentage of GDP
- The Africa (21) average tax-to-GDP ratio was 18.2% in 2016, which is 5.0 percentage points higher than in 2000 but unchanged from 2015.
- In 2016, tax-to-GDP ratios ranged from 7.6% in the Democratic Republic of the Congo to 29.4% in Tunisia. Six countries (Mauritius, Morocco, Senegal, South Africa, Togo and Tunisia) had tax-to-GDP ratios greater than or equal to 20% in 2016.
- The change in the tax-to-GDP ratio since 2000 is comparable with the increase in the LAC region (4.7 percentage points) and significantly stronger than growth amongst OECD countries over the same period (0.4 percentage points).
- Between 2015 and 2016, the tax-to-GDP ratios of 11 countries increased while those of 10 countries in the sample decreased. This contrasts with 2015, when the Africa (21) tax-to-GDP ratio increased by 0.5 percentage points from the previous year on average and in 15 of the 21 countries.
- VAT revenue as a percentage of GDP in the Africa (21) increased by 2.0 percentage points from 2000, to 5.3% in 2016. VAT revenue accounted for the highest share of tax revenues in 2016 at 29.3%, an increase of 4.9 percentage points from 2000. The share of taxes on trade has fallen from 17.9% of total tax revenue to 11.6% over the same period.
- Revenue from income taxes contributed the most to growth in the average tax-to-GDP ratio of the Africa (21) between 2000 and 2016, increasing by 2.6% of GDP over this period to reach 6.2% of GDP in 2016. On average across the Africa (21), corporate income tax revenue increased by 1.4 percentage points – from 1.4% to 2.8% of GDP – between 2000 and 2016.
- The Africa (21) average tax structure is similar to that of LAC countries, although social security contributions in LAC are, on average, considerably higher. The Africa (21) average share of personal income tax (PIT) revenues to total tax revenue was 15.8% in 2016, lower than the OECD average (24.4%) but higher than the LAC average (9.7%).
- Non-tax revenues were equivalent to at least 5% of GDP in nine of the 21 countries in 2016. Of the 21 countries, all but four had lower non-tax revenues as a proportion of GDP in 2016 than in 2015.
Emerging East Asia Bond Market Growth Steady Amid Global Slowdown
Emerging East Asia’s local currency bond market posted steady growth during the third quarter of 2019 despite persistent trade uncertainties and a global economic downturn, according to the latest issue of the Asian Development Bank’s (ADB) Asia Bond Monitor.
“The ongoing trade dispute between the People’s Republic of China (PRC) and the United States and a sharper-than-expected economic slowdown in advanced economies and the PRC continue to pose the biggest downside risks to the region’s financial stability,” said ADB Chief Economist Mr. Yasuyuki Sawada. “However, monetary policy easing in several advanced economies is helping to keep financial conditions stable.”
Emerging East Asia comprises the PRC; Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; Thailand; and Viet Nam.
Local currency bonds outstanding in emerging East Asia reached $15.2 trillion at the end of September. This was 3.1% higher than at the end of June. Local currency government bonds outstanding totaled $9.4 trillion, accounting for 61.8% of the total, while the stock of corporate bonds was $5.8 trillion. A total of $1.5 trillion in local currency bonds were issued in the third quarter, up 0.9% versus the previous three months.
The PRC remained emerging East Asia’s largest bond market at $11.5 trillion, accounting for 75.4% of emerging East Asia’s outstanding bonds. Indonesia had the fastest-growing local currency bond market in the region during the third quarter, boosted by large issuance of treasury bills and bonds.
A special theme chapter examines the relationship between bond market development and the risk-taking behavior of banks. The analysis finds that well-developed bond markets reduce the overall risk of banks and improve their liquidity positions. This suggests bond market development can contribute to the soundness of the banking system.
An annual liquidity survey in the report shows increased liquidity and trading volumes in most regional local currency bond markets in 2019 versus 2018. It also highlights the need for a well-functioning hedging mechanism and diversified investor base for both government and corporate bonds.
Job Quality in Cambodia is Improving, but New Policies Are Needed to Benefit from Global Markets
The diversity and quality of jobs available in Cambodia is improving, yet new policies are needed for Cambodia to benefit from the opportunities available in future global markets, according to a World Bank report, Cambodia’s Future Jobs: Linking to the Economy of Tomorrow, released today.
Of the 8 million jobs in Cambodia, 37 percent are wage jobs, many of which offer higher earnings and more protections to workers. However, the other 63 percent of jobs remain more traditional. Such jobs on family farms or in household enterprises are weakly integrated in the modern economy and offer workers lower earnings.
“The diversity and quality of jobs in Cambodia has gradually improved,” said Inguna Dobraja, World Bank Country Manager for Cambodia. “But global trends, such as the growing Asian middle class, shifting trade patterns, and automation require that Cambodia re-think its jobs strategy as it advances to the next stage of export-led development.”
Foreign-owned firms have been significant contributors of higher quality jobs in Cambodia. By 2015, one-third of all wage jobs in Cambodia were in foreign-owned firms. During the period 2010-2015, the garments industry was the fastest-growing occupation sector, increasing its share of employment by 1.1 percent per year.
Domestic firms are more numerous than foreign-owned firms, but they do not contribute as many jobs. Domestic firms employ an average 8 workers, compared to 124 in foreign-owned firms. A key concern is ensuring Cambodian workers are equipped with the skills to compete with workers from other countries for jobs in foreign-owned firms. In 2016, 37.6 of exporters cited an inadequately educated workforce as a top business obstacle.
The report recommends a four-pronged strategy to securing more and better jobs in the future: diversify exports into higher value-added production; create a domestic business environment that supports local firms growth; strengthen linkages between the domestic and export sectors of the economy; and invest in workers’ skills and education. The report further details seven policy recommendations that would advance these strategic goals:
Diversify exports and foreign direct investment (FDI) into higher value-added value chains. Most current jobs are in low-value segments of global value chains. Simplifying processes, providing incentives to foreign investors, and creating quality assurance facilities will encourage diversification of exports and FDI into higher value-added value chains or segments of value chains.
Streamline procedures and reduce the costs of establishing and expanding small- and medium-size enterprises (SMEs), which have considerable potential to create jobs. Such policies would include reducing the cost of doing business for local firms, increasing firm contributions to worker skills development, increasing access to financing through grant programs and fiscal incentives, and providing support to firms to hire more workers.
Help household enterprises enhance their productivity and create better jobs. Household enterprises account for one out of every five jobs in Cambodia and this will grow with increased urbanization. Information technology, for example, can help household enterprises improve their basic business practices and access broader markets.
Support the development of links between exporting FDI firms and domestic input-supplying firms, by, for example, providing incentives to foreign firms to source their inputs from local SMEs, creating a directory of local suppliers with the capacity to partner with foreign firms, and establishing local supplier development programs.
Build a skills development system that will attract higher-value FDI and increase productivity across the economy. Cambodia’s workforce is getting by with only 6.3 years of education on average. Policymakers should focus on reforming today’s education system to help the tomorrow’s workers acquire the broad range of skills needed to work in a knowledge-intensive economy andengage enterprises in the design, financing, and support of a technical and vocational training system to serve today’s workers.
Promote efficient labor mobility and job matching by opening formal international migration channels and supporting programs that encourage circular migration, and by disseminating information about job opportunities inside and outside of the country to students, jobseekers, education and training institutes, and employers so that skills development choices are aligned with the changing labor market demand.
Regain macroeconomic independence and exchange-rate flexibility. US dollar fluctuations have a significant impact on Cambodia’s trade and commodities sectors, which are responsible for most of the country’s jobs. As Cambodia begins to export to a broader range of countries, macroeconomic and fiscal stability will help shield existing jobs from factors related to the US dollar.
“The success of Cambodia’s job strategy will depend on the participation and cooperation of stakeholders across the economy, not only policy makers and government leaders, but also entrepreneurs, investors, development partners, and, of course, workers themselves,” said Wendy Cunningham, Lead Economist and a lead author of the report.
Emerging and Developing Economies Less Prepared Now for a Deeper Downturn
Emerging and developing economies are less well positioned today to withstand a deeper global downturn, should it occur, than they were before the 2009 global recession, although they now have more resilient policy frameworks to respond, a new World Bank Group study of the global recession and its aftermath finds.
With multiple risks to global growth clouding the outlook, there is concern whether emerging and developing economies can effectively respond to a deeper economic slowdown as they were able to do during the 2009 global recession. The new study by the World Bank Group, A Decade after the Global Recession, compares emerging market and developing economies’ preparedness then and now, and finds reason both for concern and for optimism.
“The big lesson of the past decade is clear, you need to be prepared for the unexpected,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu. “Developing countries need to urgently boost resilience and growth, by building human and physical capital, streamlining business regulations, and strengthening institutions.”
Since the 2009 global recession, emerging and developing economies have become more vulnerable to external shocks in an environment of mounting debt and weakening long-term growth prospects, the study finds.
However, at the same time, many emerging market and developing economies now have stronger policy frameworks, such as fiscal rules and inflation targeting monetary policy regimes, than during earlier financial crises and global recessions. Meanwhile, international financial sector regulation has strengthened.
“Policy frameworks in many emerging and developing economies have become more resilient, for example through inflation targeting regimes and fiscal rules,” said World Bank Prospects Group Director Ayhan Kose. “However, in light of downside risks and elevated vulnerabilities, policymakers should prepare their economies to mitigate the impact of adverse shocks and ensure that policy space is available to act when such shocks occur, as they inevitably will.”
The World Bank Group’s response to the global recession was unprecedent in both financing volume and country coverage, and prioritized the areas of finance, infrastructure, fiscal management, and social protection. The Bank introduced new crisis response facilities to improve its assistance to developing economies and improved its monitoring of global macroeconomic developments to more effectively flag risks.
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