Financing The SDGs; Ghana’s Options For Leveraging Diverse Sources

Introduction

Undoubtedly, it was one of the most inclusive and robust international agreement in recent history and in September 2015 the global community formally agreed to the Sustainable Development Goals (SDGs). Inheriting the MDGs, they will continue the unfinished business of the MDGs, but in a more inclusive and planet-friendly way. The seventeen SDGs will guide the global community in its bold and ambitious plan to end hunger and poverty, address inequality in all its forms, empower girls and women, address climate change, conserve water and land resources, and create mutually benefitting relationships towards global sustainable development.

While it is a major global achievement, implementing Agenda 2030 to achieve the desired results is the crux of the matter. Enough and sustainable financial resources will be decisive to implementing and achieving the SDGs. For many countries – especially developing ones – this shall determine their good performance or otherwise in localizing and implementing the SDGs. With global savings estimated at US$ 22 trillion, arguably there is enough money available for this universal project. However, existing funding, investment and expenditure arrangements are not sufficient to deliver our collectively agreed sustainable development agenda. Developing countries are at an obvious disadvantage especially as traditional concessional financial supports have stagnated in recent times, and even dwindled in some cases.

Though recent events in the global economy have resulted in global financial challenges, it has also occasioned alternative approaches to financing our development; developing countries, in particular, must work hard and smart to mobilise adequate funding for their development. Ghana and other lower middle-income countries face peculiar challenges; with a decrease in donor assistance, recent impressive economic growth – based largely on natural resources exploitation – have failed to deliver the much-desired economic transformation for majority of the citizenry. A cross-sectoral and inclusive stakeholder approach, based on innovative, forward-looking, enabling environment, and transparent and good governance are needed to develop viable long-term solutions to the challenges of sustainable development financing.

The Financial Resources – Sources and Options

Possibly, there are enough available funds for Ghana to tap for its developmental needs. However, the funds, some of which will come from traditional or existing sources and others from evolving and innovative mechanisms, will all need new approaches, thinking and re-alignment to maximize their contribution and impact on the sustainable national development agenda. Leadership, including technocrats and professionals in the various Ministries, Department and Agencies (MDAs) must take lead in national efforts to mobilise the needed cash for our development.

1. Domestic Resource Mobilisation (DRM)

The Post 2015 framework charges each country with the primary responsibility for its “own economic and social development”, consequently, it emphasizes domestic resources as being crucial for financing the SDGs. Developing countries must thus increasingly look inwards for their needed financial resources – international assistance may only serve to complement a country’s own efforts. Tax receipts represent the single largest source of domestic revenue stream for Ghana and most developing countries.

However, our performance in tax collection is abysmal and efforts to broaden the tax base and considerably increase tax revenues have not yielded significant results. Whiles for most developed (OECD) countries, tax to GDP ratio averages 34%, developing countries achieve only about half of this rate; Ghana achieved 16.9% tax to GDP ratio in 2014.

The situation is worsened by a number issues facing Ghana’s tax sector; unacceptable high tax expenditure (tax incentives), high levels of capital flight, inability to collect maximum corporate taxes (especially from multinationals) and inefficient expenditure patterns. Ghana is reported to lose about $2.27 billion annually through corporate tax incentives alone. With a GDP of $47.8 billion (2013) and $38.6 billion (2014), corporate tax loses alone comprised of 4.7% and 5.9% of our GDP in 2013 and 2014 respectively. In the 2015 budget, allocations to four critical Ministries of Ghana (Health, Education, Water and Agriculture) amounted to a Ghȼ 9,419,111,119 (exclusive of donor support). With an average exchange rate of $3.8 in 2015, the estimated corporate tax loses amounts to Ghȼ8,626,000,000; this amount would have financed up to 91.5% of the total budget of these four critical Ministries. Tax exemptions which were budgeted at Ghȼ816 million for 2015, reportedly reached a whopping Ghȼ1.6 billion in the first nine months of 2015 alone; obviously the total amount for the whole year will be colossal. These form only part of the many loopholes in our domestic resource mobilization structure and the many enormous amounts we lose annually.

Taxes present government with independent revenue for delivering on its mandate and it “reinforces the social contract between governments and citizens.” Inability to raise maximum taxes literally translates into less schools, less good roads, less CHPS (Community Health Planning and Services) compounds, less teachers, nurses, doctors, high child and maternal deaths, high debt burdens among others, which consequently leads to a broken economy and society. Immediate and determined actions are needed to halt and reverse these needless financial bleeding, raise enough capital to enable the country make meaningful economic progress and transformation. Among others, efforts are needed to:

• Improve taxation capacity: widening tax base (to include the large informal sector), strengthening our tax administration (polices, laws, systems, structures, compliance), terminating tax loopholes and ambiguities, increasing revenues from natural resources exploitation and multinational enterprises (MNEs), and also increased collection of fees and levies by local government authorities.
• Improve spending efficiency: fair and transparent procurement practices, subsidy reform to ensure benefit by the most poor, curbing illicit financial flows such other expenditure efficiency measures.

2. Official Development Assistance (ODA)

Though ODA has increased since 2000 ($81 billion in 2000 to $135.2 billion in 2014), its relative importance compared to other “external finance available to many developing countries” has declined. This notwithstanding, ODA remains an important contributor to financing development, especially for least developed and fragile countries. However, the future does not hold much promise of substantial increase in ODA considering “the budget constraints confronting many DAC donors.” The targeted 0.7% of the Gross National Income (GNI) of donors going into ODA under the MDGs was abysmally missed – only Denmark, Luxembourg, the Netherlands, Norway, Sweden and the United Kingdom are said to have met this target. For all Development Assistance Committee (DAC) donors, their total ODA represented only “0.29% of their gross national income (GNI) in 2014.”

With increased calls for a large proportion (50%) of all ODA to go to fragile and least developed countries, middle-income countries stand to lose out eventually, but also because they are increasingly able to access more private funds.

However, the fact that majority of the world’s poor (57%), live in lower and upper middle-income developing countries, concessional support may not entirely dry up. According to the OECD, “ODA can play an important role, targeting stubborn pockets of poverty in these countries (middle-income) and leveraging other flows.”

Other countries (and institutions) have emerged as important source of concessional assistance to developing countries. These include the BRICS (Brazil, Russian, India, China and South Africa), some countries in Latin America, Southeast Asia, some Arab countries and other non-DAC countries. These countries are estimated to have provided $11.6 billion worth of aid in 2012, with China providing an estimated $2.8 billion and India, $653 million. Concessional financing from these emerging sources have strong South-South co-operation and/or bilateral underpinnings that Ghana can position to benefit from.

As a lower middle-income country, Ghana must delineate a smarter and strategic way to attract more of the fluctuating concessional funding, investing them in key developmental areas for maximum impact as part of a broader development financing scheme.

• Strong institutions, transparency and accountability, evidential progress in fighting corruption in all its forms, and adherence to globally agreed measures for aid effectiveness, fosters good governance and positions the country to attract more of the dwindling traditional ODAs.
• Whiles traditionally, ODA has gone into areas deemed critical, actual expenditure patterns and items must be continuously evaluated to ensure better impact on the economy and our development, and higher value for money.
• Additionally, Ghana can target concessional support to address issues such as:
  • Increasing domestic resource mobilisation; improving tax capacity and administration.
  • Leveraging private capital for financing viable economic projects including green growth, and key infrastructure.
  • Reducing risk, creating conducive investment environment and developing other innovative mechanisms to mobilise more private capital.

  Foreign relations and co-operation with the Global South and other ‘non-traditional’ countries must be strengthened and advanced to attract more of their emerging and evolving aid programs.

  3. Trade and Co-operation (South-South)

  Trade is a key factor in economic development and developing countries must work at increasing their gains from cross-border and global trade; new markets, new skills, advanced technology and new capital, among others. Access to developed markets for goods and services from developing countries, can make direct contributions to increasing income levels, alleviating poverty and decreasing inequality. Indeed, trade as a smart tool can directly address key socio-economic issues such as economic empowerment for smallholder farmers and women.

  South-South co-operation has emerged as an important factor in global finance and development, spurred on by countries such as China, India, Brazil and Turkey, Saudi Arabia and UAE. This increased co-operation provides alternative opportunities and resources – new markets, capital and technology – for many developing countries.

  Additionally, without recourse to producing “sophisticated final products” developing countries can participate in global production value chains, with production units located in different countries. This can be useful in diversifying local production base, acquiring advance technology and skills, and building and/or strengthening local manufacturing capacity and initiatives of developing countries.

  However, significant barriers still hinder fair and effective participation of developing countries in international trade: human and infrastructure shortfalls, trade-distorting subsidies, dumping (and abuse of anti-dumping mechanisms), market quotas, red tapes and other customs limitations, coupling aid to trade, and phytosanitary standards, among many others. Addressing these challenges will enable full and effective participation of developing countries in global trade and boost their economies towards achieving global sustainable development that leaves no one behind.

  Proficient and technical leadership will be necessary to guide the country into realizing due most benefit from the continuing changes in global trade and co-operation.

  • Whiles working and advocating for a fairer global trade system, capacity must be strengthened and expanded to enable profitable participation in international trade at all levels; sub-regional, regional and global.
  • International arrangements such as “Aid for trade”, “Fair Trade”, African Growth and Opportunity Act (AGOA) and such others provide real opportunity for deriving increased benefits from global trade. Mechanisms and measures to explore these schemes and opportunities must be bolstered and well aligned to ensure proper and maximum benefit.
  • As an increasingly important source of advance technology and skills, South–South co-operation can contribute towards building a strong local manufacturing sector, specifically in our sectors of comparative and/or competitive advantage or in areas that will contribute to reducing our unacceptable high import bills.

  4. Private Capital

  This includes Foreign Direct Investment (FDI), and capital from both international and domestic capital markets.

  As a stable long-term investment, FDI is important towards achieving sustained economic growth, and this is essential towards achieving the SDGs. In 2014, out of the estimated $681 billion FDI inflows into all developing countries, Africa received only 8% ($53.9 billion), with Ghana’s share being $3.357 (6%); South Africa, Congo (Democratic Republic), Mozambique, Egypt and Nigeria were the top five FDI recipients in Africa. However, analysis of the real impact of FDI in Africa leaves more much to be desired.

  Foreign Direct Investment, branded and sold as a panacea to economic challenges led developing countries to offer juicy tax incentives – especially to multinational enterprises (MNEs) – in a bid to attract more of this foreign investment capital. Yet the promised jobs, increased export volumes and the growth in the economy are yet to felt by the citizenry. Rather, studies have proven that the competition to offer lucrative tax incentives (race to the bottom), coupled with practices of tax dodging and illicit financial flows is having significant negative impact on the economy of developing countries.

  Over-emphasis on FDI has led to the neglect and disregard of “Local Direct Investment”, which similarly to domestic resources are invaluable to building an indigenously owned economy and citizen-led development. While it has been argued that there is not enough local private capital for large investments, impressive profit margins by rural banks and microfinance institutions, which mainly target and work in the informal sector proves otherwise. These profits have attracted scrupulous institutions into the informal financial sector, leading to several and huge financial malpractice and malfeasance. Many traditional banks have developed products and programs targeting clients in the informal sector even as they seek to widen their customer base, increase savings and stay more competitive and profitable. There is substantial capital in the Ghanaian economy (formal and informal), which can be garnered using the right instruments and measures, increase national savings and invest them in the economy.

  Also, institutional investors (pension funds, insurance companies, mutual funds, and other such financial options) continues to grow and expand globally and also importantly in developing countries; government backed options provide much needed investor security. These present extra available resources for long-term investment towards sustained economic growth and development.

  • Efforts should focus on building a stable economy, good governance and rule of law, knowledgeable and highly skilled labour force, advance technology and good infrastructure to provide conducive environment for both local and foreign investors.
  • Innovative collaboration between government and private institutions, including domestic private institutions, must be explored to facilitate risk mitigated private capital investments in the economy.

  Without doubt, private capital – both local and foreign – is an important and integral source of development financing, and requires appropriate and innovative mechanisms for better mobilization and impact.

  5. Remittances

  Developing countries receive large amounts of remittances making it is a significant and important source of external financial resource; 2015 remittances flow to developing countries was estimated at $515 billion. For some developing countries, remittances reportedly reach “up to almost half of their GDP.” The cost of money transfer is a major constraint to remittances and tends to entice the use of informal channels. Purportedly, over $16 billion extra can become available to developing countries annually, if cost of remittances transfer can be reduced to 5%.

  Social and family relations form the main basis for most remittances, in some cases, they are the major source of income for homes and relatives – it enables families and homes to meet regular expenditures or one-off payments. Though remittances are mainly for private spending, the larger economy eventually benefits as they are important source of forex for developing countries. Remittances, together with gold, cocoa and tourism, are Ghana’s top forex earners. Remittances may also be a source of valuable overseas investment, when for example it is transferred for the purpose of direct economic investment.

  • International agreement to reduce remittance transfer cost to 3 – 5% by 2030 and promote faster and safer transfer of remittances is laudable; stakeholders from developing countries and their allies must continue and maintain strong advocacy towards the realization of this agreed target.
  • Though competition may reduce cost of remittance transfer, deliberate policies and measures can also engender this reduction, and additionally promote the increased use of legitimate means of transfer.
  • Migrants can also be valuable ‘overseas investors’, and thoughtful initiatives can be implemented to attract more of their investments (forex) into the economy. Unlike traditional FDI, this kind of overseas capital may be less prone to capital flight even as the migrant may return home later or bequeath investments to family relations.
  • Migrants who return home to invest and/or to re-settle, provide a good opportunity to obtain investment capital (forex), and in some cases highly skilled and knowledgeable labour, and advanced technology. Deliberate policies and programs will be a forward-looking approach towards facilitating such transition, particularly as it will be a positive addition to the economy and foster growth and development.

  With a significant overseas population, Ghana can tap and obtain more resources from this important sect of her citizenry towards mobilising the assets and investments needed for the sustainable national development agenda.

  6. Philanthropic Contributions (Foundations & CSOs/NGOs) and Social Enterprises

  The complex and integrated global challenges has fostered cross-sectoral collaboration and partnerships among the different development actors and stakeholders, especially in developing world. Resources from the philanthropic community (Foundations, NGOs/CSOs and other social efforts) are important component of collective efforts towards financing, implementing and achieving the SDGs.

  The World Bank estimates that total global private aid is between $60-70 billion annually. OECD-DAC data indicates that their countries provided $29.75 billion philanthropic contributions in 2012. The philanthropic community, are not only sources of financial resources, but in many cases technical expertise, important grass-roots relations and viable social solutions. In some cases, Foundations and NGOs/CSOs have closer relations with other stakeholders, such as big private businesses and rich individuals, and can be influential in attracting complementary funding from these valuable networks. Having more relative elasticity in their operations and social investment areas, their resources and efforts can be vital in tackling otherwise neglected challenges.

  Social enterprises, which have become an important development module, due in part to the strong growth of the philanthropic community, offer alternative and innovative opportunities to tackle some cross-sectoral challenges. Combination of social motive and good business practices and perspectives, allows the creation and establishment of social ventures that solve social issues in an efficient and self-sustaining manner. This approach can be useful in tackling some developmental challenges such as poor urban sanitation.

  In Ghana and perhaps other developing countries, philanthropy and social efforts have promoted dialogue, some informally, among a wide variety of developmental actors and stakeholders in society. Formalising such dialogue and integrating them into on-going or existing partnerships, and aligning them for maximum developmental impact will be important step going forward.

  • An all-inclusive approach towards establishing formal working relations and strong collaboration with the eclectic philanthropic community will release its full potential for the country. This must involve among others:
    • Old or existing Foundations, NGOs and CSOs – they are a repository of knowledge, data, skills and valuable networks. The SDGs and our intended long-term development plan offer authorities with the fine opportunity to re-evaluate and realign existing engagements towards strengthened and coordinated partnership for more strategic impact.
    • New or emerging philanthropy – local (well-resourced domestic Foundations – many associated to corporate institutions and faith groups) and global (influential Foundations and CSOs/NGOS in the Arab world, Global South and other emerging countries), provide for new and expanded engagement opportunities and resources.
    • Ghanaian benevolence (mostly through faith groups) and public-spiritedness (hospitability, volunteerism, and communal labour), can be harnessed through improved traditional or existing mechanisms, and/or new innovative frameworks towards our development.

    Transparency will allow better allocation and use of resources (knowledge, data, financial and skills) within the philanthropic community and among larger group of developmental actors. Additionally, it breeds accountability within and among actors, beneficiaries and the larger society.

    • An enabling environment (policy, legal, administrative, governing, fiscal), must be built for stronger coherence, transparency and greater contribution of philanthropy and social businesses towards our developmental aspirations.

    The philanthropic community and social enterprises have an elaborate network and connection to other development actors and sectors, making them critical to national development. Though their financial contribution may be comparatively small, they can make invaluable contributions to development through horizontal and vertical cross-sectoral and multi-stakeholder approaches and mechanisms. This will be critical for effective and efficient alignment all of available resources towards our long-term sustainable national development plan.

    7. Innovative and Emerging Mechanisms

    It is widely accepted that implementation and achievement of the SDGs cannot follow the same business as usual approach, this coupled with the global economic challenges has led to new and evolving financing mechanisms.

    Innovative financing mechanism, largely characterized by innovative means of revenue mobilisation and/or innovative expenditure, seeks to assist in mobilising complementary or supplementary funds for development. The UN projects that as much as $600 billion can be realized through these mechanisms. Whiles some of these schemes are already in operation and have already yielded tangible results, the potential and impact of others are yet to be fully realized.

    1. Climate financing – it has a number of funding mechanisms and pooled financial resources (Global Environment Facility, Green Climate Fund, Adaptation Fund and Clean Development Mechanism) for addressing climate change and other environmental issues. Ghana’s participation in the REDD+ mechanism should provide good experience, lessons and advantage to access other climate finance arrangements.
    2. Advance market commitments, Vertical Funds and Pull mechanism– they have been successful in securing financial pledges and/or raising funds from multiple sources towards addressing specific global challenges. The International Finance Facility for Immunization (IFFIm) and the Global Fund to Fight AIDS, Tuberculosis and Malaria, Innovation in Agricultural Research and Delivery (AgResults Initiative) are examples.
    3. Financial transaction taxes – As Ghana’s Financial Services Tax proved, this is a contentious revenue mobilising mechanism, yet can raise substantial domestic resources for development. Such taxes can be earmarked for specific projects and expenditure increasing their economic and developmental impact.
    4. Diaspora bonds – With an estimated African diaspora savings of $52 billion, the World Bank believes these migrant resources can be tapped through “diaspora bonds and remittance-backed bonds”. The combined moral, altruistic and financial rewards can make it attractive and viable, more especially if migrants are assured of strong governance, legal and accountability issues. Additionally, intended areas of investment may also need to prove economic and/or proper sense to the migrant investors.
    1. Resources-for-infrastructure (RfI) – this mechanism is obviously limited to rich resource developing countries. The lack of transparent and accountable governance and high levels of corruption in Africa will make this mechanism highly susceptible to corruption and abuse. Such mechanism could end up enriching few corrupt government officials and the companies involved, mostly multinational enterprises.

    Conclusion

    The global economy has witnessed dynamic changes over the past decades, and certainly the current world economy is less predictable and uncertain. Yet, these challenges also provide many opportunities for new thinking, approaches and mechanisms towards development in the Post 2015 era. Meeting global development challenges will require adoption of more effective and efficient savings, investment and expenditure patterns.

    Implementing the SDGs requires adequate financing to ensure that it yields the prosperous, equitable, safer and sustainable planet we all desire. Greater levels of co-operation and partnerships, transparency and accountability within and among all stakeholders and actors, and across all relevant sectors, will be critical for efficient and maximum utilization of all resources (potential and real). This is important as the sources of finance for our development is increasingly differentiated and varied, and needs to be properly aligned for maximum benefit and impact.

    Mobilising the needed resources is one part of the issue; another important aspect is spending it wisely. A well-detailed plan, such as the intended 40 Year Development Plan and subsequent medium-term plans will provide the much needed guidance. However, Corruption remains a major developmental issue that needs to be addressed comprehensively. All forms of Corruption – petty, systemic, grand or political – at all levels must be strongly dealt with in an altruistic and public-spirited manner, recognizing our collective desire for a developed and prosperous nation. Law enforcement agencies, some of which are noted for all types and manner of corruption, must be reformed and restructured in thinking, philosophy and operation, to enable them play their rightful and respected role in tackling acts of corruption in our economy and society.

    The long-term national development plan, and the accompanying fiscal plan, presents a unique and fine opportunity for the government and people of Ghana to collectively work towards achieving our shared and mutual goal of a prosperous, well-planned, clean, healthy, educated and safe country with a strong and robust economy. Exploring and leveraging all the available and emerging sources of finance (and other resources) to sustainably finance our development requires an inclusive, comprehensive and forward-thinking approach. Professionals and technocrats in governance (Ministries, Departments and Agencies), and in other sectors of the Ghanaian economy must provide the essential technical leadership, direction and guidance required in this regard.

    Leaders and leadership at every level, in every sector and region of the country must act exemplary, and lead the way towards rekindling the spirit of nationalism, self-sacrifice and true-commitment to nation building. Partisan politics must not be a source of division, and deliberate distraction and confusion, but rather must be used for discussing alternative approaches to our development. Likewise, political office and power must not be an avenue for corruption, looting state resources and enrichment of self, family and friends, but rather for advancing the cause of national development and the collective good of the Ghanaian society and her citizens.

    Political leaders and governments in particular, must be willing and ready to take the hard and difficult but critical and needed decisions that will transform the economy and the nation. The citizens – who are becoming increasingly discerning – and our vibrant media must support them in an objective non-partisan manner to enable us achieve our collective goal.

    Written by Laud Addo (+233-267-902-063; [email protected]). Laud Addo is the Executive Director of Alliance for Development (AFD) and the National Coordinator of the Post 2015 National Youth Platform.

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    Written by Laud Addo (+233-267-902-063; [email protected]). Laud Addo is the Executive Director of Alliance for Development (AFD) and the National Coordinator of the Post 2015 National Youth Platform.