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“A viable financial system for Africa”

April 11th, 2018

Finance is the driver of economic activities and serves as a medium of exchange in today’s world. Samasi Anderson, 21, a Commonwealth Correspondent from Bayelsa State, Nigeria, looks at options for creating a robust financial system in Africa.

A society that provides equitable socio-economic opportunity is built on a viable financial system, because the system provides the necessary funding for amenities such as good roads, good health facilities, and affordable credit facilities.

Unfortunately, Africa is deficient in this respect. African governments look outside the continent in search of funds for developmental projects, because the financial system in the continent is not viable.

Nations receiving loans from outside Africa’s borders have a negative repercussion on the continent. A research paper by Halima Ibrahim, “Effect of External Public Debt on Economic Growth: An Empirical Analysis of East African Countries”, established that external debt has a negative effect on economic growth, while domestic debt has no significant effect. According to the paper, some of the effects of external debt are that it increases a large proportion of tax revenue that has to be used to repay foreign loans. This constrains the funds available for investment in the development projects that African countries need to improve their economic growth.

Also, repayment of external debt leads to the depreciation of local currencies, thereby increasing inflation in African countries that are net importers. As a result, GDP growth declines. This decline is likely to be high if the proceeds of external debt are mismanaged or invested in unproductive ventures, which in turn constrains access to funds for servicing debts and others.

African society is incontestably inequitable socio-economically. This is particularly true in sub- Saharan Africa, where there is noted lack of amenities such as good roads, affordable credit facilities, health system, education, water, and power. Africa as a continent lacks a buoyant financial system that can shoulder its demands. Hence, the viability of its financial system is pertinent in having a society that is serene and fair on the socio-economic level.

One policy that is essential in having such a financial system is an advance payment tax system.

This is a system where payment of future taxes is made at the present. For instance, individuals and organisations can pay taxes for five or ten years in the first year. This system does not stop the regular annual or monthly tax payment system in an economy. Both tax payment systems are choices to be made by the tax payers. However, individuals and organisations have a choice to either subscribe to advance payment or annual,  monthly payment systems. Subscription to advance payment tax system by tax payers is a risk both on the part of the tax payer and of the fiscal authorities. These payments are made relying on predictions of future economic environment, hence any shift in the economic environment will either be a loss for the fiscal authorities and gain for the tax payer – or the opposite.

This tax payment system makes more money available at the disposal of government for infrastructure and  socio-economic development. African governments adopting this system will reduce the acquisition of loans outside Africa, if prudently managed. At the same time it puts more money in commercial banks and other financial institutions, keeping the financial system alive. Some percentage of these advance taxes are paid directly into “soft bonds” as investment within the economy. Soft bonds are low profile bonds issued by individuals, small and medium organisations or enterprises. A sincere implementation of this tax system will contribute significantly to the viability of an economy’s financial system and Africa at large.

Photo credit: CreditDebitPro Taxes Key via photopin (license)

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About meEverything about me is how to create better society, replacing each and every theory that has not worked for us. I am searching for how to reform the structure of things in Africa for the better.

I am so interested in getting new ideas in economics and politics, and want to meet people who think critically. I write only because I have an idea or a theory that I believe will put society in a better place.

………………………………………………………………………………………………………………… 

Opinions expressed in this article are those of the author and do not necessarily represent the views of the Commonwealth Youth Programme. Articles are published in a spirit of dialogue, respect and understanding. If you disagree, why not submit a response?
To learn more about becoming a Commonwealth Correspondent please visit: http://www.yourcommonwealth.org/submit-articles/

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Finance is the driver of economic activities and serves as a medium of exchange in today’s world. Samasi Anderson, 21, a Commonwealth Correspondent from Bayelsa State, Nigeria, looks at options for creating a robust financial system in Africa.

A society that provides equitable socio-economic opportunity is built on a viable financial system, because the system provides the necessary funding for amenities such as good roads, good health facilities, and affordable credit facilities.

Unfortunately, Africa is deficient in this respect. African governments look outside the continent in search of funds for developmental projects, because the financial system in the continent is not viable.

Nations receiving loans from outside Africa’s borders have a negative repercussion on the continent. A research paper by Halima Ibrahim, “Effect of External Public Debt on Economic Growth: An Empirical Analysis of East African Countries”, established that external debt has a negative effect on economic growth, while domestic debt has no significant effect. According to the paper, some of the effects of external debt are that it increases a large proportion of tax revenue that has to be used to repay foreign loans. This constrains the funds available for investment in the development projects that African countries need to improve their economic growth.

Also, repayment of external debt leads to the depreciation of local currencies, thereby increasing inflation in African countries that are net importers. As a result, GDP growth declines. This decline is likely to be high if the proceeds of external debt are mismanaged or invested in unproductive ventures, which in turn constrains access to funds for servicing debts and others.

African society is incontestably inequitable socio-economically. This is particularly true in sub- Saharan Africa, where there is noted lack of amenities such as good roads, affordable credit facilities, health system, education, water, and power. Africa as a continent lacks a buoyant financial system that can shoulder its demands. Hence, the viability of its financial system is pertinent in having a society that is serene and fair on the socio-economic level.

One policy that is essential in having such a financial system is an advance payment tax system.

This is a system where payment of future taxes is made at the present. For instance, individuals and organisations can pay taxes for five or ten years in the first year. This system does not stop the regular annual or monthly tax payment system in an economy. Both tax payment systems are choices to be made by the tax payers. However, individuals and organisations have a choice to either subscribe to advance payment or annual,  monthly payment systems. Subscription to advance payment tax system by tax payers is a risk both on the part of the tax payer and of the fiscal authorities. These payments are made relying on predictions of future economic environment, hence any shift in the economic environment will either be a loss for the fiscal authorities and gain for the tax payer – or the opposite.

This tax payment system makes more money available at the disposal of government for infrastructure and  socio-economic development. African governments adopting this system will reduce the acquisition of loans outside Africa, if prudently managed. At the same time it puts more money in commercial banks and other financial institutions, keeping the financial system alive. Some percentage of these advance taxes are paid directly into “soft bonds” as investment within the economy. Soft bonds are low profile bonds issued by individuals, small and medium organisations or enterprises. A sincere implementation of this tax system will contribute significantly to the viability of an economy’s financial system and Africa at large.

Photo credit: CreditDebitPro Taxes Key via photopin (license)

…………………………………………………………………………………………………………………

About meEverything about me is how to create better society, replacing each and every theory that has not worked for us. I am searching for how to reform the structure of things in Africa for the better.

I am so interested in getting new ideas in economics and politics, and want to meet people who think critically. I write only because I have an idea or a theory that I believe will put society in a better place.

………………………………………………………………………………………………………………… 

Opinions expressed in this article are those of the author and do not necessarily represent the views of the Commonwealth Youth Programme. Articles are published in a spirit of dialogue, respect and understanding. If you disagree, why not submit a response?
To learn more about becoming a Commonwealth Correspondent please visit: http://www.yourcommonwealth.org/submit-articles/

…………………………………………………………………………………………………………………