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African Development > Domestic Resource Mobilization > Flashcards

Domestic Resource Mobilization Flashcards

1
Q

What is the relationship between capital accumulation, DRM and economic development?

A

Arthur Lewis

  • Development occurs wen countries save 12% GDP
  • Many determinants of Growth, but level of investment is greatest determinant
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2
Q

What are resources for financing development?

A

Domestic Private - Domestic Saving, household or corporate
Domestic Public - taxation, public borrowing
External Private - remittances, philanthropy, portfolio investment
External Public - Foreign Aid, Public Borrowing

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3
Q

Why is DRM important?

A
  • most development is locally funded

- most important source of investible funds come from DRM

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4
Q

Timeline of GDS Gross Domestic Savings?

A

1960-1980 - high savings and investment

  • Africa is under-saving compared to these numbers
  • gap between savings and investments have increased
  • this indicates states are borrowing
  • borrowing is related to capital flight
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5
Q

What is Capital Flight?

A

Reading: Ndikumana and Boyce

  • external borrowing is positively + significantly linked to capital flight
  • capital flight is debt fuelled
  • for every 1$ of foreign inflow, 80c goes back overseas
  • debt relief must be combined with sustainable practices
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6
Q

What is the role of aid?

A
  • Aid is unreliable, changes in quality and quantity
  • unstable because donors must approve grants
  • easy liquidity leads to high consumption
  • negative effect on domestic saving
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7
Q

What is relationship between DRM and FDI?

A
  • Foreign Direct Investment is volatile, gaps between investment and savings hurts development
  • self financing strengthens bargaining power of states
  • states with higher savings seem less risky, attract investment
  • more savings = more accountability = more taxes
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8
Q

What is Lucas Paradox?

A
  • Water flowing uphill, capital flows from capital poor to capital rich countries
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9
Q

What is Africa’s international position on finance?

A
  • Africa is marginalized from global finance
  • treated like a ‘bad neighbourhood’
  • FDI demand high returns to do business (risk premium)
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10
Q

Why is taxation politically important?

A
  • central to state building and funding public goods
  • main nexus binding states to citizens
  • increases incentives for public partiicpation
  • state power determined by ability to extract tax
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11
Q

What is public saving?

A
  • Government Revenue minus government consumption = Public saving
  • SAPs focused on debt repayment, reduced public expenditure on infrastructure, removed easily collectible trade taxes
  • SAPs focused on balancing budget but no investment
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12
Q

What are determinants of taxation?

A

Supply
- income level, economic structure (informal economy hard to tax, small industrial sector, high tax evasion rates), government capacity for bureaucracy

Demand

  • demographics
  • urbanization
  • development strategies
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13
Q

How do taxing capacity vary among African countries?

A
  • taxation is affected by initial conditions
  • Cash crop economies: (Nigeria, Ghana, Senegal), traditionally small civil service governed by indirect rule. State had limited role, and low taxation. Narrow tax base, taxing from trade
  • Labour Reserve Economies: (Angola, Zambia, Botswana, SA): collect more taxes, had strong white welfare state and strong state to repress blacks
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14
Q

What are different reasons why taxation is constrained?

A

Argument 1: ‘Too poor to save/viscous cycle’ - low income = low savings
doesn’t make sense because east asian countries have low incomes higher savings
- also need to consider that ‘savings’ looks different, may be camels
Argument 2: Dependency ration - best argument, people have to share their money

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15
Q

What is financial interventionism/repression?

A
  • Based on gov. idea that ppl were bad savers, so they introduced measures to restrain financial markets
  • Strategies: state ownership to capture profit, restriction luxury consumption
  • voluntary contribution - you build school we bring teachers, failed on states end
  • must be allocated responsibly, pensions going to shopping malls
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16
Q

What was role of development financial institutions in financial repression?

A
  • closed down under SAPs, poor performance, so no no development banks for invesment
17
Q

Arguments against financial repression

A

1) neoliberal argument against state intervention in private sector
- says high deficits because of state parastatals and misallocated funds

18
Q

Critiques of Africa’s banking system

A

Short-termism, 60% of loans are less than year, credit not inclusive

19
Q

What is case for/against stock markets?

A
  • Facilitate privatization where state could sell assets through these markets
  • global standards give access to African market
    BUT countries don’t industrialize through SM
  • local firms don’t qualify, less domestic investment, so less public saving
20
Q

How do these financial changes impact taxes?

A
  • goal to transform from trade tax to VAT value added tax
  • trade liberalization = reduction in trade tax
  • but new VAT taxes only compensate for 45-56% of revenue lost
  • low tax revenue = low public investment
21
Q

What impact has financial liberalization had on private savings?

A
  • no significant impact on public savings
  • has only led to consumption booms
    -idea is liberalization = high interest rates = high savings
    (But this hasn’t happened)
  • high interest has led to consumption booms
22
Q

What is role of natural resources in development?

A
  • can potentially centralize revenues (OIL in NIGERIA)
  • idea of resource curse (dutch disease)
  • easy come easy go, no value added to natural resources
    -higher volatility for prices than manufactured goods
    lack of need = economic collapse
  • Zambia liberalized and lost out on mining sector
  • East Asian countries are benchmarks of development through bureaucracy
23
Q

What are FDI flows?

A

4 phases -

1) Post CO years = declining FDI
2) Import substitution years = unstable increases
3) increases in privatization
4) recovery increases

24
Q

How have tax incentives changed?

A
  • more tax incentives today than 1980s

- highest form is corporate tax holiday

25
Q

Good news about DRM

A
  • resource nationalism - countries making taxes higher and renegotiating bad deals
  • pensions introduced in countries
  • Africa’s capitalists must feel safe in Africa
  • development banking returning - will fund long term investment
26
Q

What does Di John Argue?

A
  • Tax collection most effective way to determine state power and legitimacy
  • Douglass North - defines state by its taxation powers
  • taxation central to state-building (Social contract, binding nexus) - excessive coercion is defeating
  • Trade tax represents 1/3 of tax revenues in SSA economies
27
Q

What does Moore Argue about Sierra Leone?

A
  • Taxes in Sierra Leone Mean different things to different folks
  • in cities - formal income and corporate and VAT taxes
  • outside cities - smaller informal tax collection
  • people more confident in taxes of informal system helping public services
  • angry they aren’t collecting from mining firms
  • significant share doesn’t make it to gov.t accounts
  • colonial impact: govt. of Freetown would extract tax from rural areas without investing or consulting ‘hut tax’ costs
28
Q

What does Moore argue about significance of taxes?

A
  • Tax system has redistributive role, only get rich ppl through direct income taxes, if taxes unfair its illegitimate
  • individual govt. can’t reform tax system alone, collective regional action
  • need improved audits and third parties
29
Q

Taxes and state-building

A

Moore
- a govt. relying on taxes as opposed to capital income is more likely to build institutions to collect
‘tax bargaining’ ‘fiscal social contracts’ - tax payers expecting benefit from taxation

30
Q

Reading: Saunders + Caramento

A
  • focus on Zimbabwe + Zambia
  • mining reliant countries
  • mining key component of both national economies and target of FDI
  • both countries targets of SAP restructuring, elite rent-seeking in 2000s and not targets of resource nationalist politics + policy making
  • large - scale mining dominated by foreign firms
  • developmental patrimonialism didn’t help, corruption occurred
  • can’t duplicate EA experience, because bureaucracy was weak
  • commodity super cycle of 2000s had little impact despite state intervention
31
Q

Zambia

A
  • economy dependent on copper extraction for 5 decades, very volatile
  • collapse of copper prices in 70s = economic decline
  • SAPs in 80s led to development + debt agreements for foreign investment, stopped funding training uni
  • investors given too sweet deals, paying part time to not give benefits
  • PF party capitalized on popular dissatisfaction and won 2011 election
  • sought to help local contractors
  • dependence on foreign mining investments gave foreign firms leverage, threatened to lay off mine workers, boycott investments
  • they contested by resource nationalism fuelled by debt relief, lower debt = positive foreign credit ratings = access to international bond markets
32
Q

Zimbabwe

A
  • mining important before independence
  • inherited from white colonial rhodesia
  • 2008 IEE act: Shifted Zanu PF development vision, rapid transfer of 51% equity stake to domestic companies, to boost economic growth
  • mining sector hurt by elite corruption and IEE funding shortfalls
33
Q

Why were East Asians successful

A

Saunders + Caramento

  • bureaucratic practices shaped state success
  • coordinated markets
  • bureaucratic autonomy shielded institutions from partisan rent-seeking behaviour
  • state business collabs important, state harness private sector capacity to reach national goals

African Development (7 decks)

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