Revenue Diversification: Non-Traditional Sources of Development Finance as Game Changers in Africa

Abstract

It goes without saying that Africa needs a significant quantum of resources to address its development challenges. The World Bank estimates Africa’s infrastructure needs at USD 93 billion per annum and we estimate the social sector development needs at USD 109 billion per annum. We also find that the major sources of development finance in Africa are exhibiting either a declining or a constant trend. This, therefore, calls for significant increases in the fiscal space in which non-traditional sources of development finance can be game changers. This study discusses five sources of financing that are currently used by a relatively small number of African countries in spite of their potential to increase their fiscal space. Diaspora bonds, carbon sequestration and trading, renewable energy and Islamic finance, as sources of development finance are not traditional to many African countries. Tourism is traditional to all African countries, but is not optimally leveraged as in other parts of the world. We argue that African countries are not looking at the full range of options that could be available to them to increase the development finance space. We therefore argue that African policy makers should embark on revenue diversification to include non-traditional sources that could be game changers in their development finance mix.