African Economic Conference Advocates Using Tax to Reduce Income Gaps

Fri, Nov 6, 2015
By publisher

10th AEC Special Coverage, BREAKING NEWS, Featured


THE 10th African Economic Conference, AEC, which started on Monday, November 2, in Kinshasa, Democratic Republic of Congo, DRC, is emphasising better application of national tax policies to reduce the income gap between the rich and the poor. It is also stressing the need to expand economic growth to agriculture and manufacturing sectors to effectively deal with oil and mineral price drops.

During discussions on the “Determinants of Poverty and Inequalities,” on Day 1 of the conference, economic researchers said that evidence showed the right policies could address the causes of inequality and its impacts.

Jointly organised by the African Development Bank, AfDB, the UN Economic Commission for Africa and the UN Development Programme, the conference which will end on Thursday, November 5, gathered researchers to discuss ways of fighting poverty using the financial incentives to address income gaps.

“The economic growth in the top-performing economies of Africa is not distributed evenly,” Ayodele Odusola, chief economist and head of Strategy and Analysis at the UNDP Regional Bureau for Africa, said while presenting a research paper on “Poverty, Inequality and Fiscal Space in Africa,” on Monday, November 2.

Ayodele Odusola
Ayodele Odusola

With Africa home to seven of the world’s fastest-growing economies, recent economic research has shown income gaps between the rich and the poor remain wide. These gaps are worsened by a lack of social protection systems, such as the protection of the poor from job losses and promotion of efficient job markets.

The researchers presented papers showing how the over-concentration of investments in certain sectors in Africa, such as mining, affected economic growth whenever international prices of the key commodities such as oil and minerals dropped.

The researchers called for diversion of more economic resource allocation to the manufacturing sector to grow the value chains which would help create jobs. They also sought mechanisms to ensure income inequalities, such as those favouring men earning more than women for the same jobs, are addressed.

Abebe Shimeles, acting director of Development Research Department at the AfDB, while speaking on Why is inequality high in Africa? said research pointed to ethnic biases in the distribution of key economic resources and means of production within most of Africa.

“Ethnicity is the most significant reason behind the numbers. There is moral inequality that is accompanied by the struggle for distributive justice by the people left behind by circumstances beyond their control and inequality caused by structural market forces,” Shimeles said.

The research shows countries which have been benefited from high rates of economic growth backed by heavy financial inflows from mining activity such as Botswana have managed to reduce poverty, but income inequalities and the gaps still persist.

However, countries in northern Africa have managed to balance economic growth with poverty reduction by spending more money in capital development. Capital development signifies the process of using public funds to provide business start-up capital to businesses that are already past the start-up stage to allow them to further stabilize.

Abebe Shimeles

To deal with the income gaps, the UNDP’s Odusola said financial policies, such as raising public expenditure, re-directing funds obtained from direct taxation measures and ensuring stable currency exchange rates, were amongst the most effective tools to enable financial resources to move to other sectors, such as training of the youth in new skills to keep economies vibrant.

Other measures proposed to deal with the rising income inequalities include opening up the preparation of national budgets to public participation, which has been implemented in Burkina Faso, Kenya and South Africa with good results in reducing the income gaps and redirecting taxes.

The African Economic Conference is discussing responses to the deepening inequality after a recent report by the World Bank showed a 20.8 percent decline in poverty in Africa from 1990 to 2015. The continent saw poverty drop from 56 percent to 35 percent, but those gains were marred by increased high school dropout rates and more job losses.

— November 3, 2015 @ 3: 10 GMT