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1. Financing Innovations – Cameroonian Startups and the Rise of Alternative Funding

Author:
Adeline Nembot, Yollande Meli Tankeu, and Larissa Ntoubia
Publication Date:
09-2024
Content Type:
Working Paper
Institution:
The Nkafu Policy Institute
Abstract:
In Cameroon, startups have always relied on personal resources and bank financing despite their heavy investment requirements. Yet, rigorous collateral and high interest rate requirements limit access to bank loans. As a result in 2021, only 15% of Cameroonian startups had access to formal funding options, while the majority relied on personal savings or informal funding sources (1), such as Informal Saving Groups and Rotating Savings and Credit Associations (ROSCAs). Moreover, according to the Central African Startup Finance Report 2022, funds raised in 2022 by startups in Cameroon remained stable year to year at 7.3 billion francs CFA ($12 million) (2). In 2023, the Africa platform’s report showing the breakdown by country of funds raised by young African startups revealed that Cameroon attracted fewer investors, raising just $4 million, far behind Côte d’Ivoire ($17 million), Senegal ($44 million), Benin ($71 million), Kenya ($88 million), South Africa ($410 million), and Egypt ($640 million) (3). This restricted access hinders startups’ potential to innovate, create jobs, and contribute to economic growth. In this context, there is a need for exploring alternative financing options, which demands a shift from traditional to emergent financing solutions.
Topic:
Economics, Finance, Innovation, and Startup
Political Geography:
Africa and Cameroon

2. The Impact of Access to credit on Women’s Entrepreneurship

Author:
Vera Kum
Publication Date:
09-2024
Content Type:
Working Paper
Institution:
The Nkafu Policy Institute
Abstract:
This article explores how access to credit and financial resources can help women start and grow their businesses. Anchored within the paradigm of women’s entrepreneurship empowerment and social development, we will first examine from the literature some cases of access to credit in women’s entrepreneurship. A brief analysis of the significance of financial accessibility for female entrepreneurship development follows this. Finally, we will suggest some recommendations that can help decision-makers better formulate more inclusive policies to ensure equitability between males and females regarding credit accessibility for women.
Topic:
Economics, Women, Finance, and Entrepreneurship
Political Geography:
Africa

3. Illicit Financial Flows in the age of Digitalisation in Africa : Opportunities and Challenges

Author:
Adeline Nembot
Publication Date:
11-2024
Content Type:
Working Paper
Institution:
The Nkafu Policy Institute
Abstract:
In recent years, countries have witnessed the widespread adoption of new digital technologies for financial transactions, including electronic payments, mobile and online banking, e-commerce, cryptocurrencies, and gambling services. African nations are not exempt from these financial activities, particularly illicit ones. In fact, Africa is losing approximately $88.6 billion annually due to illicit financial flows (IFFs), a sum regarded as a significant loss of development opportunities (1). Such circumstances threaten the African Union’s Agenda 2063, which aims to achieve inclusive and sustainable development across the continent (2). Illicit Financial Flows (IFF) occur when money or capital is illegally earned, utilized, and transferred across borders. Typically, this mechanism is employed with the intent to evade taxes related to trade and fiscal records. While digital technologies can be leveraged to investigate, detect, and disrupt these unlawful transfers of funds, the evolving landscape of online business can exacerbate IFFs by enabling the movement of illegal funds to fraudulent e-commerce companies and online enterprises. Therefore, it is essential to examine the extent to which digital technologies can serve as tools to either mitigate or facilitate IFFs in Africa. This article aims to explore the opportunities and challenges presented by digital technologies and digitalization in relation to IFFs in Africa. To accomplish this, I will utilize secondary data sources from existing literature, including articles, books, and reports from international organizations with expertise in this area.
Topic:
Economics, Finance, Digitalization, and Illicit Financial Flows
Political Geography:
Africa

4. Proposals for Reducing the Size and Cost of Running Government

Author:
Kojo Asante and David Asante Darko
Publication Date:
01-2023
Content Type:
Policy Brief
Institution:
Ghana Center for Democratic Development
Abstract:
Every other sector of the economy has had to incur substantive inconvenience or financial loss in efforts to return the sovereign debts to sustainable levels. Every other sector of the economy, except government itself. Against this backdrop, this paper reiterates some of the measures that have been proposed to reduce government spending and examines them in more detail. We delve into how the ministerial team might be reduced in size and thereby optimized to cut down government expenditure.
Topic:
Government, Budget, Finance, and Economy
Political Geography:
Africa and Ghana

5. The Future of EU Blended Finance and Guarantees: An Assessment of Cooperation Strategies with Least Developed Countries in Africa

Author:
Erik Lundsgaarde
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
The European Fund for Sustainable Development Plus (EFSD+) is a core element of EU development cooperation and reflects the EU’s strong commitment to deploying blended finance and guarantees as development financing tools. This discussion paper examines the EU’s intentions concerning how the EFSD+ will be integrated into geographic programmes, focussing on the least developed countries (LDCs) in Africa. Based on a review of the Multiannual Indicative Programmes (MIPs) for 30 African LDCs as well as the regional MIP for Sub-Saharan Africa covering the period 2021-2027, the paper provides an overview of funding reserved for EFSD+ implementation in geographic programmes, identifies the expected EFSD+ sectoral priorities and summarises references to development finance institutions (DFIs) as EFSD+ implementation partners. This descriptive review highlights issues for the future monitoring and assessment of the EFSD+. The paper points to uncertainty about the magnitude of the management challenge that EU institutions face in EFSD+ implementation given the difficulties of predicting the scale of guarantee-backed operations in individual countries, the lack of information on the expected volume of blended finance operations, and the limited analysis of how EFSD+ tools relate to other EU funding approaches. The paper also notes that EU institutions should be more explicit about the criteria shaping EFSD+ resource commitments to clarify relevant prerequisites for the effective deployment of EFSD+ tools. Finally, the broad thematic scope for EFSD+ use implies that knowledge about how blended finance and guarantees function and how the financing approaches interact with other interventions needs to increase throughout the EU system.
Topic:
Development, European Union, Finance, Sustainability, and Cooperation
Political Geography:
Africa and Europe

6. Macro-financial implications of public debt in South Africa: The role of financial regimes

Author:
Theshne Kisten
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper examines the role of financial frictions in the public debt–growth nexus, documenting that a public debt shock has different macro-financial implications dependent on the state of financial markets in South Africa. A non-linear vector autoregression model is estimated which allows the transmission mechanism to be characterized by two distinct financial regimes: stressful versus normal. The empirical results suggest that a public debt shock has a broadly insignificant impact on economic growth over the full sample, reflecting the ineffectiveness of government borrowing in stimulating the economy, and could suggest that the high and growing debt service costs faced by the government reduces funds available for investment purposes. Debt shocks are found to be deflationary in both regimes, lending support to the precautionary savings effect and the existence of a well-developed financial market, while interest rates decline with the immediate impact being moderately larger in the stress regime, providing evidence of the accommodative stance between fiscal policy and monetary policy. In response to a public debt shock, financial conditions show an immediate and transitory improvement in the high-stress regime; however, in the low-stress regime there is an immediate yet negligible improvement in financial conditions. Lastly, the responses evolve over time, with fiscal policy being less effective in stimulating the economy in the post-crisis period, but it has been effective in reducing financial stress in the high-stress regime.
Topic:
Economics, Finance, Economic Growth, and Public Debt
Political Geography:
Africa and South Africa

7. Egypt: The Price of Inaction on Tax Reform

Author:
Omar Ghannam
Publication Date:
01-2023
Content Type:
Research Paper
Institution:
Arab Reform Initiative (ARI)
Abstract:
Like public finances elsewhere, the public finances of the Egyptian state suffer from a semi-permanent deficit. Although a limited deficit in state budgets is acceptable for most prevailing economic theories, the persistent and worsening deficit in public budgets leads to severe phases during which the economy suffers. During periods of economic prosperity, soft loans are easily accessible, which encourages states to rely on borrowing as a secondary source of financing for extended periods until it becomes a permanent source of financing. The financial market eventually puts an end to every period of easy borrowing, forcing the government to face the reality it has tried to avoid. Under such circumstances, governments have three tools at their disposal: borrowing at the highest interest rate, austerity and disabling services and social protection programs, and raising taxes and customs duties. Borrowing at the highest interest rate is every government's first choice because it does not require a reformulation of the social, economic, and political contract between the state and its citizens. But the price of such a policy is a worsened deficit. Borrowing, before or after a crisis, is not a solution but merely a postponement of the crisis, in the hope that the market recovers. When it is no longer possible to borrow amid the worsening economic conditions of a crisis, the government resorts to other tools with varying degrees of risk. Austerity is a recipe for widespread social outcry and has catastrophic effects on the poor and middle classes as well as the overall economy due to decreased purchasing power. To overcome the crisis with the least social tension, the state can also resort to taxation to generate possible revenues whether from the economy as a whole or the sectors and classes with concentrated surpluses of value. The more severe the crisis, the more the government is forced to use additional tools and impose strict measures. Debts are nothing but deferred taxes, and taxes remain key in every economic crisis. When a global economic crisis looms, questions abound. Could the crisis be approached with fewer social and economic burdens and with more room for maneuver? In this context, this paper will discuss the tax policies adopted in the past few years in Egypt and how they could have been more effective. The primary role of taxes is to meet the government's financial needs to implement its role under the social contract, whether formal or informal. Therefore, taxes are a convenient introduction to understanding the political economy of any state. Tax policies are an essential tool for achieving macroeconomic goals, and they directly reflect the political and socioeconomic considerations driving a country’s economy. This paper will address the main role of taxes in financing the requirements of the social contract from the perspective of the adequacy and effectiveness of tax collection.
Topic:
Economics, Governance, Reform, Finance, and Tax Systems
Political Geography:
Africa and Egypt

8. The Implications of Financial Development for Economic Growth in CEMAC

Author:
Jean-Cedric Kouam
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
The Nkafu Policy Institute
Abstract:
In recent years, the Economic and Monetary Community of Central Africa (CEMAC) has experienced sluggish economic growth. This has fallen from 4.86% in 2010 to 0.04% in 2021 (World Bank, 2021), a drop of 4.82 percentage points in a decade. In addition to the high vulnerability of economies to exogenous shocks, several economists such as Asteriou & Spanos (2019) attribute the slowdown in growth to the underdevelopment of the financial sector. In CEMAC, the access of populations to mobile money or commercial bank deposit services has undoubtedly become insufficient to keep economies on a sustainable and inclusive growth path. This article reviews the evolution of financial development indicators in the CEMAC zone since 2013, and its impact on the performance of states in terms of economic growth. We use secondary data collected from the World Bank and the Bank of Central African States (BEAC), between 2013 and 2021. The analysis provides public authorities in CEMAC with arguments to promote financial development in the sub-region to boost economic growth, and better take advantage of the opportunities of the African Continental Free Trade Area (AfCFTA). The paper is structured in two sections. Section 1 presents the evolution of financial development indicators in CEMAC and section 2, the implications for economic growth and sustainable development.
Topic:
Development, Regional Cooperation, Finance, Economic Growth, and CEMAC (Central African Economic and Monetary Community)
Political Geography:
Africa and Central Africa

9. Financial Autonomy of Decentralized Local Authorities and Local Development

Author:
Herve Ondoua, Bin Meh, Boris Andzanga Ndzana, and Jean-Cedric Kouam
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
The Nkafu Policy Institute
Abstract:
The financial autonomy of Decentralized Territorial Collectivities (DTCs) is today considered as the foundation of local governance. It confers decision-making power in financial matters to municipalities and regions, as well as a certain level of independence in the management of the resources at their disposal. In Cameroon, the general principles of financial autonomy are defined in the law on the General Code of DTCs, in particular in the Fifth Book, which repeals the law establishing the financial regime of local authorities and that on the financial regime of the State. Thus, financial autonomy should enable DTCs to develop by using their own resources in improving the living conditions of their populations. Despite these powers, DTCs still depend for the most part on income from municipal taxes and income transferred by the State. However, DTCs in Cameroon have real economic and financial potential but not a degree of financial autonomy that would allow them to accelerate the development of their locality. This reflection is aimed at local elected officials, political authorities, government authorities and civil society, with the aim of examining the effectiveness of financial autonomy in the face of the economic and financial potential of DTCs and their ability to implement their own local development projects. This article relates financial autonomy and local governance, on the one hand, and shows how financial autonomy is a factor of valorization of local resources, on the other hand.
Topic:
Development, Government, Finance, Local, Decentralization, and Autonomy
Political Geography:
Africa and Cameroon

10. Using Taxation to Fund Military Spending

Author:
Nan Tian, Diego Lopes da Silva, and Xiao Liang
Publication Date:
01-2023
Content Type:
Commentary and Analysis
Institution:
Stockholm International Peace Research Institute (SIPRI)
Abstract:
World military expenditure is on the rise. To fund their increases in military spending, options available to governments include tax, debt or revenue from natural resources. Each form of financing has its consequences, economic, political or social. Tax is the prevalent source of finance for governments. The use of tax, and the choice among different types of tax, can have an impact on income inequality and economic growth, among other things. However, no scholarly attention has yet been paid to the use of taxation to fund military spending. Using statistical analysis combined with in-depth case studies sheds light on this use of taxation. The findings—based on data for 100 countries between 1990 and 2020 and reinforced by detailed case studies on Burundi and Ukraine—show that countries in conflict tend to resort to indirect taxation to fund military expenditure. This is particularly true for low-income countries and for countries with an autocratic regime. This association can be consequential, considering the accumulated evidence on the impacts of indirect taxation on income inequality.
Topic:
Finance, Military Spending, and Tax Systems
Political Geography:
Africa, Europe, Ukraine, and Burundi