Good Financial Governance in AfricaDevelopments 2007 – 2014

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Good Financial Governance in Africa

Developments 2007 – 2014

Content

Executive Summary 1

1 Introduction 5

2 Development of economic and political background data 8

3 Promoting Good Financial Governance through bilateral and multilateral development cooperation 13

3.1 GoodFinancialGovernancereflectedinODAdata 133.2 SupporttocapacitydevelopmentforGoodFinancialGovernance 163.3 AideffectivenessforGoodFinancialGovernance 23

4 Supporting revenue mobilisation in Africa 294.1 Supportinthetaxarea 294.2 Increasingaccountabilityforrevenuesfromextractiveindustries 35

5 Establishing transparent and comprehensive budgeting procedures 41

6 Enhancingbudgetaryoversightandfightingcorruption 486.1 INTOSAIdevelopmentsintheAfricancontext 486.2 The role of parliaments in budgetary oversight 506.3 Performanceinanticorruptionandaccountabilityassessments 53

7 Summary and conclusions 57

References 63

Annex Annex1:G8ActionPlanforGoodFinancialGovernance 67Annex2:Methodologicalnote 70

Tables, Figures, Boxes

Table 1: HDIvariationinAfricabetween2008and2013 10Table 2: ODAtypeofaid“budgetsupport”relatedtoPFM,toAfricancountries, 2008–2013(US$million,CRScode15111) 16Table 3: ODAtypeofaid“expertsandothertechnicalassistance(TA)”related toPFM,toAfricancountries,2008–2013(US$million,CRScode15111) 17Table 4: AfricanrankingsintheResourceGovernanceIndex(RGI)2013 36Table 5: ComparisonofCBCRandEITIreportingrequirements 39Table 6: PublishedandunpublishedAfricanUNCACreviewreports,2010–2014 53Table 7: RegionalaveragesofIIAG2013andchangessince2009 55

Figure 1: The Good Financial Governance approach 6Figure 2: GDPGrowth(constantprices) 8Figure 3: Statefragilityandwarfareintheglobalsystem,2013 12Figure 4: NetODAdisbursementstoAfricancountriesinbillionUS$(constant2011) 14Figure 5: Developmentfinancetolow-incomecountriesinAfrica (percentageofGDP,weighted) 14Figure 6: Grossdisbursementstargetedatpublicfinancialmanagement (CRScode15111),US$million 15Figure 7: NumberofGDCGFGprojectsperregionandyear 19Figure 8: Development of German technical cooperation in different GFG subthemes 20Figure 9: AidonbudgetanduseofcountrysystemsrelatedtoCPIAQBFM 26Figure 10: FinancingoftheAPRM 28Figure 11: Tax-to-GDPratio,2005–2014,averageforAfrica 31Figure 12: VariationinAfricanrevenuecollection,2009to2013(IIAG),52countries 32Figure 13: DevelopmentoftaxindicatorratingsinPEFAperformanceassessments 34Figure 14: AfricanEITIcountries,2007to2014 38Figure 15: AfricanIDAcountries’variationinCPIAratingonthequalityofbudgetary andfinancialmanagement,2008to2012 41Figure 16: OpenBudgetIndexrankings,2008and2012 42Figure 17: Development of ratings on the comprehensiveness and transparency dimensioninPEFAperformanceassessments 44Figure 18: DevelopmentofCPIscoresinAfricancountries,2007to2013 58Figure 19: DevelopmentofIIAGaccountability,2009to2013 46

Box 1: G8ActionPlanforGoodFinancialGovernanceinAfrica 1Box 2: Overviewofimportantregionalprofessionalnetworks 22Box 3: FromParistoBusan:Transformationofaideffectivenessintoeffective development cooperation 24Box 4: TaxharmonisationintheEastAfricanCommunity(EAC) 30Box 5: GIZcontributiontoimproveeffectivetaxpayeradministrationinGhana 33Box 6: GIZregionalsupporttoresourcemobilisationfromextractiveindustries inLiberiaandSierraLeone 38Box 7: GIZsupporttobudgettransparencyinZambia 43Box 8: SupportingGFGinBurkinaFaso 46Box 9: Good Financial Governance and support to parliament in Ghana 51Box 10: StrengtheningtherelationshipbetweenPACsandSAIsthroughregionalinitiatives 52

Abbreviations and Acronyms

AEO AfricanEconomicOutlookAfDB AfricanDevelopmentBankAFRISTAT L’Observatoireéconomiqueetstatistiqued’AfriquesubsaharienneAFRITAC AfricanTechnicalAssistanceCentreAFROPAC AfricanOrganisationofPublicAccountsCommitteesAFROSAI AfricanOrganisationofSupremeAuditInstitutionsAGO AfricanGovernanceOutlookAPP African Progress PanelAPRM African Peer Review MechanismARABOSAI ArabOrganisationofSupremeAuditInstitutionsATAF AfricanTaxAdministrationForumAU AfricanUnionBEPS BaseErosionandProfitShiftingBMZ BundesministeriumfürWirtschaftlicheZusammenarbeitundEntwicklungCABRI CollaborativeAfricaBudgetReformInitiativeCAP CommonAfricanPositionCAR CentralAfricanRepublicCBC CapacityBuildingCommittee(INTOSAI)CBCR Country-by-countryreporting(EUstandard)CD CapacityDevelopmentCOBAC CommissionBancairedel’AfriqueCentraleCPA Country-programmableAidCPA CountryPerformanceAssessmentCPI CorruptionPerceptionIndexCPIA CountryPolicyandInstitutionalAssessmentsCREDAF CentrederencontredesadministrationsfiscalesCRS CreditorReportingSystemDAC DevelopmentAssistanceCommittee(atOECD)DG MARKT InternalMarketandServicesDirectorateGeneralDRC DemocraticRepublicofCongoDTA DoubleTaxAgreementEAAPAC EasternAfricanAssociationofPublicAccountsCommitteesEAC EastAfricanCommunityECCAS EconomicCommunityofCentralAfricanStatesECOSOC EconomicandSocialCouncil(UN)EIP EffectiveInstitutionsPlatformEITI ExtractiveIndustriesTransparencyInitiativeENAREF NationalUniversityforFinanceAdministrationESAAG EastandSouthernAfricanAssociationofAccountants-GeneralEU EuropeanUnionFDI Foreign Direct InvestmentGDC German development cooperationGDP Gross Domestic ProductGFG Good Financial GovernanceGIZ Deutsche Gesellschaft für Internationale Zusammenarbeit (GmbH)GOV Guidance(guidelines)ongoodgovernance(INTOSAI)

GS GeneralSecretariatHDI HumanDevelopmentIndexIDA InternationalDevelopmentAssociation(WBG)IDI INTOSAIDevelopmentInitiativeIFI International Finance InstitutionsIIAG IbrahimIndexofAfricanGovernanceIMF International Monetary FundINTOSAI InternationalOrganisationofSupremeAuditInstitutionsIRAI IDAResourceAllocationIndexISSAI InternationalStandardsofSupremeAuditInstitutionsITC InternationalTaxCompactITD InternationalTaxDialogueLICUS Low-incomeCountriesUnderStressMDG Millennium Development GoalsNEPAD New Partnership for Africa’s DevelopmentNRGI Natural Resource Governance InstituteOBI OpenBudgetIndexODA OfficialDevelopmentAssistanceOECD OrganisationforEconomicCooperationandDevelopmentOTA USTreasuryDepartment´sOfficeofTechnicalAssistancePAC PublicAccountsCommitteePEFA PublicExpenditureandFinancialAccountabilityPFM Public Financial ManagementPI Performance IndicatorPMF PerformanceMeasurementFramework(PEFA)PRS PovertyReductionStrategyPSG Peace-andState-buildingGoalsQBFM QualityofBudgetaryandFinancialManagement(CPIA)RGI ResourceGovernanceIndexSADC SouthernAfricanDevelopmentCommunitySADCOPAC Southern African Development Committee Organisation of Public Accounts

CommitteesSAI SupremeAuditInstitutionTA Technical AssistanceTPA TaxPolicyandAdministration(IMF)TRIPS TotalRevenueIntegratedProcessingSystemUN UnitedNationsUNCAC UnitedNationsConventionagainstCorruptionUNDESA UnitedNationsDepartmentofEconomicandSocialAffairsUNDP UnitedNationsDevelopmentProgrammeUNODOC UnitedNationsOfficeonDrugsandCrimeUS$ USDollarWAAPAC WestAfricaAssociationofPublicAccountsCommitteesWAEMU WestAfricanEconomicandMonetaryUnionWBG WorldBankGroupWGVBS WorkingGroupontheValueandBenefitsofSAIs(INTOSAI)

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In 2007, during the G8 Summit of Heiligendamm, Heads of State endorsed an action plan that was directed towards strengthening Good Financial Governance in Africa. This report, commissioned by GIZ, provides an overview of the sector since 2007, and summarises trends observed.

The GIZ Good Financial Governance in Africa programme provides supportinthefollowingactionfields:

• External Audit in collaboration with the African Organisation ofSupremeAuditInstitutions(AFROSAI)

• Tax Policy andAdministration in collaborationwith theAfricanTaxAdministration Forum (ATAF)

• BudgetReformincollaborationwiththeCollaborativeAfricaBudgetReformInitiative(CABRI)

• Legislative Oversight in collaboration with African networks oflegislative oversight

• AfricanVoiceonGoodFinancialGovernance/AFRITAC.

Thisyear,2015,isanespeciallybusyonefortheinternationalcooperationagenda,withGermanyhostingtheG7summitinJuneinElmau.DuringthelastGermanG8presidencyin2007,theG8ActionPlanforStrengtheningGood Financial Governance in Africa was agreed upon (see Box 1).

1. Contributing to good financial governance throughbilateral and multilateral development assistance

2. StrengtheningAfricantaxsystems

3. Establishing transparent and comprehensive budgetingprocedures

4. Promoting accountability and transparency, enhancingbudgetary control

5. Increasing accountability for revenue from extractiveindustries

6. Securingpublicdebtsustainability

7. Supportingfiscaldecentralisation

8. Promoting donor harmonisation through knowledgemanagement

9. Enhancingcapacities forgovernance in fragile statesandsituations

10. Developing local bond markets in emerging marketeconomies

Box 1 G8ActionPlanforGoodFinancialGovernanceinAfrica

ExecutiveSummary

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Furthermore,inJuly2015,theThirdFinancingforDevelopmentConferenceinAddisAbaba,Ethiopia,will followupon theprocessstartedat thefirstconference inMonterrey,Mexico,wherefinancialgovernanceaspectsweremoveduptothetopoftheinternationaldevelopmentagendaforthefirsttime.InSeptember2015,theUNGeneralAssemblywillsetthesustainabledevelopmentgoalsforthepost-2015agenda,whereGFGaspectswill also receivemoreattention thanunder theMillenniumDevelopment Goals (MDGs).

This report describes the development of GFG in Africa since 2007 through a multitude of aspects. It uses aggregate data collections and performance assessments, and analyses a sample of PublicExpenditure and FinancialAccountability (PEFA) assessment reports. It should be noted that theconclusions have to be perceived in that light.

Findings

The background to GFG reform in Africa can build on a positive economic perspective to some extent,butthepoliticalandsocialbackgroundremainschallenging,withpovertyreductionshowingrathermixedresultsandmanyAfricanstatesremaininginfragilesituations.Theseconditionshave not changed fundamentally since 2007.

Multilateral and bilateral development cooperation to support GFG reform has increased bothintermsoffinancialcontributionsandadvisoryservices,butchallengesremaintoimprove aid effectiveness:

• Theportfolioofdevelopmentcooperationcontributionshasbecomemorecomplexwithnewpart-nersoutsideofficialdevelopmentassistance(ODA)andmorenon-ODAcontributionsofOECDDevelopmentAssistanceCommittee(DAC)donors.

• Financialcontributionsshowvolatility,andpredictabilityremainsanissue.

• Someofthetechnicaldonorsupportactivitiescompetewiththeprogrammesdevelopedbytheregional GFG organisations.

• Thepolicyframeworksguidingplanningandbudgeting,aswellasaiddelivery,haveimprovedgreatlyonthesideofpartnercountriessince2007.However,theiruseofcountrysystemshasdecreasedacross the board.

• Publicfinancialmanagement(PFM)analyticaltoolsinusehavemultiplied.

• African leadershipregardingGFGhasbeenreaffirmedsince2007,buthigh-levelback-up fortheimplementation of GFG reforms is often missing.

Revenue mobilisation has been a core topic on the international agenda since 2007, and in spite of progress in tax administration, average tax collection yields did not increase.

The coordination and dialogue networks on the topic have amplified and intensified their work.AlthoughtheworkoftaxadministrationsshowsimprovementwithregardtoPEFAassessments,theAfricanaveragetax-to-GDPratiohasbeendecreasingsince2007.

In theextractive industry sector, revenuegovernance is still veryweak inmost resource-endowedAfricancountries.However, the implementationof theExtractive Industries’Transparency Initiative(EITI) is a greatAfrican success story.Most candidate countrieswere compliant by 2014, and the

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number of countries affiliatedwith the EITI has increased significantlysince2007.ThenewEUCountry-by-countryReporting(CBCR)standardswillcomplementtheEITIprogress.

The quality of budgetary and financialmanagement inAfricahas only improved in a few countries since 2007. Budgettransparencydoesnotreceivepositiveassessmentsattheaggregatelevel,but the basic documents are published in most countries and the trend is positive.ThesameholdsforPEFAassessmentsundercomprehensivenessand transparency formostcountries. Stagnation,with anegative trend,has been observed regarding the extent of unreported governmentoperations.

Budgetary oversight and anti-corruption have been recognised increasingly, in line with its important role in the GFG system. Since2007, the supreme audit institutions (SAIs) andparliaments haveplayedconsiderablymorevisiblerolesinthefieldoffinancialgovernance.AfricanSAIshavebeenhighlycommittedtosupportingtheinitiativesoftheInternationalOrganisationofSupremeAuditInstitutions(INTOSAI).Furthermore, support structures to strengthen those institutionshave been amplified. However, the accountability and anti-corruptionperformancemeasurementsstillshowmixedresults.

Conclusions

Broadly summarised, the data analysed for the purposes of this studyshowimprovementsinsomeareasoffinancialgovernance–mostofall,improvementsatthetechnicaladministrativeandattheaffirmativelevel–buttheimpactdoesnotconvincinglyreflectinGFGcountryperformances.Therearesomefactorsthatmightexplainthisobservation:

Methodological problems may prevail when analysing conceptual interrelationsinthedata.However,itwouldbeimportanttounderstandtherespectivedimensionsingreaterdetailandatcountrylevel,becausethe assessment landscape has grown since 2007. These assessments are usedforpolicydialogueandasbackgroundtogovernmentalnegotiations,and eventually also influence the commitment of funds, aswell as thechoice of the mode of delivery.

Political economy, resistance to change and the aspect of time: Thestudyconcentratesontheperiod2008–2014,whichisarathershorttimeforreformsinthefinancialgovernancesystemtotakeeffect.Suchreformsimplylegal,possiblyevenconstitutionalchangesandfundamentalorganisational development in public administration. These systems cannotbeexpectedtoshowsuccessfulresultsoveroneortwoprojectcycles of development assistance.

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Support to GFG reform – do the right things: If political economy implications for resistance to change in countries are to be recognised, supportmeasures need to be designed in amannerthatallows forprogress.Suchmeasures includeprioritisingareaswhereprogress ispossibleunderthegivenpoliticalcircumstances inacountry,planning forprocedures thatcanbemanagedby theadministrationinitsactualstate,anddesigninginformationsystemsthatcanbemanagedpermanentlyby the administration itself.

Torespondtotheseconcernsandstillrespectthepoliticalcontext,itwouldbehelpfultodevelopapathforGFGreformsthatisbasedonarealisticsequencing,strictlyrelatedtothecountry-specifichistory and conditions.

… and do things right: Overall, this study has provided some evidence that progress in aideffectiveness issues has not maintained the momentum in emphasis and commitment it used to have aftertheParisDeclarationin2005.Inaddition,theCABRI,AFROSAIandATAFStatusReportonGFGinAfricain2011,hasalreadyoutlinedthenegativeimpactsofunduedevelopmentpartnerinfluenceonreformsinfinancialgovernance.Inthisregard,muchmoreeffortisrequiredbydevelopmentpartners.The GFG systemic model provides the conceptual framework to understand the various factorsinfluencingfinancial governanceand their interrelation, and tomanage the supportof theresultingcomplexity.

African leadership is needed: However, toovercome“unduedevelopment partners’ influence”,stronger leadership is requiredon theAfrican side. Progress infinancial governance is anessentialgovernmentresponsibilitythatcannotbedelegated,or,inthelongrun,beexcusedbyexternalfactors:inappropriate consultancies and contributions may be rejected, and reform activities need to becoordinatedundertheresponsibilityandownershipoftheministryoffinance.

Thus, in summary, the responsibilities of providers and countries come down to one of themostimportant aid efficiency guidances, mutual accountability, renewed by the Busan Partnership:“Mutualaccountabilityandaccountabilitytotheintendedbeneficiariesofourcooperation,aswellastoourrespectivecitizens,organisations,constituentsandshareholders,iscriticaltodeliveringresults.”

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This report has been commissioned by the Good Financial Governance (GFG) in Africa programme of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, and provides an overview of thedevelopment of Good Financial Governance in Africa since 2007.

The GIZ Good Financial Governance in Africa programme provides supportinthefollowingactionfields:

• External Audit in collaboration with the African Organisation ofSupremeAuditInstitutions(AFROSAI)

• Tax Policy andAdministration in collaborationwith theAfricanTaxAdministration Forum (ATAF)

• BudgetReformincollaborationwiththeCollaborativeAfricaBudgetReformInitiative(CABRI)

• Legislative Oversight in collaboration with African networks oflegislative oversight

• AfricanVoiceonGoodFinancialGovernance/AFRITAC.

The programme is implemented by GIZ on behalf of the German Federal Ministry for EconomicCooperation andDevelopment (BMZ) and theEuropeanUnion(EU).

SincethesigningoftheG8ActionPlanforStrengtheningGoodFinancialGovernance in Africa (see Annex 1)attheoccasionoftheG8Summitin Heiligendamm, Germany, in 2007, the German government hasincreasingly supported African states in building the necessary capacity toachieveGoodFinancialGovernance.WiththeassistanceofGIZ,thepartnerorganisationsAFROSAI,ATAF, andCABRI published the StatusReport on Good Financial Governance in Africa in 2010 and initiated the DeclarationonGoodPublicFinancialGovernanceinAfrica,whichfoundrecognitionbyAfricanfinanceministers.

The purpose of this report is to provide an overview of the development of Good Financial Governance (GFG) in Africa since 2007 and to summarisetrendsobserved.Thisyear,2015,whichisespeciallybusyfortheinternationalcooperationagenda,seemstobeagoodopportunityforthisundertaking:

• InJune2015,theG7annualmeetingofHeadsofStatewillbeconvenedinElmauundertheGermanG7presidency.

• The Third Financing for Development Conference is planned forJuly 2015 inAddisAbaba, Ethiopia. It follows the First Financing forDevelopmentConferencein2002inMonterrey,Mexico,whereGFGissues were moved to the top of the international development agenda forthefirsttime.

Introduction1

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• InAddisAbaba, the post-2015 development agenda will be discussed, based on the reviewedsustainable development goals. Governance aspects are now under discussion to be included amongsustainabledevelopmentgoalsforthepost-2015developmentagenda.Goal16isasfollows:“Promotepeacefulandinclusivesocietiesforsustainabledevelopment,provideaccesstojusticeforall,andbuildeffective,accountable,andinclusiveinstitutionsatalllevels.”Thus,aGFGperspective– the focus on the effectivity and accountability of public institutions – has found its way onto the post-2015agenda.Thesustainabledevelopmentgoal-settingphasewillreachaclimaxattheUNGeneralAssemblyinSeptember2015.

• Furthermore, substantial progress under the UN Framework Convention on Climate Change(UNFCCC)isexpectedattheUNConferenceonClimateChange,tobeheldinParis,France,inDecember 2015.The planning, implementation and financing of climate-resilient development inAfricawillchallengeGFGsystemsthroughoutthenextfewyears.

ForGFGpractitioners,itisevidentthatthetopicwillremainhighontheinternationalcooperationagenda, because a government can successfully fight poverty and promote economic and socialdevelopmentonlyifastateiscapableof(BMZ2014:7):

• Mobilisingsufficientresourcestosustainablyfinancedevelopmentobjectives

• Implementing its policies and the related priorities effectively and transparently through the public budget

• Ensuringeffectivefinancialcontrol

TheGermanBMZhaspublisheditsnewstrategypaperonGFGinOctober2014.Accordingtothispaper,GFGisaholistic,systemicandvalue-basedapproachwhichisalignedtotheunderstandingofgoodgovernanceinGermandevelopmentcooperation(GDC).ByimplementingGFG,Germanyhelpstoreducepovertyandfostereconomic,socialandecologicalsustainabledevelopment.Theapproachtakesintoaccountaspectsfromthreedimensionsandtheirinterrelations:

Figure 1 The Good Financial Governance approach

Source:BMZ2014

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• The technical dimension encompasses measures to strengthen public financialmanagement(PFM)processes,toolsandcapacity.

• Thepolitical economydimension takes into account that reformingpublicfinanceisapoliticallyhighlysensitiveprocess,asitinterfereswithestablished power structures and the allocation of scarce resources in asociety.GFGconsidersthedifferentstakeholders,theirinterestsandtheir interactions in formal and often informal structures in order to contribute to the success of reforms.

• The normative dimension places special emphasis on the general governancesituationinacountry,suchasthelevelofdemocracy,ruleoflaw,transparency,orstateefficiency,andtheirimpactonthequalityofpublicfinancesandviceversa.

Based on this concept, and against the 2015 international agendabackground,thisreportreviewsthesituationofGoodFinancialGovernancein Africa in 2007 and traces evidence of developments since. It starts with anintroductorybackgroundontheeconomicandpoliticaldevelopmentsinAfrica, followed by the priorities set out in theG8Action Plan forGood Financial Governance in Africa. The following chapters analyse the support to GFG through multilateral and bilateral development assistance and coordination among governments and development partners. The topicalanalysisconcentratesonthemaintechnicalfocusareasintheG8Action Plan for Good Financial Governance in Africa and the Declaration onGoodPublicFinancialGovernanceinAfrica:

• The mobilisation of public revenue

• The enhancement of budget processes

• The promotion of accountability and budgetary oversight

Forthereport,alargeamountofdatahasbeenstudied,aggregatedandanalysed; Annex 2 covers the details of the data used and the methodological approach. The largest part of the study is rather descriptive – it mostly summarises incidences related to GFG issues measured by different sources for the period 2007 to 2014. The interpretation of causes and resultsisdifficultandmaydependmuchonthebackgroundofthereader;conclusions will be carefully drawn in Chapter 7.

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Macroeconomic development

Comparing aggregated data for allAfrican countries includes nations that differimmenselyfromeachother,withvariationsinpoliticalandeconomicsettings.Evenamongthe49countriesinsub-SaharanAfrica,therecenteconomicperformanceandtheirgrowthprospectsvarytoagreatextent.EthiopiaandtheDemocraticRepublicoftheCongo,forexample,bothhavefast-growingeconomies,butthatarewherethesimilaritiesend.ThechallengesfacingtheCentralAfricanRepublicandSouthSudanarenotthosefacingKenyaorZambia(APP2014:28).Analysesofaggregateddatashouldtakethisintoaccountwhendescribingthecommonpatterns.

Africa maintained growth rates above the world’s average over the whole period under review (2007 to 2014) (see Figure 2).Themacroeconomicdataispromising:Africancountrieshaveindeedbeenaffectedbytheinternationalfinancialcrisesof2008/09, but not asmuch asother regionsof theworld.During2012 and2013,one-thirdoftheregionhasexhibitedgrowthratesabove6%.ThisgrowthisdrivingAfrican countries towards themiddle-income status: in 2006, 13 countrieswereclassifiedasmiddle-income,andin2013thenumberroseto21(APP2014:30).

The fastest growing countries inAfrica in 2012 were Sierra Leone, Niger, Côted’Ivoire,Liberia,Ethiopia,BurkinaFasoandRwanda(WBG2013:3).Ofthese,four–SierraLeone,Niger,LiberiaandBurkinaFaso–are listedasresource-endowedcountries.1Inmanyoftheresource-endowedcountries,growthreliesheavilyonhigh

Development of economic and political background data

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Figure 2 GDP Growth (constant prices)

Source:IMFWorldEconomicOutlookdataset(2014)https://www.imf.org/external/pubs/ft/weo/2014/02/weodata/index.aspx

1 FortheResourceGovernanceIndex,seehttp://www.resourcegovernance.org/rgi/countries.ThisindexisbasedonthedefinitionoftheInternationalMonetaryFund(IMF):“Acountryisconsideredrichinhydrocarbonsand/ormineralresourcesifitmeetseitherofthefollowingcriteria:(i)anaverageshareofhydrocarbonand/ormineralfiscalrevenuesintotalfiscalrevenueofatleast25percentduringtheperiod2000-2005or(ii)anaverageshareofhydrocarbonand/ormineralexportproceedsintotalexportproceedsofatleast25percent...”(IMF2007:2).

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commodityprices(seeAFDB/OECD/UNDP2014:27),buttherearealsocases where resource endowment is combined with other prospering economicsectors:InBurkinaFaso,theservicesectorcontributed30%tothe annual real growth in gross domestic product (GDP) between 1995 and2010,andinRwandaitcontributedmorethan40%(APP2014:29).

Improved economic governance may have contributed to the growth performance, as themacroeconomic framework data looks reassuringformanycountries:2

• Inflationremainedunder6%inmostyearsafter2009.

• Inmostcountries,thefiscalbalanceisrecoveringslowlyafter2009.

• With an average debt-to-GDP ratio of 20.9%, the external debt islowerthaninmanyEuropeancountries.

• Theinvestment-to-GDPratioforsub-SaharanAfricashowsapositivetrend. Foreign direct investment has recovered from the decrease after2008andturnedoutrobusttotheweakeningglobaleconomicenvironmentin2012(WBG2013:4).

ThepositivetrendsreflectedbytheAfricanEconomicOutlookdataset’sprojectionsfor2015areexpectedtocontinue.

Poverty reduction

Africa has made progress on all Millennium Development Goals (MDGs) in recent years. Most countries have achieved impressive results towards theMDG targets, but the vast majority of countries are expected toonly meet the 2015 targets of MDG 2 (primary education enrolment) and MDG 3 (gender equality and women’s empowerment) (UNECA2014:32ff,40ff).ThemainmessagesofthelastMDGreportareasfollows(UNECA2014):

• Poverty rates are increasingly declining after 2005. This is mostly due toeconomicgrowth.OnaverageinAfrica(withoutNorthernAfrica),povertyrateshavedeclinedfrom56.5%to48.5%,butthisissome20%offtheMDG1target,whichwillnotbemetinmostcountries.

• Climate change effects (floods and droughts) and conflict have adebilitatingimpactoneffortstofighthungerinAfrica;malnourishmentremains a challenge.

• Economicgrowthratesarenothighenoughtoabsorbtheyouth,andunemployment rates still remain high.The perspectives are mixed:labourproductivityisgrowing,butatadecliningrate.

• Incomeinequality isdecliningbutremainshigh. Itconstitutesoneof

2 AfricanEconomicOutlookdataset:http://www.compareyourcountry.org/african-economic-outlook?cr=afr&cr1=oecd&lg=en&page=1

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themajorfactorsthatlimittheimpactofeconomicgrowthonpovertyreduction.

• Mostcountriesareontrackwithmeetingtheprimaryeducationenrolmenttarget,butcompletionratesarestilllowandthequalityofeducationneedstobeimproved.

• Inprimaryeducationandinwomen’srepresentationinparliaments,astrongdevelopmenttowardsgender parity has been reached in most countries.

• Goodprogresshasbeenmadeinreducingchildandmaternalmortality,butitisinsufficienttoreachthe MDG targets.

• TherisingtrendintheprevalenceofHIV/Aidshasbeenreversed.Further,thenumberofmalariacases and deaths are declining.

• Accesstosafedrinkingwaterhasbeenimproved,buttheperformanceonthesanitationindicatorremains poor.

Thus,theresultsonprogressregardingtheMDGsarerathermixed.Progresshasbeenmadeinalmostallcountries,butsomearelaggingbehind.Between2008and2013,onlythreecountriesdeclinedintheirHumanDevelopmentIndex(HDI)rating-Guinea-Bissau,theCentralAfricanRepublicandLibya-butmanyexperiencedonlyverylittleimprovement(seeTable 1).Again,resourceendowmentplaysapertinentrole inprogress:amongthetencountrieswiththestrongest improvementontheHDIbetween2008and2013,onlythreearenotpartoftheresourcegovernanceindexlist(Rwanda,ChadandEthiopia).Among the sub-Saharan countries showing the lowestHDIprogress,only EquatorialGuineaisqualifiedasresourceendowed.

Highest HDI 2013 Highest progressTunisia 0.721 Zimbabwe 0.070SouthAfrica 0.658 Zambia 0.056Namibia 0.624 Tanzania 0.037Morocco 0.617 SouthAfrica 0.035Libya 0.784 Rwanda 0.074Ghana 0.753 Liberia 0.038Gabon 0.674 Ethiopia 0.041Egypt 0.682 Chad 0.034Botswana 0.683 BurkinaFaso 0.039Ageria 0.717 Angola 0.036

Lowest HDI 2013 Lowest progress or decreaseSierraLeone 0.374 Egypt 0.015Niger 0.337 EquitorialGuinea 0.013DRCongo 0.338 Swaziland 0.012CAR 0.341 Senegal 0.011Chad 0.372 Madagascar 0.011Eritrea 0.381 Gambia 0.009BurkinaFaso 0.388 Eritrea 0.008Burundi 0.389 Guinea-Bissau -0.001Guinea 0.392 CAR -0.003Mozambique 0.393 Libya -0.005

Table 1 HDIvariationinAfricabetween2008and2013

Source:INDPHumanDevelopmentReports,http://hdr.undp.org/en

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Withregardtothereasonsfortheslowimprovement,mostreportsagreeonAfricahavingtostartfromaverylowlevel:sub-SaharanAfricastartedfrom a worse position on the MDGs than the rest of the developing world(WBG2013:7).IfMDGmonitoringassessmentstakeintoaccountthe initial low-level conditions inmostAfrican countries, it shows thatthepaceofprogressontheMDGsinAfricahasacceleratedsince2003(UNECA2014:i).

The APP (2014:40) describes three factors that create substantialchallengesforeconomicgrowthleadingtopovertyreductioninAfrica:

• Becauseoftheprofounddepthofpoverty,moregrowthisrequiredtolift the average poor person above the poverty line.

• High levelsof initial inequality limit thepowerof growth to reducepoverty.

• Amajorpartof thegrowthhasbeen takingplace in theextractivesectors,withlittleimpactonruralareaswheremostofthepoorareliving.Inruralareas,inclusivegrowthinagriculturewouldbenecessary.

InJanuary2014,theHeadsofStateandGovernmentoftheAfricanUnionadoptedtheCommonAfricanPosition(CAP)onthepost-2015developmentagenda(CAP2014).Theoverarchinggoalistoeradicatepoverty–amongotherthings–throughmakingeconomicgrowthmoreinclusive.

Development of political governance

It is often said that Africa should not only be perceived under the focus of crisis.ThenewAfricaStrategyofGermanDevelopmentPolicy(BMZ2014),sees “Africa on its path from a crisis to an opportunity continent”3.Positive economicdevelopments,includingpovertyreduction,havetakenplace.

However, Good Financial Governance deals with the essentialgovernment functions of providing and financing efficient public dutiesand responsibilities. Conversely, political crises characterise the failingof Good Financial Governance. The efforts to improve Good Financial Governance – and also the progress in this regard – have to be evaluated against the political situation in which they are created.

ThemaponstatefragilityandwarfareinFigure3showsthatfragilityinAfricastillplaysanimportantroleforGFG-relatedreform.Sixoutoftheseven countries rated“extremely fragile” in the lastGlobalReportonConflict,GovernanceandStateFragilityareAfrican,aswellassixteenoutofthetwenty-onecountriesratedas“highlyfragile”.Sub-SaharanAfricahastheworld’shighestmeanintheStateFragilityIndexscore(Marshall&Cole2014:42)

3 http://www.bmz.de/de/presse/aktuelleMeldungen/2014/maerz/140321_pm_025_Die-neue-Afrika-Politik-des-BMZ/25_Die_neue_Afrikapolitik_des_BMZ.pdf

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However,thesituationhascontinuouslyimprovedonaveragesince1995:Themeanscorehasrisenby0.37pointsbetween1995and2001,by1.83pointsbetween2001and2007,andby0.68pointsbetween2007and2013(Marshall&Cole2014:40).Thecountrieswiththehighestimprovementratesoverthelast20yearsareLiberia,SierraLeone,Angola,TogoandMadagascar(betweeneightandsixpoints).

Inaddition,democratisationhasmovedforward.Since2010,Africahaswitnessedanincreasingnumberof freeandfairelections,andthetrend isexpectedtocontinue(AFDB/OECD/UNDP2014:105).Developing stable democratic states with accountable institutions will need much greater effort and moretime.Sincethe1980s,manyAfricanautocracieshavebeenmovingintowhatiscalled“anoracies”by the Polity Project.This term describes a type of regime where governments are neither fullydemocraticnor fully autocratic,but rathercharacterisedbyan "incoherentmixofdemocratic andautocratictraitsandpractices”(Marshall&Cole2014:21).

ThismightexplainwhyjointAfricaneffortstodevelopdemocraticgovernanceremainslow:TheAfricanCharteronDemocracy, Elections andGovernance,whichhasbeen issuedby theAfricanUnion inAddisAbabain2007,issignedby35governments,buthasbeenratifiedonlyby10statesuntilnow.TheAfricanPeerReviewMechanism(APRM),whichincludesanimportantchapterondemocracyandpolitical governance, has progressed slowly but constantly, reviewing twenty countries since 2005.4 However,thereisnofollow-uptothereviews,andonlyGhanahaspublishedaprogressreportonce.

Reforms with a focus on Good Financial Governance may have a considerable effect on the interests of politicalandeconomicelitesinacountry,andtheyusuallydo–andnotonlyinAfrica,buteverywhere.Knowledgeof,andrespectforformalandinformalpoliticaleconomyaspectsofthecountriesarethuscriticaltoinducingprogressinthiscomplexfield.

Figure 3 Statefragilityandwarfareintheglobalsystem,2013

Source:http://www.systemicpeace.org/warlist/warlist.htm

4 http://aprm-au.org/category/document-categories/country-reports. Countryreviewspublishedin2005:Ghana,Kenya,Rwanda;2006:none;2007:Algeria,SouthAfrica;2008:Benin,BurkinaFaso;2009:Mali,Nigeria,Uganda;2010:Lesotho,Mauritius,Mozambique;2011:Ethiopia;2012SierraLeone;2013:TanzaniaandZambia.

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ImprovingfinancialgovernanceinAfricaiscloselyrelatedtodevelopmentcooperationandaideffectiveness:Thebetterfinancialgovernanceworks,themoreeffectivelyaidcanbeusedbygovernments;thebetterfinancialgovernance systems are monitored – and rated – the more willing development partners are to use country systems for their support; themore country systems are used, themore experience a country’sadministrationgainsinfinancialmanagement,whichagaincontributestotheimprovementoffinancialgovernance.

ThischapterexploresthelandscapeofGoodFinancialGovernanceinthecontextofbilateralandmultilateraldevelopmentassistance.Thisincludesthefollowing:

• The developments that can be observed from official developmentassistance(ODA)data(3.1)

• HowcapacitydevelopmentonGFGhasevolvedsince2007(3.2.)

• The specifics that aideffectivenessbrought about in the contextofimprovingfinancialgovernance(3.3)

Good Financial Governance reflected in ODA data

Onaaggregated level, totalODAtodevelopingcountrieshasdeclinedforthefirsttimeinyearsin2012,butAfricahasbeenreceivingconstantlyincreasingODAinflowssince2007(seeFigure 4). Net ODA disburse-mentstoAfricahaveincreasedbyalmost2%andaddupto52.7billionUSDin2012.OftheseODAinflows,almost70%canbeattributedtocountry-programmableaid(CPA),which isthepartofaidcountriesthemselvescan decide on.5 Since2007, this shareof country-programmable aid intotalODAhasslightlyincreased–by2%between2007and2012.

Promoting Good Financial Governance through bilateral and multilateral development cooperation

3

5 See http://webnet.oecd.org/dcdgraphs/CPA_recipient/; ODA also covers financialengagementsthatareoutsidethedecisionofrecipientcountries,forexample,culturalprogrammes.Country-programmableaid is theportionof aiddevelopmentpartnersprogramme for individualcountries,andoverwhichpartnercountriescouldhaveasignificantsay.Developedin2007inclosecollaborationwithmembersoftheDevelopmentAssistanceCommittee(DAC)attheOrganisationforEconomicDevelopmentandCooperation(OECD)members,CPAismuchclosertocapturingtheflowsofaidthatgotothepartnercountriesthantheconceptofODA.

3.1

14

However,theportfolioofexternalfinanceinAfricancountrieshasbecomemorecomplexthanitusedto be. For the27Africanlow-incomecountries,ODAremainsthemostimportantsourceofexternalfinancingafterdirectforeigninvestmentandremittances(seeFigure 5)andOECD/DACcountriesremainthelargestODAcontributorstothatgroupofcountries.OfficialdevelopmentassistanceasashareofGDPhasbeendeclininginlow-incomeAfricancountriessince2011,andtheyareexpectedtorelyincreasinglyondomesticresourcesandotherexternalflows(AFDB/OECD/UNDP2014:49).Inlower-middle-incomecountries,remittancesfromcitizensworkingabroadarealreadythesinglemostimportantandthefastestgrowingexternalfinancialinflowpercapita(AFDB/OECD/UNDP2014:50,59).

Figure 4 NetODAdisbursementstoAfricancountriesinbillionUS$(constant2011)

Source:AFDB/OECD/UNDP2014:61)http://dx.doi.org/10.1787/888933032814

Figure 5 Developmentfinancetolow-incomecountriesinAfrica(percentageofGDP,weighted)

Source:AFDB/OECD/UNDP2014:496

http://dx.doi.org/10.1787/888933032700

6 NotefromAEO(2014:49):“ODA(e)estimatesand(p)projectionsbasedontherealincreaseofcountry-programmableaidintheforthcomingOECDReportonAidPredictability:SurveyonDonors’ForwardSpendingPlans2013-2016.ForecastforremittancesbasedontheprojectedrateofgrowthaccordingtotheWorldBank. (Thisfigureexcludes loans fromcommercialbanks,official loansandtradecredits.)Source:Authors’calculationsbasedonOECD/DAC,WorldBank,IMFandAfricanEconomicOutlookdata.”

15

Even ifAfrica still receives increasingODA,othersourceswillbecomemore important in the near future. Furthermore, new non-DACproviders of finance have gained significance. They might use othersupportmechanismsthanODA.Chinaisanexampleoftheseproviders.Further,DACmembersmayincreasetheirsupportintheformofnon-ODA financing instruments (AFDB/OECD/UNDP 2014:63),which isnotincludedinODAdata.TheGreenClimateFund,forexample,financesclimatechange-relatedinvestments,butisqualifiedasnon-ODA.

Good Financial Governance as a broad and systemic concept is not fully reflected inODAdata.TheODAdata provide a code for PFM in theOECD Creditor Reporting System (CRS),7 which shows the financialengagementofdevelopmentpartnersclassifiedasPFM.

ItisverydifficulttodrawconclusionsfromthesedataonthedevelopmentofsupporttoGoodFinancialGovernance,orevenonlyPFM.Figure 6 showsthatODAqualifiedunderthePFMcodeintheCRShasreachedapeakin2010,mainlycausedbymultilateralofficialdevelopmentassistance.It then decreased in the following two years and again increased between 2012and2013,mainlybecauseofbilateraldevelopmentpartners’ODA.Inreality,thepictureisblurredbysinglehighdisbursements,forexampletheUKgranttotheDemocraticRepublicofCongoofUS$115millionin2008,anInternationalDevelopmentAssociation(IDA)loanofUS$350milliontoNigeriain2010,ortheUSdisbursementofagrantofUS$190milliontoEgyptin2013.Similarprominentpaymentscanbefoundwithmostdevelopmentpartners’engagement,althoughinsmallerdimensions.

The largest part of aid targeted at PFM is delivered as budget support. Themultilateralcontributionsareimportant,butalsovolatile,andacleartrend is not visible in the data (see Table 2).

Figure 6 Grossdisbursementstargetedatpublicfinancial management(CRScode15111),US$million

Source:IMFWorldEconomicOutlookdataset(2014)https://www.imf.org/external/pubs/ft/weo/2014/02/weodata/index.aspx

7 CRSCode15111.Thereareothercodesthatmightincluderelevantdata,forexamplethecodeforcustoms(33120)orcorruption(15113),buttheinterpretationofCRSdataisdifficultandtherisksgrow with compiling data from different codes.

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Ingeneral,theuseofbudgetsupportasaninstrumentofaiddeliveryhasdeclined:theshareofbudgetsupport within the more focused concept of country-programmable aid was considerably lower in 2012 (8.57%) than in2007 (10.5%).9 Ifbudget support isbeing reduced ingeneral,budget supportrelatedtoPFMshouldnotbeexpectedtoincrease.

Budgetsupportisfinanciallythemostimportanttypeofaidtousecountrysystems,andtheseschemesare usually related to policy dialogue on the reforms of the broader PFM systems. Volatility in budget supportcertainlyisabigchallengeforPFMandshouldbeavoided.TheBusanPartnershipframeworkemphasises the need for action to bring about predictability. Although annual predictability increased from 79% in 2010 to 83,8% in 2013, medium-term predictability remains at 70%:“Developmentcountries’ governments are faced with continued unpredictability and are managing increasingly complexresourceequationswhereproviders’disbursementboth fall shortof–andexceed– theinitialplans”(OECD/UNDP2014:91).

However, a reduction inbudget supportas suchdoesnotnecessarilymean that support toGoodFinancialGovernancehasbeenreducedor is insufficient.Reforms inPFMand inthebroaderGFGsystemarenothigh-investmentareas,suchasinfrastructure;nordotheyneedcomparableimportantoperationalexpenditureineducationorhealth.Developingfinancialgovernancemeanssupportingthedevelopmentofpolitical,socialandadministrativesystems–thedomainofcapacitydevelopment.

Support to capacity development for Good Financial Governance

The GFG description in Figure 1 (“Introduction”) clearly shows that the technical issues are only partofwhatisneededtoimprovefinancialgovernance–theymustbeembeddedinimprovingtheelementsunder thepolitical and thenormativedimensions.Capacitydevelopment is therefore themajorsupportneedunderthismultidimensionalapproach.ThishasalsobeenrecognisedbytheG8ActionPlan forGoodFinancialGovernance inAfrica.Therefore, thedevelopments inrelatedODAdata, capacity development in international finance institutions’ (IFIs’) activities, and the capacitydevelopmentworkoftheregionalGFGnetworkorganisationswillbeanalysednext.

Table 2 ODAtypeofaid“budgetsupport”relatedtoPFM,toAfricancountries,2008–2013(US$million,CRScode15111)8

2008 2009 2010 2011 2012 2013

Alldonors,total 448,00 428,00 778,30 537,21 291,43 537,00

DACcountries,total -- 6,22 9,32 6,96 0,81 190,00

Multilateral,total 448,00 421,78 768,98 530,24 290,62 347,00

Source:OECDCRSdata

3.2

8 Table1doesnotshowallbudgetsupport;onlybudgetsupportclassifiedforsupporttoPFM.Sectorbudgetsupporteducation,forexample,wouldnotappearunderCRScode15111.

9 Seehttp://webnet.oecd.org/dcdgraphs/CPA_recipient/

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GFG capacity development in ODA data

TheODAdataundertheaidclassification“expertsandothertechnicalassistance”,reportedunderthePFMcode,indicateanimportantsurgeinbudgetsupportin2010,whichhasnotbeenmaintainedatthesamelevel,but remained high compared to 2009 (see Table 3).

Table 3 also shows that this increase is based on expanded bilateralcooperationinthefield;multilateralcooperationhasshownadecreasingtrend.Again,thefinancialdatashowconsiderablevolatility.

One can conclude that analysing the financial flows provides a ratherlimited picture of how bilateral and multilateral development assistance has evolved in support ofGFG. Furthermore, the cooperationmodeshavebecomemorecomplex:bilateraldonorsarefinancingIFIs’technicalassistance, allowing them to amplify their programmes as intended bytheG8ActionPlanforGoodFinancialGovernanceinAfrica.InGermandevelopmentcooperation,theportfoliohasgenerallyevolvedintorathersupportingtheGFGsysteminbroadcooperationnetworksthanindividualsupportoftargetedinstitutions.Further,bilateralandmultilateraldonorsarefinancingcapacitydevelopmentofAfricanprofessionalnetworks,theirexchangeofexperiencesandtargetedsupporttotheirmembers.

GFG and capacity development in IFI activities: the AFRITACs

TheG8ActionPlanforGoodFinancialGovernanceinAfricaprojected“a stronger role in IFI activities” in the area of GFG and capacity building. Although itmightnotbevisible inODAdata, substantial progresshasbeenmadeinrecentyears,especiallywiththeAfricanRegionalTechnicalAssistance Centres (AFRITACs) as part of the IMF Capacity BuildingInitiativeinAfrica.Thethreemaindevelopmentsarethat(a)theAFRITACprogrammehasexpandedconsiderablyintheregion,(b)itsactivitieshavebeen scaled up, and (c) increasing support ofmultilateral and bilateraldonors made this possible.

Table 3 ODAtypeofaid“expertsandothertechnicalassistance(TA)”relatedtoPFM,toAfricancountries,2008–2013(US$million,CRScode15111)

2008 2009 2010 2011 2012 2013

Alldonors,total -- 8,5 56,8 42,4 47,1 42,6

DACcountries,total -- 8,5 47,2 37,2 40,9 39,9

Multilateral,total -- -- 9,7 5,2 6,1 2,8

Source:OECDCRSdata

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TheAFRITACs support recipient countries in their efforts to strengthen financial governance anddevelop effective and legitimate institutions. The regional scope of the initiative has been broadened considerably,sothattheAFRITACsnowcoverallsub-SaharanAfricancountries:AFRITACEaststartedin2002andservessevencountriesinEastAfricatoday;AFRITACWestwasinitiatedin2003anditcurrentlycoverstencountriesinFrancophoneWestAfrica;AFRITACCentralwascreatedin2007andsupportsninecountriesinCentralAfrica;AFRITACSouthstartedinJune2013andcovers13countriesinSouthernAfricaandtheIndianOcean;AFRITACWest2hasopenedonlyrecentlyanditassiststhenon-FrancophonecountriesinWestAfrica.

TheAFRITACshavescaleduptheiractivitiessignificantlyinrecentyears.ThethematicfocushasbeenonthetechnicaldimensionsofGFG,amongothers:modernisingPFMlegalandregulatoryframeworks,strengtheningplanningandbudgetingpractices,improvingthequalityoffiscalreporting,strengtheningbudgetexecution,andenhancingtreasuryandcashmanagement.Recently,therehasbeenparticularlystrong interest in natural resourcemanagement-related issues, fiscal tax law, statistics capacity andfinancialmarketinfrastructure.

Supportismainlyprovidedviatheprovisionoftechnicalassistancemeasures,forexample,byofferingtrainingforpublicofficialsandPFMkeyactors.CorrespondingactivitiesaredesignedtocomplementotherIMFmeasuresandprogrammes.Furthermore,theAFRITACsprovidenetworkingmeasuresatregionallevel,suchasregionalworkshops,attachmentsandmentoringprogrammes.

AFRITACactivitieshaveexpandedenormouslyinrecentyears.AFRITACEast,forexample,hasscaledupitsoveralldelivery(measuredinfieldpersonweeks)by50%abovethatof2014(AFRITACEast2015:2),andthesumofallactivitiesofAFRITACSouthstartedwith316in2013,while530activitiesarescheduledfor2015(AFRITACSouth2015:3).TheAFRITACshavealsoexpandedtheirfinancialbasisconsiderably.Theincreaseinthe2015workplanofAFRITACWestfrom518to564fieldpersonweeks,forexample,wasrenderedpossiblebythefinancialcontributionoftheEuropeanUnion(AFRITACdel’Ouest2015:5).Partnershiparrangementsvarybetweenregionsandextend,forexample,totheWorld Bank, theAfricanDevelopment Bank (AfDB), the EconomicCommunity ofCentralAfricanStates(ECCAS),L’observatoireéconomiqueetstatistiqued’Afriquesubsaharaienne(AFRISTAT),theCommissionBancairedel’AfriqueCentrale(COBAC),theIMFInstituteforCapacityDevelopment,theEU,theUnitedNationsDevelopmentProgramme(UNDP),theGDC,theFrenchDevelopmentAgency,andtheUSTreasuryDepartment´sOfficeofTechnicalAssistance(OTA).

ThroughtheAFRITACstheIMFthusprovidestechnicalassistanceonalargescalealloverAfrica.ThisisfullyinlinewiththetargetoftheG8ActionPlanforGoodFinancialGovernanceinAfricatoincreasetheroleofIFIincapacitydevelopment.Thebroadeningnetworkofco-fundersalsooffersthepossibilityto improve donor coordination.

However, the large offering of training, regional workshops and other activities byAFRITACs alsopresents a competitive factor that might weaken the sustainability perspectives of some of theregionalGFGumbrellaorganisations.Inthelongrun,someoftheseorganisationswillneedtofinancethemselves through membership fees and the pricing of support measures to their members. These support measures have a large overlap with the training and events provided by the IMF without direct feesfortheparticipants.Theorganisationsfollowdifferentbusinessmodels,butallprovideassistanceto their members.

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GFG portfolio of German development cooperation

Supporting partner countries in public finance reforms has been animportantfieldofactionofGermandevelopmentcooperationsincethe1990s.GDC increasingly follows the holistic, systemic and value-basedGFG approaches described in the introduction. This implies that important publicfinancialmanagementsubthemes,suchasbudgeting,arenotdealtwithinisolation,i.e.asstand-aloneprojects.Rather,theseareincreasinglysupported inasystemicapproachaccordingtowhichthe interlinkagesin the GFG subsystems are integrated into the same programme, forexample, a budgeting component and another component supportingbudgetary oversight. This reflects the interrelation and connectivitybetweenthemesandactorsinpublicfinance.

The involvement ofGDC in the field ofGFG has led to threemajordevelopmentssince2007:

• Thenumberofprojectsandtheirvalueshaveincreasedsignificantly.

• This increase has been most important in Africa.

• There are very few stand-alone programmes left; most have a holistic GFG approach.

Thefirst twopointsare illustrated inFigure 7:Thestrongest increasein support toGFG reforms can be observed inAfrica. In 2012,morethanhalfofGFGprojectsandprogrammes(64%)havebeencarriedouton theAfricancontinent (compared toanaveragepercentageof31%between 2002 and 2011).

The entire portfolio of Germany’s technical cooperation indicates that the supportprovided in this area in generalhas risen significantlysince2002,andthesystemicGFGapproach,inparticular,hasincreased.Figure 8shows,thatsincethefirstimplementationoftheGFGapproachin2005,thisintegratedprogrammetypehasexpandedthemostrapidly.

Figure 7 NumberofGDCGFGprojectsperregionandyear

Source:GIZ(2012:11)

12

10

8

6

4

2

Asia

Africa

Latin America

Europe

Supraregional

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

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Onlyafewstand-aloneprojectsstillexistedin2011,especiallyinthebudgetingarea.

Experienceshowsthatasystemicapproachisparticularlywellsuitedtorespondtoachangingenvi-ronmentovertime.TheprogrammeinGhana,forexample,originallyorientedtowardstaxreform,wascomplementedbythethemesofbudgetmanagementanddomesticaccountabilityafteritsfirstphase.ThisreflectedthemutualdependencyamongGFGsubsystemstoagreaterextent.TheprogrammeinMauritaniainitiallyonlyworkedwiththesupremeauditinstitution(SAI),butwasthenextendedtoparliamentandincludedbudgetprocessobjectives.AsimilardevelopmentoccurredinZambia,whereGerman development cooperation responded to demands of its counterparts by adding a component onrevenue,thusdirectingitsengagementtowardsatrulycomprehensiveapproach.

Exchange of experiences in regional network organisations

Themostcomplexandfar-reachingGFGapproachofGIZinAfricaistheGoodFinancialGovernancein Africa Programme. It supports the broad-based, long-term capacity development of regionalprofessionalnetworkssuchasAFROSAI,ATAF,CABRI,andAfricannetworksof legislativeoversight.ThecommitmenttocooperatewiththeseregionalnetworksisaguidingthemethroughtheentireG8ActionPlanforGoodFinancialGovernanceinAfrica.BypromotingstrongercooperationwithandamongAfricanpartners,acontinentalallianceforimprovingfinancialgovernanceseemspossible.

Theimportanceofthesenetworksasplatformsforinterchange,partlyasserviceprovidersfortheirmembersandascollaborationpartnersfordevelopmentassistanceinthefieldofGFG,hasincreasedsignificantlyinrecentyears.Theroleofthenetworksascommunitiesofpracticetoshareexperienceswith reform programmes has grown stronger. Among their core activities are the collection and dis-seminationofexperiencesandlessonslearnt,aswellastheprovisionoftrainingandthedevelopmentofappropriatelearningmaterial.Thisworkhasintensifiedinrecentyears.

Since theGeneral Secretariat (GS) ofAFROSAI has been assigned toCameroon- to the ServicesduContrôleSupérieurdel’Etat- inOctober2012onaninterimbasis,andinOctober2014foranofficialmandateofnineyears,theorganisation’sactivitieshavegainednewmomentum.AFROSAIhasdevelopedanewjointvisionandstrategicplanfortheperiod2015-2020,ithasrecovereditsfinancial

15

10

5

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Tax Fiscal Control Budget GFG domestic finance relations natural resources

Figure 8 Development of German technical cooperation in different GFG subthemes

Source:GIZ(2012:9)

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management(whichwaslostduringtheupheavalsinLibyawheretheGShadbeenbasedsince2005),andithasorganisedanumberofactivitiesthat support learning across language groups (a study tour and discussion workshoponthestrategicvalueandbenefitsofperformanceauditing).

Inaddition,AFROSAI-E, theEnglish languagegroupofSAI inAfrica,hasbeenespeciallyactive inprovidingtheirmemberswithguidelines,toolsandtraining,forexampletheCommunicationToolkit,whichtargetsthecommunication between SAIs and public accounts committees (PACs)(see Box 10,p.42).

CREFIAF, the French-speaking chapter of African SAIs, has receivedgrowing support in recent years and thus was able to increase and broadenitstraininginfinancialandperformanceauditingforitsmembers.

The networks all have grown their reach to their member and target organisations. Inadditiontoitsofficialninemembercountries,CABRIcurrentlyhasmorethan40regularobserversattendingitsevents.Similarly,themembershipofATAFhasgrownsteadilysinceitsinceptionin2009(from28foundingmemberstatesto38membersatthemoment).Thestrong interestbymemberstatesinregionalnetworksisalsodemonstratedbytheirinputtorelevantconferencesandevents.Allinstitutionshaveannualmeetings,whicharemostlyhostedbytheirmembersandtoalargeextentorgan-isedbythehoststhemselves.TheAFROSAIfamily,inparticular,cultivatesstrong member involvement in the delivery of network activities, forexample through their involvement in technical committees and thehosting of events.

African regional networks gain increasing recognition worldwide. OneexampleisAFROSAI,which,incollaborationwithGIZ,receivedexcellentrecognitionattheWorldCongressofSupremeAuditInstitutions(INTOSAI,Beijing2013)when it presented the process of the joint environmental auditofLakeChad.Theresultsof thisprocess,whichwasconductedbythefour SAIsof LakeChad’s neighbouring countries (Nigeria,Niger,Chad,Cameroon),werehighlightedasaone-of-a-kindexampleofsouth-southlearning.

Similarly, CABRI positioned itself successfully in international expertdiscussions.TechnicallysupportedbyGIZ,CABRIcompiledastudythatwas represented at the OECD Effective Institutions Platform (EIP) in2013. Itwill serve as basis for thedevelopmentof a new indicator tomeasurethequalityofbudgetsystemsindevelopingcountries.

Also, regional networks increasingly strengthen the representation of Africa in international processes: CABRI,forexample,playedaprominentroleduringthe4thHighLevelForumonAidEffectivenessinBusan,draftingtheAfricanpositiononaidtransparencyandprovidinginputtotheBusanOutcome.ATAF,supportedbyGIZ,successfullyhostedtheConsultativeConferenceonNewRulesoftheGlobalTaxAgendain2014.TheConferencebroughttogetherHeadsofAfricanTaxAdministrationsandMinistriesofFinance

22

todeliberateoninternationaltax issues,theG20/OECD-drivenprojectonBaseErosionandProfitShiftingand itsrelatedActionPlan.Forthefirsttime,adeliberateattempttofindaunifiedAfricanresponsetotheseinternationalchallengeswasundertaken.

All these developments point to the value-added of regional affiliations and peer-assisted learninggroupswhenpromotingpublicfinancereforms.Manydonorshaveextendedtheirsupporttotheseefforts,thustakingintoaccounttherespectivecommitmentintheG8ActionPlan.Atthesametime,challengesremain:

Box 2 Overviewofimportantregionalprofessionalnetworks

AFROSAI was founded in 1976, following the recommendations of the InternationalOrganisation of SupremeAudit Institutions (INTOSAI) congress. It has 54 supreme auditinstitution(SAI)membersandtwoassociatemembers(theSAIoftheWestAfricanEconomicandMonetaryUnionandtheCommissionoftheAfricanUnion).AFROSAI’smainpurposeistopromoteanddeveloptheexchangeofideasandexperiencesbetweentheSAImembersinthefieldofpublicfinancialcontrolandtheauditingofpublicorganisations.

ATAF promotes efficient and effective tax administration. It facilitates mutual cooperationamongAfrican tax administrations and other relevant and interested stakeholders.To thisend, itservesasaplatformwhereprogress,challengesandnewdirectionsfortaxpolicyandadministration are being addressed. ATAF was created in 2009.

TheEastandSouthernAfricanAssociationofAccountants-General(ESAAG) is a multinational associationofaccountant-generals(AGs) intheEasternandSouthernAfricanregioncreatedin1995.ESAAGprovidesaknowledgebaseforseniormanagementandgovernmentofficials,offering networking and information sharing opportunities, advice on PFM legislation, andcollecting and disseminating PFM best practices. It also supports capacity development for its 14 membercountriesby,forexample,offeringadviceonPFMlegislationandtrainingprogrammes.

CABRIisaprofessionalnetworkofseniorbudgetofficialsinAfricanministriesoffinanceand/or planning. InDecember 2009,CABRI became a legal and independentmembership-basedorganisation. CABRI’s main objective is to promote the efficient and effective managementof public finances, which fosters economic growth and enhances service delivery for theimprovement of the living standards of African people.

SADCOPAC, EAAPAC and the West Africa Association of Public Accounts Committees (WAAPAC)werecreatedin2003,2004and2009respectively.Theyconstitutepermanentregionalnetworksoflegislative,fiscalandbudgetaryoversight.Theyaimatpromotingmutualsupport,aswellasfosteringtheexchangeofideas,knowledgeandexperienceamongPACs.Theoverallobjectiveistocontributetogoodgovernanceandtransparency.

In addition, AFROPAC was launched in 2013 in the context of the 10th anniversary ofSADCOPAC. Itsaim is tocreatestructureswheremembercountriescouldnetworkwithaview to sharing best practices, andwhere thework of PACs at Pan-African level could beharmonisedand standardised. It also focuseson strengthening thecapacityofPACs throughdevelopmentinitiativestoeffectivelyfulfiltheirmandates.

23

Financial sustainability is a challenge to all networks.The approach tofinance an independent core business only by member contributionsthroughmember fees, voluntary contributions in cash and in kind andfor pricing of services might be undermined by too much support to the budgetsofrathersmallsecretariats.Also,capacitybuildingmeasuresbymultinational and bilateral contributors might contribute to spoiling the marketforthenetworksservices.

Also,capacityconstraintsof thesecretariatsremain,althoughataverydifferentlevelamongthenetworks.Butwithalimitedamountofpersonnelthatcanbefinancedfromownsourcessustainablytherearealsoclearabsorption capacity constraints to scaling up the capacity development supporttothenetworksorganizationandtheirstaff.

Thus, there are limits to promoting the exchange of experiences andsupportingtheregionalnetworks.Furthersupportneedstobedesignedinamanner,whichdoesnotchallengesustainabilityofthenetworksasorganisations and respects absorption capacity constraints. This needs careful targeting and planning of programmes with the partners. It is possible for instance by providing time bound measures in areas without competitionconflictwiththenetworksservices,butstillundertheroofofthenetworks.AnexampleistheATAF/GIZtaxacademyprogramme,which under the umbrella ofATAF, provides a university degree to itsparticipants.

Aid effectiveness for Good Financial Governance

With the increasing complexity of providing capacity development onPFM– andpossibly against thebackgroundof various volatilefinancialcontributions – aid effectiveness remains a very important issue for the supportofGFGinAfrica.Inthissection,thefocuswillbeonhowtwoofthemostimportantfeaturesinthecontextoffinancialgovernancehaveevolved:

• The use of country systems

• ThecoordinationofdonorPFManalyticalworks

ThelatterhasbeenhighlightedbytheG8ActionPlanforGoodFinancialGovernanceinAfricaasimprovingknowledgemanagement.

3.3

24

Good Financial Governance and the use of country systems

Countrysystemsassistedbydevelopmentpartnerscoverthewholebudgetcycle.Itstartswithapolicyframeworkthatguidespriorities forsupport,andallows for theallocationofexternaland internalpublicresourcestotheseprioritiesinthebudgetingsystems,uptotheproceduralframeworksandpractices inbudgeting,policy implementationand therespectiveoversightmechanisms.TheOECDfoundnominimumthresholdthatwouldbeneededtousesystems;themostimportantrequirementwasthegovernments’commitmenttoimprovethefinancialgovernancesystems(OECD2009:3).

The situation had not been easy for development partners in the early years of the aid effectiveness agenda.Manycountriesdidnotprovidesystematicframeworkstoguidesupportcontributions.The2011InternationalDevelopmentReportoftheUnitedNationsDepartmentofEconomicandSocialAffairs (UNDESA) indicatedthatmostcountrieshadnoaidpolicy,“andvirtuallynonehavetargetsforindividualproviders”(UNDESA2010:xvi).In2014,however,thissituationimprovedconsiderably.TheThirdGlobalAccountabilitySurveyonMutualAccountability(ECOSOC/BMZ2014b)includes42countries,ofwhich19areAfrican.Amongthose19countries,allhadsomekindofnationalaidpolicyineffectand11weretoassesstheprogressoftheiraidpolicies(ibid.:Annex 1).

Onthesideofdevelopmentpartners,however,theuseofcountrysystemsseemstobeonthedeclineinAfrica.ThefirstprogressreporttotheBusanPartnershipprocessclearlyshowsadecreaseintheuseofcountrysystemsbetween2010and2013in14outofthe18Africancountriesinthesample(see Figure 9).ThesituationisdifferentonlyinRwanda,Niger,KenyaandCameroon.Thisisespeciallynoteworthy,assomecountrieswereratedasmakinggoodprogress in indicatorsystemsevaluatingtheirimplementationofpublicfinancialmanagementreforms.Inmostcountries,thecountrysystemsthatcanbeusedremainatthesamelevel,whilethesesystemshaveimprovedinsomecountries,andonly a few have been downgraded (also see Chapter 5,p.41).

Generallyandonaverage,theuseofcountrysystemsslightly increasedfrom48%to49%between2010 and2013.However,many important development partners are falling behind significantly, for

Box 3 FromParistoBusan:Transformation of aid effectiveness into effective development cooperation

Since2007,internationaldevelopmentassistancehasmovedfromtheParisDeclarationconceptofaideffectivenesstotheBusanPartnershipforEffectiveDevelopmentCooperation,initiatedat the 4thHigh-level ForumonAid Effectiveness in Busan, Republic ofKorea, inNovember/December2011.TheBusanPartnershipmarksaparadigmshiftfromafocusonaidharmonisation,centredonrelationsbetweendevelopmentpartnersandrecipientcountries,toincreasingtheeffectivenessofdevelopmentcooperationinabroadersense(seeMexicoCommuniqué2014:para. 4). This broader concept recognises that a country’s or region’s development is based on a multitudeofinternalandexternalfactors;consequentlytheBusanPartnershipissupportedbygovernments,regionalandinternationalorganisations,aswellasnon-governmentalroleplayers.This wider approach builds on the ideas of the Paris Declaration (2005) and the Accra Agenda forAction(2008),similarlyhighlightingtheownershipofcountriesfortheirowndevelopmentprocesses and orientation towards results and sustainable impacts. It broadens the concept by introducingwide-rangingdevelopmentpartnershipsandrequiringdevelopmentcooperationtobe transparent and accountable to all citizens.

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exampleGermany(49%in2010to45%in2013),theNetherlands(70%in2010to52%in2013),theUK(75%in2010to59%in2013),Sweden(71%in2010to49%in2013)andtheWorldBank(62%in2010to52%in2013)(OECD/UNDP2014:137).

Figure 9 indicates that the development of aid on budget and the use ofcountrysystemsdoesnotrelate todevelopments inpublicfinancialmanagementreform.ThefigurereflectsdataonthedevelopmentaidonbudgetrelatedtotheParisDeclarationandBusanPartnershipandtheuseofcountrysystemsfor18Africancountriesbetween2010and2013,withthe rating of theCountry Policy and InstitutionalAssessments (CPIA)indicatoron“qualityofbudgetaryandfinancialmanagement”(QBFM)andits development between 2010 and 2012.

Nosystematicpatternisvisible.CountrieswithahighandevenimprovingCPIA/QBFMratingmightregisteronlyalittlebitmoreaidonbudgetandexperiencelessuseoftheirsystems,whilecountrieswithalowerratinginCPIAwithoutany improvementmightexperiencean increase inaidonbudgetand/ortheuseofcountrysystems.Madagascar, forexample,which has the largest downgrading in CPIA/QBFM, is experiencing animprovement in aid on budget and only a small negative change in the use of country systems.

Ontheotherhand,BurkinaFasohasthehighestscoreintermsoftheCPIA/QBFM, with an improved rating between 2010 and 2012, but itreceives only slightly more aid on budget and its indicator for the use ofcountrysystemsgoesintothenegative.Togo,which–witharelativelyhigh score on theCPIA/QBFM and a considerably increased rating inthe period 2010 to 2012 – receives a third less aid on budget and its countrysystemsareusedtoalesserextent.Itthusseemsthatdonorsprovide aid on budget and use partner countries for other reasons than the assessment of the PFM systems.

Knowledge management in donor harmonisation

Ingeneral,theknowledgebaseonthestatusofGFG-relevantprocessesin partner countries has been considerably enhanced since 2007. The discourse on aid effectiveness – including the variations in aid delivery modes – has increased the need of development partners to understand partner countries’ PFM systems.

The G8 Action Plan for Good Financial Governance in Africa hasspecifically emphasised that the collaboration with PEFA should beintensified,especiallysincePEFAhaswideneditscooperationmodusfromthePEFASteeringCommitteeandthePEFASecretariat intoabroadernetworkfrom2007.ThisnetworkincludesavirtualcommunityofPFMpractitionersworkingwithPEFA,andanannualopenforumthatprovides

26

opportunityforface-to-faceinteractionbetweenPFMpractitionersandinstitutionsontheonehand,andthePEFASteeringCommitteeandSecretariatontheotherhand.10ThePEFAPerformanceMeasure-mentFramework(PMF)hasbeenupgradedinrecentyearsintoalargelyreconciliatoryprocessthatincludes many partners.11InJanuary2015,theCountryTestingVersionoftheupgradedPEFAPMFhasbeenreleased(PEFA2015),andthetestingphasewillbeimplementedthroughoutthefirsthalfof2015.

PEFAhasthusbeenenhanced,andinthesametime,otherPFMdiagnostictoolshavemultiplied.ThestocktakingstudyofPFMdiagnosticinstruments(Mackie&Ronsholt2011),whichwaspreparedinthecontextoftheHigh-levelForuminBusan,foundthatthereweremorejointassessmentsandincreasedcollaborationbetweenpartnercountries’governmentsanddevelopmentpartners.However,thestudyalso indicated, rather critically, the“increased numbers of broad based and drill down assessmenttools;whichhavebeendevelopedtofillaperceivedneedbytheirrespectiveinstitutionalownersbutwhicharepoorlycoordinatedbydevelopmentpartners,internationalagenciesandprofessionalbodies.In addition, large numbers of uncoordinated fiduciary assessments are being conducted; driven bydevelopmentpartners’operationalrequirementsratherthandevelopmentneed”(Mackie&Ronsholt2011:12).

There is an increasing demand by development partners for PFM diagnostic studies to be carried out,otherwiseorganisationswilltrytocovertheinformationneededfortheirproceduralpurposesbytheirownmeans.Itispossiblethatdifferentdiagnosticswillproducecompletelydifferentresults,ordevelopmentpartnersmayperhapshavegreatlydifferentviewsontheadequacyofPFMsystems.However,bothwouldraisequestionsonthemethodologiesusedandassessmentsmayendupfarawayfrom the idea of mutual accountability.

Figure 9 AidonbudgetanduseofcountrysystemsrelatedtoCPIAQBFM

10 Seehttp://www.pefa.org/en/content/pefa-network-0

11 SeethelistofrespondentsinPEFA2015:2.

Source:Authors’calculationbasedondatafromOECD/UNDP2014(Busan,indicators6and9)andWBGCPIAdata(http://data.worldbank.org/data-catalog/CPIA)

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The stocktaking study – commissioned by the OECDTask Force onPublic Financial Management and overseen by the PEFA Secretariat– recommended that all important players revisit and streamline their assessment needs and instruments in use, and enhance coordination.Internationally,thisshouldbedonethrougha“singleuser-friendlyportaltogiveaccesstodevelopmentpartnerinstruments,completeddiagnosticand fiduciary assessments …” (ibid.:13) – the PEFA PerformanceMeasurement Framework.At country level,“governments should haveacoherent, integratedmedium-termstrategyofdiagnostic instruments;supported by development partners” (ibid.).

However,PEFA–asusefulasit is–isadonorinstrumentandpartnercountries’ governments seem to have been rather reluctant to participate in the further development of the PEFA Performance MeasurementFramework.Onlyafewpartnercountriescommendedtheupgradeoftheperformanceindicators,namelytheComoros,SierraLeone,Madagascar,Côte d’Ivoire, Burkina Faso, Myanmar,Vietnam,Thailand, Samoa, Peru,Honduras,ElSalvador,Jamaica,thePhilippines,andSouthAfrica.

What contributes further to the rising demand for PFM-related datais the broadening of global dialogue on PFM issues after the Doha Conferencein2008.Thisbroughtaboutincreasingrequestsatproviders’headquarter levels to improve knowledge on activities and measuresfor better coordination at country and regional level. The initiatives to provide such information in a centralised way have had limited success. In thefieldoftaxation,forexample,twomappingstudies12 have shown that thecostofprovidingcentraliseddataishigh,thatsurveysareneverevennearlycompleted,andthatofteninformationisnotup-to-dateanymoreat the moment of publishing. Regular reporting has not been possible continuously:The InternationalTax Dialogue (ITD) databank has beencloseddown,andtherecommendationsforregularreportingbasedonCRSdata(Tortella&Eckardt2012)haveneverbeenrealised.

The simple explanationof these challenges is that the coordinationofsupport measures to PFM needs to be done closest to the intervention level–atcountrylevelforcountry-specificsupportandatregionallevelthroughtheregionalprovidersviaprofessionalnetworkssuchasATAF,AFROSAIandCABRI.Thismeansthatpartnercountries,whoshouldbethedriversoftheirreformprocesses,shouldalsoleadthecoordinationof the support of these processes. At a regional level, the Africanprofessionalnetworks, legitimatedby theirmember institutions, shouldcoordinate support on behalf of those members. The country dialogues onusingandstrengtheninglocalsystemshaverecentlystarted,andtheEffective InstitutionsPlatform(EIP2015)mightbethenextstep intherightdirection.The leading roleofCABRIon the topic (togetherwithUSAID)willensureacountry-relevantworkingfocus.

12 SeeKöhnen,Kundt&Schuppert2010andTortella&Eckardt2012

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African leaders’ awareness and political commitment to GFG

Improvementsinfinancialgovernancearenotrealisedwithouthigh-levelpoliticalcommitment.AfricanleadershaveaffirmedtheirstrongcommitmenttotheGFGagendaathighestlevelmanytimes–thelasttimewasattheoccasionofthe22ndOrdinarySessionoftheAssemblyoftheAfricanUniononJanuary2014with regard to theCommonAfricanPosition (CAP)on thePost-2015DevelopmentAgenda.Undertheheadlineofenablingimplementation,theAfricanleadershipstronglyreaffirmedtheirsupportofmeasuresleadingtoGFG(CAP2014:22):

• Para. 89: “Adopt additional measures to fight corruption, promote good political and socio-economicgovernance,transparencyandaccountability,especiallyinthefieldofnaturalresourcesmanagement; and improve the enabling environment for the involvement of civil society.”

• Para. 90:“Accelerate decentralisation of the governance system, reinforce rule of law frame-worksandstrengthencapacitiesofourinstitutionsinordertoprotecthumanrightsandmeettheaspirations of our people; and promote integrity and leadership that is committed to the interests of the people.”

• Para. 91:“Enhancetheimplementationandimpactofexistingcontinentalmechanisms,suchastheAfricanPeerReviewMechanism(APRM),theNEPADandtheAfricanGovernanceArchitecture.”

ThesetopicsareimperativeforprogressonimplementingGFGreforms,andoften,thelackofhigh-levelpoliticalbackupisoneofthestrongestimpediments.TheCAPgiveshopetorenewedeffortstoimplement ongoing GFG reforms. It would be even more promising if African leaders would combine effortstofinanciallysustaintheregionalnetworks.FinancialcontributionstotheAPRM,forexample,havebeendecliningsince2007.TheindependentandsustainableconstructionandfinancingofAfricangovernance networks and the GFG professional organisation is an important indicator for GFGownership at the political level in Africa.

Figure 10 Financing of the APRM

Source:APRM2012/2013SpecialeditionAnnualReport,p.62

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Revenue mobilisation in developing countries has been high on the political agenda since the Monterrey Consensus in 2002.13 Correspondingly,supporttothedevelopmentoftaxsystemshasintensifiedtoalargeextentsincethen.TheG8ActionPlanforGoodFinancialGovernanceinAfricaalsounderlinedthesupportoftaxpolicyandtaxadministrationreform.Africancountrieswereencouragedtomakeuseofregionalnetworksandinternationalknowledgeontaxpolicyandtaxadministration,particularlyinordertobolsterdomesticexpertise.Inthischapter,thefollowingwillbediscussed:

• Thedevelopmentofthesenetworks

• Whetherprogresscanbeobservedinaggregatetaxcollectiondata

• Whetherprogresscanbeobservedinperformanceassessmentsoftaxadministration reform

ResourcemobilisationfromextractiveindustriesisincreasinglyimportantinmanyAfricancountries,andthereforethedevelopmentoftheextractiveindustries’ accountability initiatives will be summarised in Section 4.2.

Support in the tax area

Development of cooperation networks on taxation

ManyinternationalandAfricaninitiativesandcooperationnetworkshavebeeninitiatedsince2008toimproverevenuesystemsandadministration:

• At the International Conference on Taxation, State Building andCapacityDevelopment inAfrica, held inPretoria, SouthAfrica, from28to29August2008,commissioners,seniortaxadministratorsandpolicy-makersfrom28AfricancountriesresolvedtoworktowardstheestablishmentoftheAfricanTaxAdministrationForum(ATAF).

• TheFollow-upInternationalConferenceonFinancingforDevelopmentwasheldinDoha,Qatar,from29Novemberto2December2008,todecideonfuturestepsforcombatingtaxevasionandinappropriatetaxpractices.

Supporting revenue mobilisation in Africa

4

4.1

13 TheMonterreyConsensusonFinancingforDevelopment(UnitedNations2002)

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• InMarch2009,theInternationalTaxCompact(ITC)wasestablished.Thisisaninformalplatformthatsupportstheestablishmentofbettertaxsystems,whichallowpartnercountriestoincreasedomesticrevenueandfighttaxevasionandinappropriatetaxpracticesmoreeffectively.

• InNovember2009,ATAFwasofficiallylaunchedinKampala,Uganda,with29members.

• In January 2010, theOECD’sTask ForceonTax andDevelopmentwas created. It is co-chairedbySouthAfricaandtheNetherlands,andadvisestheOECDcommitteesondeliveringaTaxandDevelopment Programme to improve an enabling environment for developing countries to collect taxesfairlyandeffectively.

• Since2011,theUNEconomicandSocialCouncil(ECOSOC)hasbeenholdingspecialmeetingstoconsiderinternationalcooperationontaxmatterswiththeparticipationofnationaltaxauthorities.

• Alsoin2011,theIMFlauncheditstopicalTrustFundonTaxPolicyandAdministration(TPA),whichisfinancedbyavarietyofbilateraldevelopmentpartnersandsupports low-and lower-middle-incomecountriesinimplementingwell-designedandadministeredtaxsystems.

• In2015,a jointAfrica Initiative iscreatedbyATAF, theCentrederencontredesadministrationsfiscales(CREDAF),theGlobalForumonTransparencyandExchangeofInformationforTaxPurposes,theOECD,theWorldBankandindividualAfricanmembersoftheGlobalForuminordertoraiseawarenessinAfricancountriesonexchangeofinformationintaxmatters,aswellastoenhancetheintroduction of respective systems.14

Similarly, civil societyorganisations such as theTax JusticeNetwork,Oxfam, and theGlobal PolicyForum have contributed much to advocating on revenue governance topics internationally. The largest partofthesetopicscentresoninternationaltaxissues,includingtransferpricing,automaticinformationexchange,and,morerecently,theActionPlanonBaseErosionandProfitShifting(BEPS).

The firstAfricanGovernanceOutlook (AGO) outlines that on theAfrican side, this internationaltax dialogue agenda was and is carried forward by strongAfrican leadership seeking the reformof tax systems and administration (AfDB &African Capacity Building Foundation 2012:14).The

Box 4 TaxharmonisationintheEastAfricanCommunity(EAC)

TheGIZprogrammeSupporttotheEACIntegrationProcesshasbeenworkingforyearswiththeEACSecretariatontheharmonisationoftaxpoliciesandlawsondomestictaxesinthesecountries toremove taxdistortions inorder topromote tradeand investment.Oneof thesuccesses was the member country-driven development of a model double tax agreement(DTA).ThejointEACDTAwasapprovedbytheEACCouncilofMinistersin2010.However,upuntilnow,thedocumentwasadoptedonlyinRwanda.Inallothercountries,reluctanceatpresidential level and/or in parliament prevails.

InSeptember2014,theEACCounciladoptedtheharmonisedEACtaxprocedures.Thememberstatesarerequiredtoimplementthedirectivewithinaperiodofoneyear.

See:http://eacgermany.org

14 http://www.oecd.org/tax/transparency/gf-african-initiative.pdf

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AGO pilot countries15 were steadily improving their performance in revenue governance. The AGO emphasises the strong political will and commitment of African leaders to effectively drive the implementation ofrevenueadministrationreform.ThisisfullyinlinewiththeG8ActionPlan for Good Financial Governance in Africa target to enhance the use of regional and international networks, and has pushed tax reform inAfrica.However,high-levelpoliticalsupportisnotaguaranteeforpolicyimplementation.Agoodexampleofthis istheEastAfricanCommunity(EAC)DoubleTaxationAgreement(DTA)thatwasapprovedbytheEACCouncilofMinistersin2010,buthasnotbeenadopted,exceptinRwanda(see Box 4).

Development of tax collection in Africa

TheAfricanEconomicOutlookreportsasubstantialincreaseinthetotalcollectedtaxrevenueinAfrica.Since2000,taxrevenueshaveincreasedfourfold fromUS$137.5billion toUS$572.3billion in2012 inabsoluteterms(AFDB/OECD/UNDP2014:65).

However,inrelationtoGDP,thispicturecannotbeconfirmedbymorerecentthedata.Inspiteofanupwardtrendinmanyyears,16 the average tax-to-GDPratio inAfricancountries showsanegative trendbetween2005and2014,especiallysince2011(with13.6%),andaprojectedamountof12.3%in2014(seeFigure 11).

Ingeneral,Africangovernmentrevenueshavebeendecreasingsincethemajor economic downturn after theworldwide financial crisis – from30.2%revenues/GDPin2008to25.1%in2009.Inthatyear,theaverage

Figure 11 Tax-to-GDPratio,2005–2014,averageforAfrica

Source:AfDB,OECD&UNDP(2014)http://www.compareyourcountry.org/african-economic-outlook?cr=afr&cr1=oecd&lg=en&page=1

15 TheAGOreportanalysesAfrica’sfinancialgovernanceperformancebasedon25qualitativefinancialgovernancevariables,complementedbyaqualitativeanalysisofpublicfinancialmanagementreform.TheAGOprojectusesinformation,experienceandlessonsfromexistingAfrica-basedgovernanceassessmenttools,includingtheAfricanPeerReviewMechanism(APRM),andthe(Mo)IbrahimIndexofAfricanGovernance(IIAG).Thepilotreportof2012concentratesontenAfricancountries:Kenya,Mali,Mozambique,Tanzania,Rwanda,BurkinaFaso,Ghana,Ethiopia,Nigeria,Senegal,andUganda.

16 http://www.africaneconomicoutlook.org/en/outlook/financial_flows/

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tax-to-GDPratioincreasedslightly,butdidnotkeepup.Itisatrendthatturnedaroundthepositivedevelopment before 2007, which was mostly based on the strong increase of revenue from theextractiveindustries(CABRI,AFROSAI&ATAF2010:16).

Thedecreasingtrendoftax-to-GDPratiosisabroadphenomenoninAfrica;itcannotbeattributedtotheparticularperformanceof large, individualcountries.Thevastmajorityofcountrieshavenotreached progress in revenue collection since 2009.

Figure 12showsthevariationinIIAGscoresonrevenuecollectionbetween2009and2013.17 Out of52AfricancountriesintheIIAGdataset,11haveimprovedtheirscoresonrevenuecollection,12maintainedtheirperformancelevelsandoftheremaining29,therevenuecollectionscoresofmorethan half have declined.

OnaverageinAfrica,revenuecollectionisamongthemostdeterioratedofthemorethan100IIAGindicatorsbetween2009and2013.In2009,revenuecollectionscored58.4,andin2013,53.3.Whilemanyofthecountriesstrugglingwiththeirrevenuecollectionatthattimewerethosethatexperiencedpoliticalandeconomiccrises,suchasLibyaorMadagascar,anumberofstrong-performingcountriessuchasGhana(-20.3inIIAGscore),Kenya(-7.8)orZambia(-9.3)alsostruggled.Theimpactofthevarious initiatives created to improve revenue mobilisation is yet to materialise – in spite of the many successesthathavebeenreachedattheworkinglevel.

Figure 12 VariationinAfricanrevenuecollection,2009to2013(IIAG),52countries

Source:Authors’calculationbasedon2014IIAGDataPortalhttp://www.moibrahimfoundation.org/iiag/data-portal/

17 TheIIAGcompilesitsindexbycombiningover100variablesfrommorethan30independentAfricanandglobalsources(seehttp://www.moibrahimfoundation.org/iiag/). “Revenue collection” is one of the ten indicators that are used to calculate the “public management” subcategoryscore.Thetaxcollectionindexrangesfrom1to100,andFigure12showsthepointsinvariationonthatscalebetween2009and2013.IIAGtaxcollectionismeasured,basedontheCountryPerformanceAssessments(CPA)oftheAfricanDevelopmentBank(AfDB)andontheIDAResourceAllocationIndex(IRAI),aclusterwithintheWorldBankGroup(WBG)CPIAdataset.

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Improvements in African tax administration

Eveniftherevenuecollectiondatadonotyetshowanyimpact,astudyofthedetailsofreformprogressatcountrylevelinPEFAreportingshowsthat African countries have put much effort into implementing revenue administration reform.

Figure 13 summarises the development of PEFA ratings for 18countries.18 All the performance indicators (PIs) that directly relate to tax administrations – PI-13, PI-14 and PI-15 – show at least someimprovementforthemajorityofcasesincluded.OnlyPI-3,whichmeasuresthe aggregate revenue outturn compared to originally approved budget planningcapacity,showsdeclinewhencomparedtotheotherindicators:

• PI-13,“transparencyoftaxpayerobligationsandliabilities”,showsim-provementsforallcountriesbutone,whichmaintaineditslevel.Threecountriesimprovedslightly,ninecountriesimprovedbyonefullstep,threebyoneandahalf(forexampleDtoC+orCtoB+),andtwocountries even reached two and three steps’ progress.

PI-13 also includes a sub-indicator dimension that has been specifi-cally targetedtoalignwiththeG8ActionPlan’s intention,especiallyregarding the aspect to “provide citizens with the legal means to effec-tivelyscrutinisethedecisionsoftheirtaxadministrations”;PI-13(iii)asksabouttheexistenceandfunctioningofataxappealmechanism.This sub-indicator shows slightly minor improvement compared to the overallindicatorPI-13.Ninecountrieshaveremainedattheirperfor-mance levels,mostof themat theelevated level“B”, and fourhavefurtherimproved,butthreedecreasedinscoring.

Box 5 GIZcontributiontoimproveeffectivetaxpayer administration in Ghana

InGhana,GIZ has been supporting theMinistry of Finance formanyyearsinworkingtowardsgoodgovernanceintaxandbudgetpolicy and administration – important priorities in the Ghanaian GrowthandPovertyReductionStrategy.Themodernisationofthetaxsystemhasshownin2012thatthelargetaxpayer’sdepartmentaccounts for more than 60% of all taxes collected. Specificadministrativeprocedurestoworkwithmedium-sizedtaxpayersare being developed.These include a medium-sized taxpayer’sregistration module that has been developed and tested under the tax process information system, Total Revenue IntegratedProcessingSystem(TRIPS).

18 The sample covers all African countries for which it was possible to compare two reports with at leastathree-yearperiodinbetweenreporting,after2006.Duetothismethodology,Figure13canonlyshowthedirectionofchangeintherating–positive,neutral,ornegative–anditsmagnitude.Itdoes not allow for an assessment of the performance level.

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• Performanceindicator14addressesthe“effectivenessofmeasuresfortaxpayerregistrationandtaxassessment”.Underthatheading,thePEFAframeworkassessesthreedimensions:

o Controlsinthetaxpayerregistrationsystem

o Effectivenessofpenaltiesfornon-compliancewithregistrationanddeclarationobligations

o Planningandmonitoringoftaxauditandfraudinvestigationprogrammes

PI-14 also shows positive developments. Only one country has received a slightly inferior rating from onePEFAreporttotheother,butalltheothercountrieshavemaintainedtheirlevelsorraisedthem.The detailed data also show that most progress is assessed under the third sub-indicator regarding theplanningandmonitoringoftaxauditandfraudinvestigationprogrammes.Inthiscategory,eightcountrieshave raised theirperformanceassessmentsbyone full step, andonecountryevenbytwo.ThishastoberecognisedagainstthefactthatincreasingaPEFAratingonthescaleA–Dbyonestep(D–C,C–BorB–A)requiresthesuccessfulimplementationofimportantorganisationaldevelopmentsinthetaxadministration.

Figure 13 DevelopmentoftaxindicatorratingsinPEFAperformanceassessments19

Source:Authors’calculationsbasedondatafromthePEFAPerformanceAssessmentPortalhttp://pefa.org/en/assessment_search

19 DatacomparethedevelopmentofratingsbetweentwoPEFAassessmentsfor18countries(seeAnnex2).“0”meansnochangebetweenratingsofthereports,1/-1meansanimprovement/areductionofonefullletter(asAtoB,BtoCetc.orBtoA,CtoB),0,5/-0,5variationstandsforanimprovementorreduction,asinC+toBorBtoC+.Thenumberofcasesshowshowmanycountriesshowsimilardevelopments.The reports’ dates vary; two reports per country are compared with at least two years’ difference.

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• Furthermore,PI-15onthe“effectivenessincollectionoftaxpayments”shows improvements for almost all countries and no decline for anyone.

• IndicatorPI-3measuresthe“predictabilityofpublicrevenuesthroughthe aggregate revenue outturns compared to original approved budget” andshowsrathermixedresults.Littleprogresshasbeenreachedandsomecountrieshavealsoexperiencedasignificantdecreaseinrating.However,thePI-3indicatordoesnotonlymeasuretheperformanceoftaxadministrationandtaxcollection,buttargetsbudgetcredibility.Depending on the country’s background, it might be influenced bydifficulties in budget forecasting – for example, performance-basedpaymentsystemsintaxadministrationmightincentiviseapessimisticprognosisoftaxyieldsforbudgetplanning.Further,volatilecommoditypricesforextractiveindustriesmightdistortthisindicator,asitcoversall domestic public revenues.

In summary, it canbe said that at country level and in thepracticeofimplementingtaxadministrationreform,muchmorehasbeenachievedthan is visible in tax collection data.African tax administrations haveimprovedtheirperformanceonaverybroadbase.Such improvementsin the ratingsof the relevantPEFA indicators canonly be achievedbysignificantorganisationaldevelopment.However,thesuccessesofreformimplementationatadministrativeleveldonotmaterialiseinrisingtax-to-GDPratiosyet.Onefactoriscertain:implementingtaxreformandtaxadministration reform needs time; much more time than a development cooperation programme cycle covers, and also longer than the timebetweentwocyclesofPEFAassessments.

TheCABRI,AFROSAIandATAFGFGStatusReportof2010hashighlightedthenumerouschallengesforAfricantaxsystems(CABRI,AFROSAI&ATAF2010:22ff.).The report also clearly states that tax evasion, corruption,abuse andmisappropriation of provisions for tax exemptions, politicalinterferenceandthe lowcapacityof thetaxadministrationremain therootsfordeficienciesinimprovingrevenuemobilisation.Thus,thereisnoalternativetocontinuingtheefforts.However,furtherin-depthresearchshouldhelptorevealhowprogressinreformingtaxadministrationcanalso assist in increasing revenue collection.

Increasing accountability for revenues from extractive industries

The highest potential for increasing revenues is to be expected fromextractive industries (AFDB/ OECD/ UNDP 2014:65). In the case ofresource-endowed countries, the success of the Extractive IndustriesTransparency Initiative (EITI) inAfrica highlights this perspective.The

4.2

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G8ActionPlan forGoodFinancialGovernance inAfricahas thus emphasised support to increaseaccountability in the extractive industry sector to improve resourcemobilisation. Much has beendoneandalsoachievedinthisregardsince2008,althoughresourcegovernancesystemsstillremainachallenge.

Resource governance

Rank Country Resource Measured Composite

Institutionaland legalsetting

Reportingpractices

Safeguardsandqualitycontrols

EnablingEnviron-

ment

15 Ghana Minerals 63 79 51 73 59

16 Liberia Minerals 62 83 62 71 31

17 Zambia Minerals 61 71 62 72 37

21 SouthAfrica Minerals 56 69 31 73 72

25 Morocco Minerals 53 48 60 56 42

27 Tanzania Minerals 50 44 48 68 42

30 Botswana Minerals 47 55 28 53 69

32 Gabon Hydrocarbons 46 60 51 39 28

33 Guinea Minerals 46 86 45 43 11

35 SierraLeone Minerals 46 52 47 59 24

38 Egypt Hydrocarbons 43 40 44 48 40

40 Nigeria Hydrocarbons 42 66 38 53 18

41 Angola Hydrocarbons 42 58 43 52 15

42 Kuwait Hydrocarbons 41 28 43 36 57

44 Congo(DRC) Minerals 39 56 45 42 6

45 Algeria Hydrocarbons 38 57 41 28 26

46 Mozambique Hydrocarbons 37 58 26 37 37

47 Cameroon Hydrocarbons 34 63 33 25 17

50 SouthSudan Hydrocarbons 31 80 17 35 8

51 Zimbabwe Minerals 31 48 23 56 6

52 Cambodia Hydrocarbons 29 52 13 46 20

55 Libya Hydrocarbons 19 11 29 15 10

56 EquatorialGuinea Hydrocarbons 13 27 14 4 4

Institutional and legal setting: Thedegreetowhichlaws,regulationsandinstitutionalarrangementsfacilitatetransparency,accountabilityandopen,faircompetition

Reporting practices: Government disclosure of information

Safeguards and quality controls: Thepresenceandqualityofchecksandoversightmechanismsthatencourageintegrityandguardagainstconflictsofinterest

Enabling environment:The broader governance environment, based on more than 30 external measures of accountability, governmenteffectiveness,theruleoflaw,corruptionanddemocracy

Source:http://www.resourcegovernance.org/rgi/countries

Table 4 AfricanrankingsintheResourceGovernanceIndex(RGI)2013

Satisfactory Partial Weak Failing

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The Resource Governance Index (RGI)20 measures the quality ofgovernanceintheoil,gas,andminingsectorsof58countries,ofwhich23areAfrican. For2013, it shows forAfrica thatnotonecountryhasachieved the overall composite assessment “satisfactory”. In spite of EITI’ssuccess,notonecountryisrated“satisfactory”underthereportingpractices. However, some countries are managing well: Ghana, Liberia,Zambia,Guinea and South Sudan are testified satisfactory institutionalandlegalsettings,andelevencountriesmorereceivedatleast“partiallysatisfactory”.Again, this is the part that can be supported by externaladvice.Somesuccesscanalsobeobservedwithsafeguardsandcontrols.

The enabling environment that rates the broader governance environment withindicatorsasaccountability,governmenteffectiveness,theruleoflaw,corruption,anddemocracyisratherdifficult.

Implementation of EITI in Africa

Even if resource governance in resource-endowed African countriesremainschallenging,implementingtheEITIhasbeenagreatsuccessstoryinAfricasince2007.ThestoryofEITIisalsotiedtoitsAfricanpartnercountries.Today,morethanhalfof the32EITI-compliantcountriesareAfrican.

Over the years, the EITI has steadily increased the requirements andspecification of its rules and regulations. In 2008, the EITIValidationGuide forthefirsttime introducedbindingrequirements forcountriesthatwantedtobecomecompliantwiththeEITIprinciples.TheValidationGuide was amended in 2011 and its name changed to Rules and Validation. In2013,theEITIstandardhasbeenintroducedasauthoritativesourceonhowcountriescanimplementtheEITI.TheEITIstandardisnowtheglobaltransparency standard for improving the governance of natural resources. Itsmainobjectiveistoverifyandreconcilecompanyandgovernmentdataonpaymentsandreceipts.InanEITIreport,companiespublishwhattheypay and governments what they receive. This process is overseen by a multistakeholdergroupofgovernments,companiesandcivilsociety.OvertheperiodofincreasingthespecificationsandrequirementsofEITI,theAfricanEITIcommunityhasgrownrapidly,asshowninFigure 14.

In2007,nineAfricancountrieswereEITIcandidates.Oneyearlater,thisnumber increased to fourteen countries. In 2014, 18African countrieshavebeenfullycompliantwiththeEITI.Threehavecandidatestatus,andMadagascar was again accepted in 2014 after being suspended for two years.TheCentralAfricanRepubliccompliedin2011and2012,butwastemporarilysuspendedin2013becauseofpoliticalinstability.

20 The RGI is developed by the Natural Resource Governance Institute (NRGI). Natural Resource Charter is now theNaturalResourceGovernance Institute (NRGI), the formerRevenueWatchInstitute-NaturalResourceCharter.

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The EITI process is not easily passed: On average, countries take four years from candidacy tocompliance. Since 2010, the EITI has entered a consolidation phase; no additional candidates havejoined,exceptforEthiopiaandSenegal,whichjoinedascandidatesin2013and2014.

New EU CBCR standards

Inresponsetotheinternationaldialogueonthetransparencyofextractiveindustries,mainlydrivenby the EITI, theG8 and theG20, the EITIwas followedby the newEU reporting standards (ITC2014:43ff.).The process of developing new country-by-country reporting (CBCR) standards was

Figure 14 AfricanEITIcountries,2007to2014

Source:EITIcountrydocumentation2015http://www.msi-integrity.org/eiti-msg-governance-data-sets/

Burk Cam CAR Chad DRC Con C d’I Eth Gha Gui Lib Mad Mali Maur Moz N’er N’ria Sen S L Tanz Togo Zam2007

2008

2009

2010

2011

2012

2013

2014

Box 6 GIZregionalsupporttoresourcemobilisationfromextractiveindustriesinLiberiaand SierraLeone

InLiberiaandSierraLeone,GIZsupports–withAustralianco-financing–thepartnercountriesin increasing the efficiency and sustainability of their natural resourcemanagement throughreforms of in their political, economic and legal conditions.Thus, greater transparency andaccountabilityofpublicrevenuereduce incentives forcorruption intheextractive industries.Capacity development targets managers in government departments, regional and localgovernments,aswellasincivilsociety,privatesectorandregionalinstitutions.Networksamongallstakeholdershavebeenstrengthened.Theoverallobjectiveistoincreasetaxrevenuefromtheextractivesector inorderto increasepublicresourcestofightpovertyanddevelopthecountries.

TheprojectisbasedonaregionalapproachbetweenSierraLeoneandLiberiathatallowsforasharedmultiplicationofgoodexperiences.Furthermore,regionaldialogueandexchangesonresourcegovernancearesupported,especiallywiththeManoRiverUnion.

Atthelocallevel,theprojectsupportsdialoguebetweenminingcompaniesandlocalcommunitiesto ease existing conflicts and convert them into more development-oriented cooperation.Togetherwiththecitizens,communitiesandcompaniesformulatedlocaldevelopmentplansformining areas.

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ledbytheEU’s InternalMarketandServicesDirectorateGeneral(DGMARKT) and the Accounting and Transparency Directive was adopted in June2013.EUmemberstateswillneedtopassthedirectiveintonationallawuntil20 July2015.TheEUCBCRStandardmakes itobligatory formultinational companies to disclose payments to governments on a country and project basis. Listed and large unlisted companies in theEUwithactivitiesintheoil,gas,miningandloggingsectorswillhavetoreportannuallyonoperationsmanagedintoorfromtheEU.Reportingismandatoryinfinancialstatementsforfinancialyearsstartingonorafter1 January 2016. The new standard will help civil society organisations in resource-endowed countries to hold their governments accountable for anyincomefromtheexploitationofnaturalresources.

Essentially,theEU’sCBCRStandardisdesignedtosupporttheEITI’sgoalof increasingtheleveloftransparencyfortaxpaymentsandreceipts. Itwillputpressureongovernmentstogeneratehighertaxrevenues.Itwillalso provide a focal point for investors, civil society organisations andthemediainthedebateonhowmuchresourceextractioncontributesto thepublicpurse.Thus,muchprogresshasbeenmadeon increasingtransparencyonextractiveindustries.

However, to generate higher tax revenues from extractive industries,muchgreatereffortsfrompartnercountriesandsupportingnetworksareneeded.Inresource-endowedcountries,extractiveindustriespotentiallyform the backbone of domestic revenue.The regulatory situation inmany countries is characterised by complex fiscal regimes, involvingdifferenttaxes,fees,royaltiesandothernon-taxrevenueswithcomplexrules,whichresultinhighlyopaqueandunwieldyfiscalsystems.Against

Table 5 ComparisonofCBCRandEITIreportingrequirements

Source:EddieRich,EITISecretariat,inITC(2014:45)

EU CBCR Standard EITI Standard

Where? Company’shomecountry Countryofresource

What?

Companypaymentsoftax,royalties and signature bonuses

Wholegovernancechain:licences,policies,laws,reg-isters,production,ownership,payments,subnationalpayments,socialpayments,expenditure,etc.

Who?

AllEU-basedcompanies All companies operating in hostcountry,includingstate-ownedenterprises,non-listedcompanies,medium-sizedcompanies,etc.

How?

Project-by-projectcompanytemplate in line with audited accounts

Project-by-project(inlinewithEUlaw)companyandgovernment templates in line withauditedaccounts,andthen reconciliation

When? Nextfiscalyear Withintwoyears

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thisbackground,theparticipantsofthe2014ITCworkshoponthetaxationofextractiveindustriesexpressedsomereservationtowardstheusefulnessoftheinformationprovidedbytheEITIandtheEUCBCRstandardsforrevenuemobilisation(ITC2014:66),becauseneitherstandardincludesreportson the full value chain or on the companies involved in trading. The scope of the information provided thusremainslimitedfromthepointofviewofthetaxadministration(seeTable 5).21

Nevertheless,effortsneedtocontinue–improvingresourcegovernancecannotbeunderestimated.Poorgovernanceandcorruptionareconsidered“a,perhapsthe,majorcontributortothe‘resourcescurse’” (IMF 2014:14).The extractives sector exponentially multiplies challenges known in othersectors:“Natural resource revenue administration presents all the normal challenges of businessadministration, but in additionmay present awide variety of special issues, and the scale of risksinvolvedmaybeexceptionally large”(ibid.).Thus,there is littlealternativetocontinuingtosupportimprovements. The concerted transparency initiatives in partner countries and among development partnersandnetworkswillcontributeintheirrespectiveways.

21 TheEU’sfocusisonextractiveandloggingoperations;thetransportofoil,forexample,isnotcovered,sincethatwouldfallundertrade.TheEITI’sfocusisonthefirstsaleslevelofthevaluechain:companiesareobligedtodiscloseanyvaluetheyreceivethroughthefirstsalelevel;thenextlevelappearstobeverydifficulttocover.TheinformationprovidedbyCBCRandtheEITIwillthereforebeoflimitedhelptotaxadministrationsintheireffortstoaddressBEPSandtransferpricing,themostpressingissuesininternationaltaxation(ITC2014:66).

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Workingtowardstransparent,accountableandreliablebudgetmanage-ment has been at the top of the international development cooperation agenda since the declaration of Rome in 2002, when the concepts ofaid harmonisation, mutual ownership and alignment with countrysystemswereplacedatahighpolicy level forthefirsttime–althoughnotyetnamedso.Inthischapter,thefocuswilllieonthedevelopmentof performance assessmentof policy-making andbudgeting, theextenttowhichbudgetdataispublished,andhowthecomprehensivenessandtransparency of public budgeting procedures have evolved.

Integrating policy-making, planning and budgeting

The G8Action Plan for Good Financial Governance inAfrica aimedat improving the integration of policy-making, planning and budgeting.This ismeasured by the dimension“quality of budgetary and financialmanagement”(QBFM)undertheWorldBankGroup’sCPIAFramework,whichregularlyassessesIDA-eligiblecountries’performance.TheQBFMdimensionevaluatestheextenttowhichthere isacomprehensiveandcrediblebudgetlinkedtopolicypriorities,effectivefinancialmanagementsystems,andtimelyandaccurateaccountingandfiscalreporting.Betweenthe assessments of 2008 and 2012, the vast majority ofAfrican IDA

Establishing transparent and comprehensive budgeting procedures

5

Figure 15 AfricanIDAcountries’variationinCPIAratingon thequalityofbudgetaryandfinancialmanagement, 2008to2012

Source:Authors’calculationsbasedonCPIAdatahttp://data.worldbank.org/data-catalog/CPIA

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countries stagnated with no change, but still more countries have improved in their ratings thandeteriorated.Thus,84%oftheAfricanIDAcountrieshavemaintainedorenhancedtheirperformancelevelsbetween2008and2012.Theaverageratinghasimprovedslightlyfrom3.04in2008to3.00in2012.

Although nodeterioration could be detected, inmany countries theCPIA level isworryingly low.AccordingtotheWorldBank’sdefinition,alllow-incomecountriesthatscore3.2orlessontheoverallCPIA index are classified as fragile states:“Low-income Countries Under Stress” (LICUS) (WBG2011:4).In2014,thiswasthecasefor17sub-SaharanAfricancountries,halfofallIDA-eligiblecountriesin this region.22

Budget transparency

TheOpenBudgetIndex(OBI)evaluates–throughthoroughquestionnaires–theamountofbudgetinformationthatismadepubliclyavailable,mostlyfocusedoneightkeybudgetdocuments.23

In2012,theOpenBudgetSurveysummarisesitsfindingsasfollows(InternationalBudgetPartnership2012:iv):“TheOBI2012scoresarenotimpressive.”Amongtheselowscores,Africancountriesareevenunderperforming (see Figure 16).In2012,only8%oftheAfricancountriesintheOBIsampleprovidedtheircitizenswith“extensive” (SouthAfrica)or“significant” (Botswana) informationonthebudget

22 http://siteresources.worldbank.org/EXTLICUS/Resources/511777-1269623894864/HarmonizedlistoffragilestatesFY14.pdf

23 The eight document types are the pre-budget statement, the executive’s budget proposal, the enacted budget, the citizen’s budget, in-yearreports,mid-yearreports,theyear-endreportandtheauditreport.TheOBIscoresfrom0to100inthefollowingclasses:extensiveinformation:81–100,significantinformation:61–80,someinformation:41–60,minimalinformation:21–40,andscantornoinformation:0–20(InternationalBudgetPartnership2012:11,15).

Figure 16 OpenBudgetIndexrankings,2008and2012

Source:Authors’calculationbasedonOBI(2012)andOBI(2008)http://survey.internationalbudget.org/#

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process.IntheoverallOBIsampleof100countries,23%offerextensiveorsignificantinformation.Allovertheworld,41%ofthecountriesprovidedonlyminimalornobudgetdocumentationin2012–Africaformed64%ofthesample.However,evenifthesituationiscriticallyassessedbytheOpen Budget Survey, there are two aspects that point towardsmorepositivedevelopments:

• The basic documents were published in most countries in 2012. Ninety-two out of 100 countries published the enacted budget, 79theexecutive’sbudgetand78evenpublishedin-yearreports.Atrendtowardspublicationofalmostallreportsproducedcouldbeobserved,for example, citizens budgets were only produced in 24 countriesand all of those documents were published (International BudgetPartnership2012:15).

• The direction ofOBI development is clearly towards improvement,especiallyinthecaseofAfricancountries:Manycountrieshavemovedup the scale by providing more budgetary documentation to the public.Zambia,LiberiaandNigerevenmoveduptwostepsfrom“noinformation” to “some information”.

Comprehensive and transparent budgeting procedures

A more differentiated view on progress regarding the comprehensiveness and transparency of budget management in Africa can be gained by analysingPEFAdata.WithinthePEFAFramework,the“comprehensiveness

Box 7 GIZ support to budget transparency in Zambia

In a large systemic GFG approach, GIZ supports the ZambianMinistryofFinanceinreachingbettertransparency,accountabilityandequityinpublicrevenuemobilisationandpublicexpenditure.In2014,theZambianBudgetLaw2015waspreparedandforthefirsttime included a pilot on results-based budgeting with the budget oftheMinistryofEducation.Thisismeanttocreateasignificantincrease in budget transparency and also to enhance understanding of the budget content. GIZ broadly supports the Zambian process withthecreationofbudgetguidelines,consultancytotheMinistryofEducationtoformulateproducts/programmestobefundedoutofthebudget,sensitisationandothercapacity-buildingmeasureswith the parliament, and assistance in developing softwarecompliant with the new procedures. Furthermore, since 2014,GIZhassupportedthepublishingofthecitizen’sbudget,whichismeant to give Zambian citizens easier-to-understand information on the state budget.

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andtransparency”ofPFMsystems,proceduresandinstitutionsareassessedaccordingtosixindicators(PEFA2011):

• PI-5:Classificationofbudget

• PI-6:Comprehensivenessofinformationincludedinbudgetdocumentation

• P-7:Extentofunreportedgovernmentoperations

• PI-8:Transparencyofintergovernmentalfiscalrelations

• PI-9:Oversightofaggregatefiscalriskfromotherpublicsectorentities

• PI-10:Publicaccesstokeyfiscalinformation

SimilartoFigure 13onpage34,Figure 17showsthedevelopmentofPEFAscoresbetweentwocoun-tryreportsofasampleof18countries.Inthegeneralpictureofallindicatorsreflectingthedimension“Comprehensivenessandtransparency”,thetendencytoimproveismoreprevalentthanthetendencytodecline.However,therearelargedifferencesbetweencountriesandalsobetweentheindicators:

• PI-6: Comprehensiveness of information included in budget documentation: Most progress was reached on PI-6 regarding the improvement in comprehensiveness of budget documentation. Ten countries improved–MaliandSierraLeoneevenbytworatingsteps–fivecountriesmaintainedtheirlevelsand only three declined in performance.

• PI-10: Public access to key fiscal information: In this indicator, performance levelsweremaintained(twelve countries) or improved (five countries); only Mauritius declined by one scoring point.

Figure 17 Development of ratings on the comprehensiveness and transparency dimension in PEFAperformanceassessments24

Source:Authors’calculationsbasedondatafromthePEFAPerformanceAssessmentPortalhttp://pefa.org/en/assessment_search

24 AsinFigure13,page27,datacomparesthedevelopmentofratingsbetweentwoPEFAassessmentsfor18countries.Thenumber“0”meanstherehasbeennochangebetweentheratingsofthereports,1/-1indicatesanimprovement/areductionofonefullletter(suchasAtoB,BtoCetc.orBtoA,CtoB),0,5/-0,5variationstandsforanimprovementorreductionsuchasC+toBorBtoC+f.i.Thenumberofcasesshowshowmanycountriesshowasimilardevelopment.Thereportsdatesvary,andtworeportspercountryarecompared,withatleasttwoyears’difference.

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ThisunderlinestheconclusionsdrawnfromtheOpenBudgetIndexdataabove:perhapsslowly,butthedevelopmenttrendinthisareaispositive.

• PI-8: Transparency of intergovernmental fiscal relations showed mixed results: seven countries improved, six declined, and fourmaintainedtheir ratings.

• P-7: Extent of unreported government operations was the indicator with the least improvement: apartfromMali,whichmovedfromC+in2008toB+in2011,tencountriesmaintainedtheirlevels,andMadagascar,Ghana,TanzaniaandKenyadeteriorated.

• With regard to the indicators PI-5 (budget classification) and PI-9 (oversight of aggregate fiscal risk from other public sector entities), three countriesdeclined,fourimprovedandalltheothersmaintainedtheirlevels.

Focusingonthevariousratingsofindividualcountries,themoredetailedlook reveals that developments in performance vary vastly amongcountries:twocountries(BurkinaFasoandUganda)stagnated,three(theCongo,GhanaandKenia)countriesshowedonlynegativedevelopmentor stagnation, eight countries showed positive progress or stagnation,andfiveshowedpositiveandnegativedevelopmentinthesameperiod.Tanzania,forexample,improvedonthetransparencyofintergovernmentalfiscalrelationsandthebudgetclassificationbetween2011and2013,butthe ratings on comprehensiveness of the information included in the budgetandtheextentofunreportedgovernmentoperationsdecreased.

Enhancing capacity for governance in fragile situations

Seven out of the eighteen countries in the PEFA sample above arerated as fragile countries by theWorld Bank 2014.25 Fragility creates a challenge to GFG, and consequently the G8Action Plan for GoodFinancial Governance in Africa has highlighted the necessity to intensify the engagement in fragile states by establishing and strengthening keygovernmental functions, especially in the budget system, to enable theprovision of basic services and security for the population.

Germandevelopmentcooperationbased itspolicy in2013onthefivepeace- and state-building goals (PSGs) developed in theWBG’sWorldDevelopmentReport,2011,entitled“Conflict,securityanddevelopment”(BMZ2013:10):

• PSG 1: Legitimate politics – Foster inclusive political settlements and conflictresolution.

25 Burundi,DemocraticRepublicofCongo,Liberia,Madagascar,Malawi,MaliandSierraLeone

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• PSG 2: Security–Establishandstrengthenpeople’ssecurity.

• PSG 3: Justice: Addressinjusticesandincreasepeople’saccesstojustice.

• PSG 4: Economic foundations: Generate employment and improve livelihoods.

• PSG 5: Revenues and services: Manage revenue and build capacity for accountable and fair service delivery.

Revenuemobilisationandbudgettransparency–althoughthelatterisnotexplicitlymentioned–arethus also important topics in fragile states. The patterns observed in Figure 17 demonstrate that even underthedifficultconditionsoffragility,progressispossible.

Box 8 Supporting GFG in Burkina Faso

Background:AharmonisedframeworkforpublicfinanceintheWAEMU

In 2009, theWestAfrican Economic and Monetary Union (WAEMU) adopted several newdirectives aimed at improving and modernising the instruments used in the management of publicfinances in itseightmemberstates.Acentral featureof this initiative is toestablishaharmonisedframeworkforpublicfinancesintheWAEMU,i.e.introducingcommonstandardsfortheregulatory,accountingandstatisticalframeworksofeachmemberstate.Directive06/2009/CM/UEMOA,establishing FinanceLaws, in particular, has beenhailed as landmark legislation:itintroducesuniformrulesforthedrafting,execution,controlandmonitoringofthenationalbudget.

Alongwithotherimportantinnovations(e.g.accrual-basedaccounting),thedirectivecontainsprovisions on results-oriented budgeting and a multi-annual approach for drafting national budgets.Thesechangesareincludedinnewbudgetarydocuments,whichwillbeusedfortheformulationofdraftfinancelaws.Ultimately,thereform’sobjectiveistointroduceprogrammebudgetswithastandardisednomenclature.This,inturn,willstrengthentheconnectionbetweennationaldevelopmentgoalsandthebudget,enablebetterbudgetexecution,andwillimprovethequality,transparencyandcredibilityofpublicfinance.

Implementation steps: Towards a results-oriented programme budget in Burkina Faso

While the current status of transposition in domestic law is characterised by significantvariationsamongmemberstates,theprocessacceleratedrecently.AsaWAEMUmemberstate,BurkinaFasohascommitteditselftotheimplementationoftheabovedescribedlegislationatnationallevel.Indoingso,itissupportedbyGermandevelopmentcooperation.GIZexperts,inclosecooperationwiththeIMF,specificallyadvisetheMinistryofEconomyandFinanceinthefollowingareas:

• ReformofthebudgetsysteminlinewithGFGprinciples

• EnhancingthestrategicsteeringofreformbytheMinistry

• Strengtheningcapacityfortheexpansionofprogrammebudgetsinpublicinstitutions

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• Adjusting internal and external fiscal control for the resultsorientationrequirementbyintroducingefficiencyaudits

• Establishingtrainingoncentralreformissues

• Systematicallyintegratinggenderbudgetinginthebudgetcycle

In addition,GIZ supports non-state umbrella organisations thatworkforimprovedtransparency,accountability,gendersensitivityand a results orientation towards public resources. The aim is to strengthentheircapacityand facilitatetheirnetworking, therebyenablingactors incivilsocietytoexercisetheircontrol functionand to hold the government accountable.

Outcomes: What has been reached so far

Since GIZ started its advisory services in 2012, substantialreform success has been achieved: In a pilot exercise, all 41national ministries and institutions allocated their resources using programmebudgets. In 2014, anofficial programmebudgetwaspresentedtoparliamentforthefirsttime.Inaddition,threetrain-ing modules on results-based budgeting, gender budgeting andmacroeconomic analysis have been integrated into the course schedule of the National University for FinanceAdministration(ENAREF). Since 2014, 200 junior employees of the Ministryof Economy and Finance have been trained annually in resultsorientation. Furthermore, approaches towards analysing theimplementation of the national development strategy and public finances have been developed in cooperation with civil societynetworks.Nowadays,theinterestsofnon-stateactorsarebetterrepresented in the political dialogue with the government; citizen-oriented reports on the developmental impact of sector policies are published on a regular basis. In addition, pilotmeasures ongender budgeting by civil society have been launched at local level.

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BudgetarycontrolandoversightarethefoundingpillarsintheGFGsystem.ThereforetheG8ActionPlanforGoodFinancialGovernanceinAfricaincludesthepromotionof supreme audit institutions to assist their respective governments in improving performance and fostering the efficient and effective receipt and use of publicresourcesthroughincreasedcapacitybuildingmeasures.Inthischapter,anoverviewoverthemaindevelopmentsundertheInternationalOrganisationofSupremeAuditInstitutions(INTOSAI)thatarerelevantforAfricaandthedevelopmentofbudgetoversight by thenetworksofAfricanparliamentary committeeswill beprovided.Finally,thechapterwilldealwiththedevelopmentoftheUnitedNationsConventionagainstCorruption(UNCAC)inAfricaandtheextenttowhichthedevelopmentof budget oversight inAfrica is reflected in performance assessments on publicaccountability.

INTOSAI developments in the African context

Supreme audit institutionshave a long traditionof international cooperation andcollegialsupportintheformofprofessionalnetworks.TheINTOSAIanditsregionallanguage groups cover any subjectmatter that could arise while developing andimprovingexternalaudits.Amultitudeofcommitteesandworkinggroupsdevelopstandards, guidelines, evaluations, training material and much more.26 Important milestones have been created with much commitment and many contributions by AfricanSAIssince2007:

Endorsement of the International Standards of Supreme Audit Institutions (ISSAI)

TheISSAIhasbeendevelopedoveryears,andwasofficiallyendorsedattheXXthINTOSAI Congress in Johannesburg, SouthAfrica, in 2010.The ISSAI frameworkconsists of a comprehensive set of standards (ISSAI) and INTOSAI guidance(guidelines) on good governance (INTOSAI GOV(s)).The ISSAIs cover foundingprinciples(LimaDeclaration),prerequisitesforthefunctioningofSAIs,fundamentalauditingprinciplesandauditingguidelines.TheINTOSAIGOVsareaimedmainlyatmanagersinthepublicsector,andprovideguidelinesoninternalcontrolinordertoencourage good governance in the public sector.

Enhancing budgetary oversight and fighting corruption

6

26 See the INTOSAI organisational chart 2014: http://www.intosai.org/fileadmin/downloads/downloads/3_committees/Chart_February_2014_E.pdf

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TheISSAIframeworkthusprovidesthecommonreferencedocumentforbuildinganddevelopingSAIsandforimplementingpublicsectoraudits.

Development of the SAI Performance Measurement Framework

Given the common reference framework of the ISSAIs, it followsthat it would only be consistent to create a basis for measuring SAIperformance and country-specific external audit settings against theISSAIs.Consequently, inJuly2013,theofficialexposuredraftoftheSAIPerformance Measurement Framework (SAI PMF) was issued. It wasdeveloped by the INTOSAIWorkingGroupon theValue andBenefitsofSAIs(WGVBS),headedbytheOfficeoftheAuditor-GeneralofSouthAfrica. Itwillbesubjecttoconsultationsandpiloting inthenextyears;thenextversion isplannedtobepresentedattheINTOSAICongressin 2016.

TheSAIPMFismeanttoevaluatehowwellaSAIperforms,comparedto international good practices. It can be used for self-assessment, forpeerassessmentsbyanotherSAIorbytheINTOSAIbody,andalsoforexternal assessments by consultants, development partners, externalauditorsorotherexperts(SAIPFM2013:8).

Inthedevelopmentphase,theSAIPMFhasbeentestedinDjiboutiandSierraLeone(andNorway).Forthepilotingphase,twoAfricancountrieshavevolunteeredtousethemethodology:MozambiqueisinprogressandBurkinaFasohasconductedaSAIPMFinApril2015(WGVBS2014,s.9).

INTOSAI Development Initiative (IDI)

TheIDIwasestablishedin1986,hostedbytheSAIofCanadauntil2000,and since2001by theOfficeof theAuditor-GeneralofNorway. Sinceits establishment, the IDI has been responsible for delivering seminarsandcoursestoSAIsofdevelopingcountries,mainlyinthefieldofpublicauditing.With international development cooperation providing betterimpact orientation to its interventions, the IDI approachmoved fromtrainingtowardsabroaderunderstandingofcapacitybuilding.Since2007,the IDI has thus started to develop more comprehensive programmes withtheobjectivetostrengthentheSAIsasinstitutionsandtobuildthecapacityof theprofessionalSAI staff. In2010, the IDI alsobecame theSecretariatfortheINTOSAIDonorCooperation.ThenumberofdonorssupportingIDIincreasedfrom15membersin2009to21in2013.

TheIDI’sself-evaluationin2013showedthatsince2009,ithadsuccessfullyimplementedprogrammesindevelopingcountries,andwaswellrecognisedamongdevelopmentpartnersandSAIs(SwedishDevelopmentAdvisors2013:42).TheevaluationrecommendsthatinfuturetheIDIshouldratherworkthroughtheregionalINTOSAIgroupsthanworkingandmeasuringperformanceattheSAIlevel(ibid.).

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Commitment of African SAIs to INTOSAI

AfricanSAIsmakesignificantcontributionstoINTOSAIactivities:

• The INTOSAICapacityBuildingCommittee (CBC) isheadedby theSAIofSouthAfrica.CBC’smaintasksaretobuildthecapabilitiesandprofessionalcapacityofSAIsthroughtraining,technicalassistance and other development activities.

• TheINTOSAIWorkingGrouponExtractiveIndustrieshasbeenheadedbytheSAIofUgandasince2013.AcooperativeauditofsevenAfricanSAIs,targetedatextractiveindustries,isplannedtobeconducted from 2015.

• TheINTOSAIWorkingGrouponIllicitFinancialFlowsandAnticorruptionisheadedbytheSAIofEgypt.

TheINTOSAInetworkoffrancophonecountrieshasactiveandinfluentialAfricanmembers,aswellastheArabOrganisationofSupremeAudit Institutions(ARABOSAI)andtheINTOSAInetworkofPortuguese-speakingSAIs.

The role of parliaments in budgetary oversight

Budgetsusuallyarelaws,andparliamentsarethustheresponsibleorgansinstatestolegallyapprovethegovernmentalfinancialplanning.Parliamentscaninfluencethebudgetcycleatdifferentstages:

• During parliamentary budget hearings, parliaments may influence equity in budgetary resourceallocation.Theyshouldensurethatimportantpolicygoals,suchaspovertyreduction,arereflectedin the budget.

• They may also control the technical solidity of proposed budgets.

• Parliamentsmaycontinuouslyfollowupontheperformanceoftheexecutiveagainstitscommitments,ratherthanonlyonceayearwhentheauditoffice’sreportispublished.

• Inclosecooperationwiththeauditoffice,media,andcivilsociety,theyareabletotakeactionagainstmismanagement and corruption.They can introduce consequences for the budgets of sectorsperforming badly.

• Theycanmakecorrectionstothelegislativeframework,therebystrengtheningreforms.

Overall, the involvementofparliaments in thebudgetprocess informschoices forfiscalpolicyandensuresexecutiveaccountability.AlthoughitisclearthattheroleofparliamentsispotentiallycrucialforthesoundmanagementofpublicfinanceandGFG,ithasoftenbeenneglectedinthepast.TheG8GFGActionPlanforGoodFinancialGovernanceinAfricamentionsparliamentsonlybriefly–andliststhemamongthe“relevant”institutionsamongwhichanexchangeofexperiencesshouldtakeplace.

The extent to which the legislative arm of government influences the final budget in practice isdeterminedbyhistorical,constitutionalandpoliticalfactors,aswellasthelegalandproceduralaspectsof the budget process itself. Another determining element is the overall legislative organisational structures and processes (Parliamentary Centre 2010:5).The often weak role of parliaments is a

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recurrentfeatureofAfricanpoliticalsystems.Often,thelegislaturedoesnot use the abovementioned opportunities in the budgetary cycle as a resultofnon-conducivelegalframeworkconditions,butalsobecauseofweakcapacityofparliamentariansandtheirsupportstructure.

However,progresshasbeenmadeinrecentyears:parliaments,forexamplethoseinGhana,Kenya,UgandaandSouthAfrica,havestrengthenedtheirlegislative finance and budget oversight.This includes the emergenceof committee systems to shadowministers, the strengtheningof thesecommittee´s positions in certain processes and the development ofprofessionalstaff(Heinrich-BöllStiftung2012:4).

The increasingly active role of African legislatures vis-à-vis executiveactions,includingtheireffortstoenhanceoversightofthebudgetprocess,scrutinise allocationsandmonitorexpenditure,hasbeen supportedbydonors,thusleadingtoamoreintegrativeapproachtothepromotionofpublicfinancereform(seeBox 9).

Box 9 Good Financial Governance and support to parliament in Ghana

Germany has been supporting Ghana in improving its public finance system since 2003. Based on its integrated approach,GDCiscooperatingcloselywiththeMinistryofFinanceinGhana,the highest-level tax administration, the national procurementauthority and the parliament.

Within this context, German technical cooperation providesadvice on implementing Ghana´s national Poverty ReductionStrategy(PRS),ontheresponsibleandtransparentuseofrevenuesand thecreationofa transparentandefficient taxsystem.Withregard to specific assistance to the legislature, the parliament´spublic accounts committee (PAC) is supported in its oversightresponsibilitiesforgovernmentexpenditure(jointlywithUSAID).In this context, funds and technical assistance are provided tothe PAC, which are used for the implementation of capacitydevelopmentactivities,advisoryservices,publichearingsandpeer-to-peerlearningwithpublicaccountscommitteesofotherWestAfrican countries.

OnethematicfocusinGhana,aswellasinotherGFGprogrammessupportedintheregion,istostrengthentheroleofparliamentsand audit offices in controlling natural resource revenues.Revenues stemming from the natural resource sector are not efficientlycontrolled,becauseofthelackofcapacityonthepartofparliamentsandauditofficesandtheabsenceofeffectiveguidelinesforaction(BMZ2014:14).

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Oneofthemostimportantchallengesforthelegislature’sworkonthebudgetisthehighfluctuationofmembersof parliament and their lackof expertisewhen it comes topublic finance issues.Thevastmajorityofparliamentariansarenotbudgetexpertswhenelected,andhenceneedtoeducatethemselvesinthisfield,especiallyiftheyaretoworkinthebudgetorpublicaccountscommittee.

The administrative support structures can play a crucial role in enhancing the budgetary oversight functionsofparliamentsiftheyenableparliamentarianstofulfiltheirrolesmoreeffectivelyandpro-videlong-standingexpertiseevenwhenthereisahighturnoverinparliamentarians.Anindependent,non-partisansourceofbudgetinformationcreatedinparliament,suchasthebudgetofficesinKenyaandUganda,canprovidehelpfulsupport.

Africannetworksofpublicaccountscommittees–SADCOPAC,EAAPAC,theWestAfricaAssociationofPublicAccountsCommittees(WAAPAC)andpossiblyinfutureAFROPAC–havebeenbeneficialinenhancingtheroleofparliamentsinbudgetaryoversightbyextendingtheirwork(seesection 3.2 and Box 2).

The former Human Capacity Development (HCD) GFG in Africa programme supported thestrengtheningoftheinstitutionalcapacityofthePACnetworksofsouthernandeasternAfrica.SeveralHCDapproachesareutilisedtosupportthenetworks.Theseincludecommunitiesofpracticetofosterpeerlearning,aswellasthedevelopmentofmanuals,advancedtrainingandworkshops.ThisworkiscurrentlytakenupagainwithabroaderfocusonallAfricanregionsandabroaderstakeholdergroup,including all relevant committees and forms of parliamentary support structures.

Box 10 StrengtheningtherelationshipbetweenPACsandSAIsthroughregionalinitiatives

The relationshipbetweenPACs andSAIs is crucial toensure theeffective controlof publicexpenditure.Inmanycountries,however,SAIsandPACsdonotsufficientlyinteractanddonothaveadequateknowledgeabouteachother’srolesandexpectations.Inthe2009surveyofPACsinselectedcountriesofSADC(SAD-COPAC2009:34),forexample,thefollowingwasfound:

• 67%ofparticipatingPACsreportedthatSAIsdidnotattendpublichearings

• 22%indicatedthatSAIsdidnotbriefnewPACmembersonthefunctionoftheSAI,norontheSAI-PACrelationship

• 11% felt that SAIs did not sufficiently brief PACmembers on the contents of the auditreports

As a result, reports presented to PACs often do not fully meet the expectations of thesecommittees. PACs also sometimes struggle to know how best to use the reports to holdgovernmentaccountable.However,theinteractionbetweenthesetwogroupsofstakeholdersof the accountability framework is crucial to ensure effective scrutiny of governmentexpenditure.Therefore,AFROSAI-EandGIZdecidedtosupportanglophoneAfricancountries’SAIsinenhancingtheircommunicationwithPACsbydevelopingacommunicationtoolkit.Thetoolkit´sdevelopmentanddisseminationwascarriedoutinatwo-phasedsupportprogramme,which included severalworkshops to train staff, aswell as toconduct follow-upand reviewmeetings in different countries (Lesotho, Zambia, Uganda, Kenya, Zimbabwe and Namibia)(GIZ 2014).

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Furthermore,theGFGinAfricaprogrammehassupportedAFROSAI-EinfurtherdevelopingatoolkittoenhancecommunicationbetweenSAIsandPACs(seeBox 10).Thistoolkittargetstheinteractionbetweencorestate institutions responsible for budgetary oversight.

Since 2008, the role of parliaments in budgetary oversight has overallincreasingly been recognised, and African parliamentarians have alsoincreasingly assumed their responsibility.

Performance in anticorruption and accountability assessments

UNCAC compliance

The UNCAC is the most comprehensive of all the anti-corruptionconventions and has been signed by 170 countries by 2014 (Transparency International & UNCCAC Coalition 2014:7). It establishes commonstandards,policies,processesandpracticestostrengthenanticorruptioneffortsatthenationallevel.MostgovernmentsinAfrica(35)hadsignedtheUNCACalreadyin2007,theDemocraticRepublicofCongo(DRC),LiberiaandGuinea-Bissauhadratifiedbutnotsigned it,andMauritaniahadaccessedbutnotratifiedit.Sincethen,Burundi,Botswana,DRCandNiger have ratified it, but have not signed yet. Furthermore,GermanyratifiedUNCACin2014,11yearsafteraccessingitin2003.

6.3

Table 6 PublishedandunpublishedAfricanUNCACreviewreports, 2010-2014

Self-assessments

Rwanda (Y1),Tanzania (Y3),Botswana(Y4),Nigeria (Y4)

Full reviewreports

Burundi(Y1),Rwanda (Y1),Tanzania (Y3),Botswana(Y4)

Executivesummaries

Y1:Burundi,Morocco,Niger,Rwanda,Togo,Uganda,Zambia,Y2:Cameroon,Benin,CentralAfricanRepublic,Congo,Mauritius,Mozambique,SierraLeone,SouthAfrica,ZimbabweY3:Angola,BurkinaFaso,Djibouti,Ghana,Mauritania,Tanzania,TunisiaY4:Botswana,Côted’Ivoire,DRC,Egypt,Ethiopia,Guinea,Guinea-Bissau,Kenya,Liberia,Libya,Madagascar,Malawi,Namibia,Nigeria,Senegal

Y1=2010/11,Y2=2011/12,Y3=2012/13,Y4=2013/14,Y5=2014/15

Green: Document available

Black: Document not available yet

Source:EddieRich,EITISecretariat,inITC(2014:45)

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In2009,attheoccasionoftheUNCACConferenceoftheStatesPartiesinDoha,areviewmechanismtotheUNCACwasdecideduponandanImplementationReviewGroupwasestablished(UNODOC2011:ToR,IV.C).Thereviewprocesscoversaself-assessmentthroughastandardisedchecklistandapeerreviewbytworeviewingcountries(ibid.:ToR,p.7f.)

Thereviewprocessisplannedtobeconductedintwofive-yearcycles:27Thefirstcycle(2010–2015)coversChapterIIIoftheUNCAConcriminalisationandlawenforcementandChapterIVoninterna-tionalcooperation.Thesecondcycle(2015–2020)willcoverChapterIIonpreventivemeasuresandChapterVonassetrecovery.

Since2010,38AfricancountrieshaveundergonetheUNCACreviewprocedure.Mostofthedocu-ments are not publicly available (see Table 6above).Onlyfourcountries–Burundi,Rwanda,TanzaniaandBotswana–havemade their full peer review reports publicly available. Similarly, aminorityofcountries have provided their executive summaries. Consequently, it is still difficult to assess theimplementationofUNCACinAfricancountries.

Development of CPI

BasedonthedevelopmentofthescoresgivenbyTransparencyInternational’sCorruptionPerceptionIndex (CPI), it canbe concluded that theoverwhelmingmajorityofAfrican countries experiencedan improvement in the perception of corruption (see Figure 18)intheperiod2007to2013.Outof52Africancountries,40improvedbetweenthe2007and2013CPIreports.Onascaleof0(highlycorrupt)to100(clean),twentycountriesimprovedby1to5points,fifteenby6to10pointsandfiveby more than 10 points.

However,thefactthatmostAfricancountriesstillrankedratherlowin2013shouldnotbeignored.Onlyfiveexceeded50points,andmorethanhalfofAfricancountries(28of52)scored30pointsandlower. There is still much room for improvement.

Figure 18 DevelopmentofCPIscoresinAfricancountries,2007to2013

Source:Author’scalculationbasedonTransparencyInternationaldatahttp://www.transparency.org/research/cpi/overview

27 Seehttp://www.uncaccoalition.org/en/uncac-review/uncac-review-mechanism

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Accountability performance measurement

The IIAG measures “accountability” on a broad base using nine indicators (IIAG2014:34):

• Accountability, transparency and corruption in the public sector ingeneral

• Accountability,transparencyandcorruptionintheruralsector

• Corruptionandbureaucracy

• Accountabilityofpublicofficials

• Corruptioningovernment

• Corruptionofpublicofficials

• Prosecutionofabuseofofficeanddiversionofpublicfunds

• Public sector corruption bodies

• Public access to information

Withthisratherbroadviewonaccountabilityperformance,thescoresofmost African countries measured on the IIAG decreased between 2009 and2013,andonlyathirdofAfricancountrieshavemadeimprovements.Interestingly, most improvement was made around the scoring scale’smedian (40 points). This was the case for the very low-scoring countries aswellasthestrong-performingones.Scorestendedrathertodecreasethan to improve.

The regional averages (see Table 7)revealthatCentralAfrica,althoughrankedvery low, achieved apositivedevelopmenton averagebetween2009and2013,whereasallotherregions’scoresdecreased,andEastandNorth Africa moved below the overall African average of -1.5 points.

Table 7 RegionalaveragesofIIAG2013andchangessince2009

Source:IIAGdatasethttp://www.moibrahimfoundation.org/iiag/data-portal/

Africa 38.9 -1.5

CentralAfrica 25.6 +0.1

SouthernAfrica 50.4 -0.7

Sub-SaharanAfrica 39.2 -1.1

WestAfrica 40.0 -1.3

EastAfrica 35.6 -2.1

North Africa 37.2 -4.3

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TheassessmentoftheWBGCPIAratingon“transparency,accountabilityandcorruptioninthepublicsector”isslightlybetter.Itmeasuresthreedimensions:

• The accountability of the executive to oversee institutions and of public employees for theirperformance

• Access of civil society to information on public affairs

• Statecapturebynarrowvestedinterests.28

Inthisanalysis,thescoresofthevastmajorityofAfricanIDAcountriesstagnatedbetween2008and2012:25of37countries;sixcountriesexperiencedanimprovementandsixadeteriorationintheirscores.

Overall,thesupportframeworktoSAIshasevolveda lotsince2007. It isnotpossibletoattributeaccountabilityassessmentsortheCPItospecificpoliticalchanges,butonlytodescribetheparallelincidences measured by different sources. Based on the data reviewed, it can be said that someprogressisvisibleattheleveloftheCPI,whereasperformanceonaccountabilitystilldoesnotshowabreakthrough.

28 Itassessestheextenttowhichtheexecutivecanbeheldaccountablefortheuseoffundsandtheresultsofitsactionsbytheelectorate,thelegislature,andthejudiciary,aswellastheextenttowhichpublicemployeesintheexecutivearerequiredtoaccountforadministrativedecisions,useofresources,andresultsobtained(seehttp://databank.worldbank.org/data/views/reports/metadataview.aspx)

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Summaryoffindings

This report has described a multitude of aspects characterising the developmentofGFGinAfricasince2008.Onaggregate–andbasedondatacollections, theperformanceassessmentsandthesampleofPEFAreportsanalysed–thefollowingcanbesummarised:

Background to GFG development

• Most African economies performed well, with growth ratesinAfrica above theworld average after the financial crisis in 2008.Inflationhasremainedunder6%inmostyearsafter2009,andthefiscalbalance is slowly recovering. Investment-to-GDP ratios are growing again,andforeigndirectinvestment(FDI)hasalsorecoveredafterthefinancial crisis.The economic background toGFG reform is slowlyimproving – albeit with large variation among countries.

• Positive economic developments have only partly reached the poor.Muchhas beendone to achieve theMDGs, and in some areasandsomecountriesprogresshasbeen impressive,especiallyregardingprimaryenrolmentratesandcontainmentofHIVandmalaria.However,many countries lag behind and most of the MDG targets have not been met.Further,climatechange isathreattofightinghunger,and incomeinequalityremainsveryhigh.ThechallengingsocialsituationputspressureonAfricangovernmentsforstructuralreform,asneededforGFG.

• Fragility remains an important factor for public sector reforms in Africa. ThevastmajorityofAfricancountriesratesasextreme,highorserious fragility intheStateFragility Index,andcorrespondingly,sub-SaharanAfrica has theworld’s highest average score under that index.Politicalcrisesisasignoffailing(financial)governanceandbutalsoleadstothefailingoffinancialgovernance.Thus,ontheonehand,statefragilityparticularlyneedsimprovementsinthedirectionofGFG,andontheotherhand,fragilitycreatesaratherchallengingbackgroundtoGFGreforms.

Therefore, GFG reform in Africa can build on a positive economicperspectivetosomeextent,butpoliticalandsocialdevelopmentremainchallenging. These conditions have not changed fundamentally since 2007.

Multilateral and bilateral development cooperation

• ODA to Africa is – different to the overall trend – still increasing,and includes a slight increase in CPA. However, the portfolio ofdevelopmentcooperationcontributionshasbecomemorecomplex–there are new non-ODA providers and more non-ODA contributions of DAC donors.This might challenge aid effectiveness in future, forexample,regardingclimatechange-relatedfundingandsupport.

Summary and conclusions 7

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• DevelopmentofthesupporttoGFGsince2007isnotreflectedwellinODAdata,evenifrestrictedtothesupportaimedatPFMreform.Contributionsseemtoberathervolatile,whichinterfere with reforms targeted at GFG.

• AlthoughGFGisamatterofcapacitydevelopmentsupportratherthanrequiringlargeinvestments,theODA data on technical assistance provide a limited picture of the development since 2007. Bilateral support to GFG has grown rather strongly,butvolatilitycanalsobeobservedinthedata.

• The activities of the AFRITACs (IMF) have expanded considerably throughout Africa since 2007, with the founding of three new technical assistance centres.The activities have beenscaled up massively. This was made possible by increasing support through other multilateral and bilateraldonors.TheAFRITACsand their steeringstructureprovidepossibilities to improvedonorharmonisationontechnicalassistanceinPFMissues,buttheyalsocreateariskofcompetitiontothecapacity development services that the regional professional GFG organisations develop and provide for their members.

• ThreemajordevelopmentsofGDCcooperationinthefieldofGFGsince2007standout:

o Thenumberofprojectsandtheirvaluehaveincreasedsignificantly.

o This increase has been most important in Africa.

o There are few stand-alone programmes left – most programmes operate according to a holistic GFG approach.

• The importance of the professional GFG networks as platforms for exchange has increasedsignificantlyinrecentyears; this is also partly true for their role as service providers fortheirmembersandascollaborationpartnersfordevelopmentassistanceinthefieldofGFG.Theroleofthenetworksascommunitiesofpracticetoshareexperienceswithreformprogrammeshasgrownstronger.Thenetworkshaveallincreasedtheiroutreachtotheirmemberandtargetorganisa-tions.Thesenetworksreceiveincreasingrecognitionfortheirworkworldwide,andasaconsequence,strengthen the representation of Africa in international dialogue and processes. This is an important contribution to the perception of the importance of GFG for countries’ development processes.

• GFG is linked to aid effectiveness issues,andthisisavasttopic.Thisreporthasstudiedtheuseofcountrysystems,thecoordinationofdonorPFManalyticalworkandAfricanleadershipandcommitment to GFG.

o Since 2007, the policy frameworks guiding planning and budgeting, as well as aid delivery, have improved greatly on the side of partner countries. On the development partners’side,however,a decrease in the use country systems across the board can be observed. Furthermore,directlinkbetweenthedevelopmentofPFMcountryassessmentsandtheuseofcountrysystemscanbeconfirmed.Theremustbeotherreasonstoguidedevelopmentpartners in their decision to use country systems or not.

o Although the use of country systems is decreasing, thePFM analytical tools in use have multiplied. ItisalsopossiblethattheincreaseinthedevelopmentandsubsequentuseofPFMassessmentshasledtomorecarefulconsiderationtousecountrysystems.PEFAasassessmentframeworkhasbroadeneditsworkingbase.Itcouldserveasaharmonisedanalyticalframeworkfortheincreasinginformationneedsofdevelopmentpartners.However,thecoordinationofanalyticalworkatdonorheadquarterlevel–suchasthePEFASecretariatinWashington–hasprovedtobeineffective in the past. The coordination of activities needs to be agreed upon at the country level inclosecooperation–orbetter,undertheguidance–oftheministryoffinanceinvolved.

o African leadershiponGFGhasbeen reaffirmed since 2007 at the highest level. The latestoccasionwastheCommonAfricanPositiononthePost-2015Agenda.However,high-levelbackupoftenismissingatgroundlevelandwhileimplementingGFGreforms.

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Revenue mobilisation

• Revenue mobilisation has been a core topic on the international agenda since 2007. The coordination and dialogue networks on thetopichaveexpandedandintensifiedtheirwork.

• Taxcollectionhasnotimprovedinabsoluteterms.The tax-to-GDP ratio on the African average has decreased since 2007.

• Nevertheless, the work of the tax administrations has improved. Administrations’relationshipswithtaxpayers, inparticular,improved,asmeasuredbythetransparencyoftaxpayers’obligationsandliabilities.Taxpayerregistrationprocesseshavealsobeenassessedwithbetterscores.Thechangeissmall,butanobservabletrendisprogressinthecollectionoftaxpayments.Thisdoesnotshowinthemacrodataontaxcollection,whichmightimplythatthetax-to-GDPratiocouldhavedecreasedevenmorewithoutthetaxadministration’sefforts.

• In the extractive industries’ sector, revenue governance is still very weak in most resource-endowed African countries. However, the implementation of the EITI is a greatAfrican successstory. Most candidate countries were compliant by 2014, and thenumberofcountriesaffiliatedwiththeEITIhasincreasedconsiderablysince2007.ThenewEUCBCRstandardswill complement theEITIprogress.

Budgeting procedures

• ThequalityofbudgetaryandfinancialmanagementinAfricahas improved only in a few countries,andmostothersstagnatedatlowlevels.TheaverageCPIAonthequalityofbudgetaryandfinancialmanagementslightly improved from3.04to3.00between2008and2012.CountrieswithanoverallCPIAbelow3.2areclassifiedasfragilebytheWorldBank.

• Budget transparency does not receive positive assessments at the aggregate level, but the basic documents are published in most countries and the trend is positive.

• Furthermore, the budget procedures, as rated by PEFA assessments under comprehensiveness and transparency, show a positive trend in most countries. Information included in the budgets seems to have improved in many countries, andpublicaccesstokeyfiscal informationdidnotdeteriorate.Aslightlystagnatingornegativetrendisobservedfortheextentofunreportedgovernment operations.

The trend for establishing transparent and comprehensive budgeting proceduresthusseemstobepositive.However,progresswasslowandvery reluctant in crucial areas: If parts of the government operationsremainbeingunreported,theincreasingpublicaccessoffiscalinformationcannot lead to more transparency.

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Budgetary oversight and anti-corruption

• INTOSAI and its working structure (committees and working groups) have intensively developed a framework to guide and support supreme audit institutions. AfricanSAIshavebeenactiveandinfluentialinthisprocess.

• The role of parliaments in budgetary oversight has increasingly been recognised and African parliamentarians have increasingly assumed their responsibility.

• Budgetaryoversight,however,doesnotdirectlyleadtoanticorruption:

o TheUNCAChasbeensignedbymostAfricangovernmentsandalsomostlyratified.The38signatoriesinAfricahaveundergonetheUNCACreviewprocedure,butthereportsare–contrarytotheUNCACtarget–oftennotpublished.

o Since 2007, the CPI has improved in 40 of 52 African countries.Their rankings stillremain low.

o However, accountability measured by the IIAG with nine corruption-related indicators shows deterioration in two-thirds of African countries between 2009 and 2013.

Since2007,theroleofSAIsandparliamentshasbecomemuchmorevisible inthefieldoffinancialgovernance. Furthermore, support structures to strengthen these institutions have been furtherdeveloped.The accountability and anticorruption performance measurements, however, still showmixedresults.

Conclusion

Averybroad landscapeof findingswas summarisedwith regard to thedevelopmentof indicatorsassessing different aspects of financial governance, its support through development cooperationand theregionalprofessional initiativesasumbrellas forPan-Africancooperation in thefield.Fromthehelicopterperspective,thepictureshowsimprovementsinsomeareas–mostlyatthetechnical,administrativeandattheaffirmativelevel–buttheimpactdoesnotconvincinglytranslateintoGFGcountryperformances.Thequestionis:Why?

Methodological aspects

Ifonedoesnotseeconvincingimpact, itmightalsobeamethodologicalproblem.Indeed,someas-sessmentsdescribedseemedtobeabitcontradictiveattheconceptuallevel:

• The non-matching of progress in tax administration and the averages in tax collection yields serveasanexample.Milestones in taxadministrations inAfricahavedefinitelybeenrealisedsince2007–improvementsweremadetotaxinformationsystems,andmostadministrationsnowhavelarge,functionaltaxpayerdepartments(someareevengettingfamiliarwithtransferpricingissuesandimprovingtheirpositionvis-à-vismultinationalfirmsandmuchmore).Whetherandhowfarthosereformsdotranslateintoincreasedtaxcollectioncouldandshouldbeatopicformoredetailedresearch.

• Another example is given with the anticorruption assessments:Whereas the perception ofcorruption (CPI)has seenaclearpositivedevelopment, the IIAGasclearly shows thecontrary.Doesthismeanthatcorruptionisprevalentorevenspreadingfurther,butisnotexperiencedinthiswaybycitizens?

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Perhaps the assessment data are comparable only to a limited extent.Ifthiswasthecase, itwouldbeimportanttoknowwhyandtheexactdimensions.Thisishighlyrelevant,becausetheassessmentlandscapehasmultipliedsince2007,andthoseassessmentsareusedforpolicydialogue,asbackgroundtogovernmentalnegotiations,andeventuallytoinfluencethe commitment of funds as well as the choice of the mode of delivery.

Political economy, resistance to change and the aspect of time

Thestudyconcentratesontheperiod2008to2014.This isnota longperiod for reforms in the financial governance system. Such reformsimply legal changes, possibly even constitutional reform, and in-depthorganisational development in public administration. They cannot be expectedtoshowsuccessfulresultsoveroneortwoprojectcyclesofdevelopment assistance.

GFG reform touches the interests of different groups – politically,regionally and personally. Under democratic conditions, this requirespolitical bargaining processes that need windows of opportunity to advanceandmaytakeyears.FromtheFederalRepublicofGermanythereareextremeexamples.Ittookalmost20yearstodecideonthefirstpartof thefinancial constitution reformnecessaryafterunification in1989,and until today the reform only covers the distribution of responsibilities between government levels – the reform of the principles for resource allocation are yet to be discussed and decided.Another example: atadministrativelevelittookmorethan25yearsfromthefirstinitiativestoharmonisetheinformationsystemsofthetaxadministration,becausethecooperationofallfederalstateswasrequired.Thus,whatseemstobea technical issue might imply strong political resistance for a multitude of reasons,andthismayneedtimeforprogressingreform.

Furthermore, public administration is not known for its dynamics, andtheconditionsinwhichmanypublicservantsinAfricaworkareusuallyrather difficult: a salary that hardly allows bringing up a family, tinyofficessqueezedwithstaff,difficulttechnicalconditions,andbottleneckorganisations that do not favour personal initiative are among many other limiting factors.So,even ifareformfindspolitically soundsupport, theimplementation at administrative level will be rather challenging. All public financeadvisorsknowhowimpressivethecommitmentofpartnersoftenis,giventheirworkingconditions.

Thismeans: If one does not see impact at the aggregate performancelevel,itmightbeforthereasonthatsevenyearsareatooshortperiodfor impact to materialise.

Support to GFG reform: Are the right things being done?

CitizensofAfricancountries,however,donotwanttowait25yearstosee the performance of their governments improve, and contributing

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development partners might also want to see some progress in the short-run.

Ifpoliticaleconomyfactorsandreasonsforresistancetochangearerecognised,somequestionsonthedesignofsupportprogrammesare implied:Doesthesupporttofinancialgovernanceprioritisethoseareaswhereprogressispossibleunderthegivenpoliticalcircumstancesinacountry?Doesitplan for procedures that can be managed by the administration in its actual state – and not only after a generationthatreceivedallkindsoftraining?Aretheinvestmentsininformationsystemsdesignedtobemanagedpermanentlybytheadministration?

Torespondtothoseconcernsandstillrespectthepoliticalcontext,itwouldbehelpfultodevelopapathforGFGreformsthatisbasedonrealisticsequencing,andthatisstrictlyrelatedtothecountry-specifichistoryandconditions.Therequestforsuitabilityofsupportapproachesisnotnew,butthereisampleevidencefortheirrelevance:

… and are things being done right?

All in all, this study has provided some evidence that progress in aid effectiveness issues has notmaintained the emphasis and commitment it used to have after the Paris Declaration in 2005. The CABRI,AFROSAIandATAFStatusReportonGFGinAfricaoutlinedalargeneedtoovercomethenegativeimpactsofunduedevelopmentpartnerinfluenceonreformsinfinancialgovernance.Theseimpactsmay includeahighdependencyondevelopmentpartnersandtheirconsultants,alongwiththe suppressionof local capacity and initiative, projects thatmaynot be timelyor appropriate forthecountryconcerned,costly“big-ticket”programmesthattakeupreformspacewithoutsufficientlocalownership,unrealisticassessmentsofthecapacityrequiredandoftimeframesforreform,andunmanageablereformloads,sometimeswithcontradictoryoroverlappingreformactivitiesrequiredbydifferentdevelopmentpartners(CABRI,AFROSAI&ATAF2011:11).

The GFG systemic model provides the conceptual framework to understand the many factorsinfluencingfinancial governanceand their interrelation, and tomanage the resulting complexity forsupport.Sinceitsintroductionin2009,theGIZapproachtocapacitydevelopment(CapacityWorks)hasproved tobeespeciallyvaluableandsuitable formanagingchangewithin thecomplexfinancialgovernancenetworks.

African leadership needed

Toovercome“unduedevelopmentpartners’ influence”,much stronger leadership from theAfricansideisneeded.Progressinfinancialgovernanceisanessentialgovernmentresponsibilitythatcannotbedelegatedor–inthelongrun–beexcusedbyexternalfactors.ItistheresponsibilityofAfricangovernments to use the development support in a way that induces progress and does not interfere withthefinancialgovernancesystem.Inappropriateconsultanciesandcontributionsmayberejected,andreformactivitiesshouldbecoordinatedundertheownershipoftheministryoffinance.

In summary, the responsibilitiesof development assistanceproviders and recipient countries comedowntooneofthemostimportantaidefficiencydirectives,renewedintheBusanPartnership(para.11.d):“Mutualaccountabilityandaccountabilitytothe intendedbeneficiariesofourcooperation,aswellastoourrespectivecitizens,organisations,constituentsandshareholders,iscriticaltodeliveringresults.”

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United Nations (2002), Report of the International Conference on Financing for Development,Monterrey,Mexico,18-22March2002(A/CONF.198/11,chapter1,resolution1,annex)

UNODOC(2011),MechanismforthereviewofimplementationoftheUnitedNationsConventionagainstCorruption—BasicDocuments,NewYork

WBG(2011),InformationNote:TheWorldBank’sharmonizedlistoffragilesituations,Washington

WBG (2013), Africa’s Pulse – An analysis of issues shaping Africa’s economic future,Volume 7,Washington

WBG(2014),CPIAAfrica–AssessingAfrica’spoliciesandinstitutions,OfficeoftheChiefEconomistfortheAfricaRegion,Washington

WGVBS(2014),WorkingGroupontheValueandBenefitsofSAIs,PresentationonSAIPMF,March

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Annex 1

Potsdam,19May192007

G8 ACTION PLAN FOR GOOD FINANCIAL GOVERNANCE IN AFRICA

Against the background of higher aid flows, debt relief and increasingrevenuesfromnaturalresourcesinAfrica,goodgovernanceisreceivingagrowingamountofattention. Inaddition toothergovernance issues,suchastheregulatoryframeworks,theruleoflaw,andpoliticalstability,progress in implementing effective and efficient tax policy and taxadministration,publicexpendituremanagementanddebtmanagement(inotherwords,goodfinancialgovernance)isofparticularimportancewithaviewtoachievingtheMDGs.Strongfinancialgovernanceplaysacriticalrole in supporting development in Africa. The primary responsibility for improving financial governance rests with national governments, andtherefore the utmost priority is to develop the capacity of individuals,institutions and societies. Donor governments can play an important role in supporting these efforts through a range of complementary actions. This planoutlinestenareasforaction,drawingontheprinciplesoftheParisDeclaration onAid Effectiveness andonongoing initiatives to supportthereformofpublicfinancesystemsinAfrica.WeinvitealldonorsandAfrican countries to participate in the dialogue on the development and promotionofgoodfinancialgovernance.

1. Contributingtogoodfinancialgovernancethroughbilateraland multilateral development assistance. Basedon theParisDeclaration onAid Effectiveness, it is our objective to harmonisedonors’ cooperation by establishing and using common procedures in order to enhance the effectiveness of international development assistance and contribute to the development of our partner countries’ own public financial management systems. In addition,the allocation of programme-oriented development cooperation resourcescouldbelinkedmorecloselytogoodfinancialgovernanceand the development of country capacity, bearing in mind thespecific characteristics of fragile states.Therefore, it is necessaryto exchange experiences between the relevant institutions – suchastheministriesoffinance,parliaments,supremeaudit institutions,procurement offices, and donors – and to identify actions to betakentostrengthentherelevantsystems.Tothisend,goodfinancialgovernance and capacity building in this area should play a stronger role in international financial institutions’ (IFI) activities. Africanleaders’ awarenessof the importanceof soundpublicfinances fortheir countries in the future is key. No substantive progress canbe achieved without direct commitment and political resolve by the countries themselves.Within such a framework, donors couldcontributetosharpenthefocusontheAPRMbyaskingthatadequateemphasisbeputonfinancialgovernanceinthereviewofcountries’governance.

Annex

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2. Strengthening African tax systems. We supportAfrican countries in reforming their taxpoliciesandtaxadministrations,especiallywithaviewtoprovidingcitizenswiththelegalmeanstoeffectivelyscrutinisethedecisionsoftheirtaxadministrations.WeencourageAfricancountriestomakeuseofregionalnetworksandinternationalknowledgeontaxpolicyandtaxadministrationinordertobolsterdomesticexpertise.Wewillthereforeenhanceoureffortstoenablepartnercountries to participate in bilateral and international initiatives, such as the InternationalTaxDialogue (ITD).

3. Establishing transparent and comprehensive budgeting procedures. Positive economic development inAfrican countries is also based on national budgets that reflect governments’currentpoliticalpriorities.WeencourageourAfricanpartnersintheireffortstodevelopconceptsfor transparent, accountable and reliable budgetmanagement, as stated by theAfrican financeministersinMay2006intheAbujaCommitmenttoAction.Ourobjectiveistoprovideassistanceto partner countries wishing to strengthen their systems of budget management at all levels of government,sothatthesesystemsbetterserveasabasisforpoliticaldecision-making.Thisincludesimprovementsintheintegrationofpolicy-making,planningandbudgeting.Regionalnetworksforbudget directors or accountants-general can be very useful instruments for budget reforms. A processofmutualsupportandlearninghas,forexample,beeninitiatedthroughcooperationwithseniorofficialsinCABRI.WewelcomeandsupporttheroleandactivitiesofAfricansubregionalinstitutionsinordertoimprovefinancialgovernance.

4. Promoting accountability and transparency, and enhancing budgetary control. WepromotegoodgovernancebyenablingSAIstoassisttheirrespectivegovernmentsinimprovingperformanceandfosteringtheefficientandeffectivereceiptanduseofpublicresourcesthroughincreased capacity building measures.We assist regional organisations, such as AFROSAI, infostering the implementation of international standards and in encouraging the exchange ofideas and experiences.Meeting these standardswill validate SAI recommendations that focusonimprovingtheoperationsandservicesofgovernmentagencies,increasingtheeffectivenessofgovernmentspending,andenhancingcitizens’trustintheirgovernments.ThemajorityofAfricanstateshavealreadycommittedthemselvestotheUNConventionagainstCorruption(UNCAC).WeencourageotherAfricannations,aswellasdonorcountries,tojointhisglobalanticorruptionagreement.Thiscouldalsocontributetotherecoveryofcorruptlyacquiredassets.

5. Increasing accountability for revenues from extractive industries. We give our fullbackingtotheEITIandsupport it in itseffortstooptimise its implementationandmonitoringmechanismsandtocontributetoenhancedparticipationbyallstakeholders.Weencourageotherresource-dependentcountriesandindustriesfromtheextractivesector,especiallyfromemergingmarketeconomies,toparticipateintheEITI.Wewelcomethefactthatanindependentvalidationprocesshasbeen initiated tomonitor thenational implementationmeasures.Weencourage aprompt application of arrangements to identify countries that have achieved the target levels of transparency, as well as those that aremaking progress towards them.The applicability ofEITIprinciplestoothersectorsshouldbeexaminedmoreclosely.Moreover,measurescouldbeconsideredtouserevenuesfromextractiveindustriesforthelong-termbenefitoftherespectivecountries by establishing stabilisation funds or funds for future generations.

6. Securing public debt sustainability. Wecallfortheeffectiveuseofcountries’ownresourcesand restraint in borrowing on non-concessional terms in coherence with the IDA’s policy. Wecommit toapplying responsiblepractices inour lendingdecisions.To thisend,weurgeallborrowers and creditors to share information on their borrowing and lending practices. The debtsustainabilityframework,developedbytheIMFandtheWorldBank,providesanimportantguidingtoolfordecisionsonnewborrowingandlending,andweencourageitsbroadusebyall

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borrowers and creditors as a way to prevent new lend-and-forgive cycles. Technical assistance to improve debt management in African low-incomecountriesiscrucial.Wehighlighttheimportanceofthequalityofpublicinvestmentfordebtsustainability:notonlydoestheconcessionalityoflendingmatter,butalsothereturnsoninvestment.

7. Supporting fiscal decentralisation. A system of multilevel governanceneedsclearlydefinedfinancialandpoliticalcompetencesfor all levels of government. A dialogue was initiated at the Kigali Conference in 2006,where the need for strengthened capacity atall levels of government, transparency and accountability of localgovernments,andmechanismsforcoordinationbetweencentralandlocal governments were emphasised. If our partners wish to pursue a policy of fiscal decentralisation, involving the establishment ofsustainable and efficient intergovernmental fiscal relations and thepromotionofcivilsocietyparticipation,wewillendeavourtosupportthem.

8. Promoting donor harmonisation through knowledge management. In the donor community, we are making greaterefforts to attain a better understanding of partner countries’ political processes and administrative systems.Wecall formore sharingofinformationandtransparentknowledgemanagementonthepartofdonorswith regard topartner countries’ systems.To this end,weintendtoworkmorecloselywiththePEFAmultidonorpartnership,theinstrumentsofwhichshouldbeusedjointlybydonorstoanalysepublic finance systems. Furthermore, other instruments should bedevelopedtoanalysegovernancerisksandcapacityneeds.

9. Enhancing capacity for governance in fragile states and situations. Capacity building can be achieved even in states andsituationswithacutegovernancechallenges.Todoso,weincreasingour engagement in fragile states by establishing and strengthening key governmental functions, especially in the budget system, toenable the provision of basic services and security for the population. Capable and sustainable systems of public finance should help toreducetherisksofpost-conflictcountriesbecomingdependentonexternal assistance over the long term and support the effectivefinancialengagementofdonorsinthecourseofprovidingemergencyassistance.Civil society organisations also have a key role both indemanding good governance and in terms of service delivery.

10. Developing local bond markets in emerging market economies. Modern and efficient domesticmarket structure canprovide an important contribution to principal stability and sustained growth.To foster progress in this area, a specific action plan hasbeendevelopedtostrengthenmarketinfrastructureandpublicdebtmanagement,tobroadenanddiversifytheinvestorbaseonlocalbondmarkets,todevelopappropriatederivativemarkets,andtoimprovetheinformationavailableonlocalbondmarkets.

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Annex 2

NOTE ON METHODOLOGY

Inthispaper,theaimistoreflectonthedevelopmentsand–ifpossible–achievementsofthetargetssetundertheG8ActionPlanforGFGinAfrica.Theinformationbaseforsuchananalysishasbroadenedsignificantly in the first decade of 2000.Amultitude of PFM diagnostic tools has been introducedandfurtherdeveloped,andmanynowprovidedatasetscovering importanttimeframes.29 Many of thoseinstrumentsarepubliclyavailable;othersarefortheproceduralpurposes(mainlyforfiduciaryriskassessments)ofinternationalfinanceinstitutions,developmentbanks,Europeancommissionsandotherdevelopmentpartners.ThelistofPFMdiagnostictoolspresentedinMackie&Ronsholt(2011)lets theGreek troika/institutional dialogues seemminuscule compared to the realitymanyAfricancountries are facing.

Fromthedatasetsavailable,thisstudyusesthosethatallowcomparingdataandperformanceovertherelevanttimeframeinAfrica:2007to2014.Thedatadoesnotalwaysallowcoveringthefulltimeframe,andsometimesdevelopmentsaredescribedfor2008to2012,or2009to2012,forexample.Thisreportusestheavailabledatathatcomesclosestto2007–2014,andcoversthreeyearsasaminimum.

Themainsourcesusedarethefollowing:

• Data from the IMFWorld Economic Outlook data set: http://www.imf.org/external/pubs/ft/weo/2014/02/weodata/index.aspx

• TheAfricanEconomicOutlook:http://www.africaneconomicoutlook.org/en/

• TheIbrahimIndexonAfricanGovernance:http://www.moibrahimfoundation.org/iiag/

• TheWorldBankGroup’s(WBG)CountryPolicyandInstitutionalAssessments:http://datatopics.worldbank.org/cpia/

Additionally,specificperformancemeasurementdatawereconsultedforspecificpurposes:

• The Open Budget Index: http://internationalbudget.org/what-we-do/open-budget-survey/rankings-key-findings/rankings/

• TheCorruptionPerceptionIndex:http://www.transparency.org/research/cpi/overview

• TheResourceGovernanceIndex:http://www.resourcegovernance.org/rgi

In order to gain a more detailed picture of the developments of GFG policy and administration re-forms,adatasetwascompiled,basedontheavailablePEFAassessmentsathttps://www.pefa.org/en/assessment_search.Thisdata set includesAfricancountries forwhich twoPEFAassessmentswere available after 2006 that cover at least a time frame of three years between assessments. If more assessmentswereavailable,thelargertimeframewaschosen.Followingthesecriteria,asampleof18countrieswasselected.Forprocessingreasons,thePEFAratingsofAtoDweretransformedintothenumbers1to4.Thenumericaldevelopmentbetweenthefirstandthesecondreportinthesamplewas thus analysed.

29 SeetheoverviewinMackie&Ronsholt(2011:9,11)andthedetailsinVolII(annexes).

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Thereare,however,extensivemethodologicallimitstousingPEFAdataforcomparingcountryperformance(PEFA2009).Theanalysisprovidedinthiscasecanthusnotbetakenformorethanitis:theobservationwhetherprogress may be assessed – yes or no – or even whether a downgrading in performance occurred. For the purposes of observing progress on the G8ActionPlantargets,thisisneverthelessveryinteresting.

Developments on the side of development partners are described by the following:

• Data reported under the Official Development Assistance (ODA)CreditorReportingSystem(CRS),asincludedintheOECDDACCRSStatistics.30Onlycode15111,“PublicFinancialManagement”31(PFM),isusedinthiscase.Thereareothercodesthatmightincluderelevantdata,forexample,thecodeforcustoms(33120)orcorruption(15113),buttheinterpretationofCRSdataisdifficultinanyeventandtherisksgrowif data from different codes is used.

• ThedonorperformanceindicatorsinthePEFAassessmentsofthe18sample countries

• MonitoringdatafromtheGlobalPartnershipforEffectiveDevelopmentCooperation(OECD&UNDP2014).

These large data sets made it possible to describe relevant progress in order tomirror the development after theG8Action Plan forGoodFinancial Governance in Africa. Although it is possible to describe developments, neither the reasons for those developments, nor theimpactsoftheG8ActionPlancanbebasedonthosedescriptions.Thiscould and should only be done through more in-depth country analyses.

30 See http://www.oecd.org/dac/stats/dacguide.htm and http://www.oecd.org/dac/stats/crsguide.htm.Foranexplanation,seeTortella&Eckardt(2012:18ff).

31 “Fiscalpolicyandplanning;supporttoministriesoffinance;strengthening,financialandmanagerialaccountability;publicexpendituremanagement;improvingfinancialmanagementsystems;taxpolicyandadministration;budgetdrafting;intergovernmentalfiscalrelations,publicaudit,publicdebt”(seeDACCRSPurposeCodes).

Contact

Dr Matthias WittProgramme Managermatthias.witt@giz.de+27(0)124236371

GIZOfficePretoriaP.O.Box13732,Hatfield,0028HatfieldGardens,BlockC,GroundFloor,333GrosvenorStreet,PretoriaSouthAfricawww.giz.de/en/worldwide/17668.html