Africa Gains Traction from Innovative Financing for Development, Says Experts

By staff writer

Addis Ababa - On Sunday players at the ongoing Fourth Joint Annual Ministerial Meetings of the African Union Conference of Ministers of Economy and Finance and the Economic Commission for Africa (ECA) Conference of African Ministers of Finance, Planning and Economic Development discovered that the idea of innovative financing for development is gaining traction worldwide, despite skepticism among some developed nations.

According to ECA’s Information and Communication Service, Mr. Julien Meimon of the Paris-based Permanent Secretariat of the Leading Group on innovative financing for development took advantage of a parallel session of the Ministerial Meetings to further explain the usefulness of the initiative financing.

He said that although the idea had been initially misinterpreted as a simple “excuse for states not to deliver on official development assistance commitments” and as “supranational taxes”, the Permanent Secretariat has managed to turn the tides and there is now greater understanding about it in both the developed and developing countries.

The session was presided over by the Malian Ambassador to Ethiopia, whose country chairs the Leading Group on innovative financing for development and moderated by Dr. Réné Kouassi, Director of the Economic Affairs Division at the African Union Commission. Meimon began by defining what should be understood by innovative financing for development which, according to him, is purely a mechanism for raising funds for development.

“It is complementary to official development assistance; it is predictable and stable; and it is closely linked to the idea of global public goods, aiming at correcting the negative effects of globalization”, he explained.

He provided a number of examples to show that innovative financing can work, saying that many countries are implementing one or more innovative mechanisms for financing development, such as the Carbon Markets and Debt2Health whose basic idea is to help increase recipient countries’ investment in health through debt conversion; and the Advance Market Commitment (AMC) aimed at accelerating the development and manufacture of vaccines.

The Advance Market Commitment gets donors to commit money to guarantee the price of vaccines once they are developed, provided that there is developing country demand and the vaccines meet stringent, pre-agreed criteria on effectiveness, cost and availability.

The other approach is through the air ticket levy, which is a small tax on air tickets to support financing health services such as the international drug purchasing mechanism (UNITAID) and the Global Fund to Fight AIDS, Tuberculosis, and Malaria (GFATM).

He argued that innovative financing cannot be used as an excuse for states not to deliver on official development assistance commitments, because “from the outset has been designed to generate additional resources for development, and not be used as a substitute for traditional resources, as stated in declarations adopted by the United Nations and in various conclusions of Leading Group meetings”.

Asked to explain how it is different from a tax, Meimon said that the “taxes under consideration or being implemented (the air-ticket solidarity levy in a dozen countries) are not “global taxes” in that they are mandatory or decided on a supranational basis. They are introduced on a voluntary basis by a group of States, which coordinate their base, rate and use”.

He went on to say that contrary to popular belief, the process does not complicate the aid architecture.

“Countries involved in innovative financing give more importance to abiding by the principles of aid effectiveness and coherence. The governance of most existing mechanisms (GAVI, UNITAID, etc.) involves countries from various levels of development from every continent in an original way.”

He sounded upbeat about the prospects for innovative financing because of the support it is beginning to receive from Africa and globally.

For example, Heads of State and Government meeting in Paris for the 25th Africa-France Summit on 1st June 2010 « stressed with concern Africa’s growing needs, especially regarding development financing to achieve the MDGs by 2015 and beyond. To this end, they provided their support for the idea of holding an African conference on innovative financing (…) »

Furthermore, in the Monterrey Consensus of March 2002 leaders recognized “the value of exploring innovative sources of finance provided that those sources do not unduly burden developing countries”