With a reduction in foreign aid, African countries need to strengthen domestic revenue mobilization, combat illicit financial flows, and reform their tax systems. Some countries are on the right track, while others are still searching for the ideal path.
The cycle of dependence on foreign aid in Africa is coming to an end. The warning was issued in June by the Director-General of the World Trade Organization (WTO), Ngozi Okonjo-Iweala, during the 2025 Ibrahim Forum in Morocco. She emphasized that the continent urgently needs to focus on domestic revenue mobilization, in a context where economies face structural challenges such as rising public debt and growing social demands.
To achieve this, it is necessary to improve fiscal efficiency, better tax wealth and natural resources, and, above all, restore citizens’ trust in the state’s redistributive function.
When Taxes Become Imperative
The pressure to increase tax revenues in Africa is a direct consequence of a changing international context. Foreign aid is declining, affected by rising domestic pressures in donor countries, the cost of global crises such as the war in Ukraine and climate change, and a growing sense of “donor fatigue.” As recognized by the Organization for Economic Cooperation and Development (OECD), “domestic budgetary needs in donor countries, aggravated by energy and refugee crises, are compromising the capacity and political will to maintain previous levels of aid.”
Although in 2022 total official development assistance reached 211 billion USD—a historic record—only one-fifth of this amount was directed to Africa, mostly in the form of loans rather than direct grants. Additionally, there is a growing trend to replace traditional aid with blended finance, risk-sharing financial instruments that are less predictable and impose more conditions on African countries.
In this new scenario, strengthening domestic revenue mechanisms becomes inevitable. “We have to take the mobilization of our internal resources seriously. Increasing taxes is part of the social contract,” warned WTO Director-General Ngozi Okonjo-Iweala. However, this fiscal imperative will only gain legitimacy if accompanied by real improvements in public services and transparency. At the same time, it is urgent to halt the “hemorrhage” caused by illicit financial flows, which drain around 89 billion USD annually, according to UN estimates. Recovering these funds, often hidden in opaque jurisdictions, is vital to strengthen the continent’s fiscal sustainability.
Fragile and Dependent Tax Structures
In many African countries, tax structures remain limited, fragile, and excessively dependent on customs duties. In at least 15 countries, taxes on imported goods account for more than 40% of total tax revenues. In some cases, such as São Tomé and Príncipe, they reach 100%. This reality highlights the scarcity of the tax base while also showing extreme vulnerability to external shocks, such as supply chain crises or global price fluctuations. To ensure financial stability, African countries need to diversify their revenue sources, reducing dependence on import taxes.
Natural Resources Escape Taxation
Despite immense wealth in oil, gas, gold, copper, lithium, and other strategic minerals, Sub-Saharan Africa collects only about 40% of the potential fiscal revenue associated with these resources, according to the World Bank. Instead of translating into robust development revenues, extractive sectors remain marked by opaque tax regimes, generous exemptions, weak contract oversight, and the capture of public rents by private interests, often with the complicity of national elites.
Low taxation, exacerbated by volatile international commodity prices, undermines budget predictability and exposes countries to the so-called “resource curse”—where mineral abundance leads to economic instability, inequality, and corruption. Beyond fiscal waste, poor governance imposes significant environmental and social costs, often ignored by extractive companies, with long-lasting impacts on ecosystems, local communities, and public health.
Situations vary: the Democratic Republic of Congo faces significant fiscal losses in cobalt exports, often underpriced; Angola remains heavily reliant on oil revenues with opaque contracts; Niger has extracted uranium for decades without proportional returns for its population; and Mozambique, with huge natural gas reserves, struggles between promises of future revenue and the urgent need for fair fiscal contracts.
The World Bank proposes an integrated and modern approach: reform extractive tax regimes, improve transparency and regulatory capacity, and capture the “green dividends” from the global energy transition. As the world decarbonizes, demand for African minerals critical to clean technologies—batteries, wind turbines, solar panels—grows exponentially. If properly taxed and invested, these gains can fund education, healthcare, sustainable infrastructure, and economic diversification, helping countries escape the extractive dependence trap.
Experiences to Replicate… and to Avoid
Africa offers valuable lessons in building effective tax systems, both successes and failures. South Africa is one of the most encouraging examples. In 2024, it collected over 100 billion USD, notably through personal income tax, which remains the country’s main revenue source. This success is largely due to structural reforms in tax administration, including an innovative two-installment payment system that improved efficiency and reduced the immediate burden on taxpayers.
The combination of administrative reforms, economic incentives, and strengthened public trust had a multiplier effect on revenue collection and consumption. The South African case demonstrates that institutional capacity, transparency, and predictability are central to improving fiscal performance and that a well-managed system can simultaneously collect revenue and generate growth.
At the opposite extreme is Guinea-Bissau, one of the African countries with the lowest tax collection levels, according to the African Development Bank (AfDB) and OECD. In 2022, tax revenues represented only about 9% of GDP, well below the recommended 15% threshold for financing the Sustainable Development Goals (SDGs). Guinea-Bissau relies heavily on customs duties and foreign aid, lacks an effective tax administration, and faces persistent challenges of informality, corruption, and low public trust.
These two extremes illustrate that, while the challenge is common to many African countries, institutional responses make all the difference. Replicating good practices—simplifying processes, digitalization, tax education, and combating evasion—is not only desirable but urgent to prevent more countries from falling into the trap of fiscal fragility.
Reform Priorities
Building a resilient tax structure requires ambitious but coordinated reforms. Strengthening revenue collection must be accompanied by measures that promote tax fairness and reinforce the social contract. Key strategies include:
- Broadening the tax base by progressively including income and wealth, while combating tax evasion and avoidance;
- Eliminating ineffective tax exemptions, especially in the extractive sector and special regimes that reduce the potential base;
- Investing in administrative and digital capacities of tax authorities, ensuring greater efficiency, coverage, and compliance;
- Combating illicit financial flows and recovering diverted assets, in coordination with developed countries and multilateral institutions;
- Improving budget transparency and the quality of public expenditure to increase taxpayer trust and legitimize the fiscal effort;
- Creating a more equitable and sustainable tax system, promoting redistribution and development.
What to Expect from Fiscal Integration
The African Continental Free Trade Area (AfCFTA), by aiming to eliminate 90% of tariffs over the next 5–10 years, places additional pressure on national tax systems, especially those highly dependent on import duties.
However, AfCFTA is also a strategic window with the potential to boost economic exchanges to unprecedented levels and rethink Africa’s fiscal model. By promoting regional integration, harmonizing tax rules, and creating intra-African value chains, the agreement can help countries:
- Reduce informality through larger market scale;
- Increase fiscal competitiveness without resorting to destructive exemptions;
- Attract sustainable investment to strengthen the tax base;
- Stimulate cooperation between tax administrations;
- Build a more integrated and coherent African fiscal governance.
If well managed, AfCFTA could be the platform Africa needs to transform its fragile, fragmented tax system into a solid and developed one.
Revenue That (Also) Eases Debt
With debt levels reaching historic highs in several African economies, the ability to collect domestic revenues has become key to restoring fiscal sustainability. According to the IMF, fiscal consolidation will only be effective if accompanied by robust efforts to broaden the tax base, cut ineffective exemptions, and improve spending quality. Budgetary fragility, when supported by external financing and foreign currency debt, exposes African countries to exchange rate shocks and limits room for social investment. In Mozambique, for example, ongoing tax administration reforms, particularly digitalization, aim to increase collection efficiency and reduce reliance on external debt.
Text: Celso Chambisso • Photo: D.R.