Shoring up PFM has increasingly become a priority for African governments as they see it as a way to tackle inefficiencies, attract foreign investment and give their economies a much-needed shot in the arm.
But how much positive impact can PFM systems have on the lives of the average man or woman on the street?
“A surprisingly huge amount,” says Rein Lang, Head of Policy and Legislative Advisory at Nortal. Today, Lang is attending the EU-African Business Forum taking place in Abidjan, Cote d’Ivoire.
“You have to consider that people, businesses and governments are interacting all the time on various levels,” Lang says. “If you can make those points of interaction work as smoothly and efficiently as possible while at the same time helping the government fulfill its duties, the whole ecosystem benefits,” he explains.
As a classic example, Lang points to the electronic tax filing system Nortal implemented in Botswana. Before the system was in place, a small business owner would typically have to spend one day per month standing in line at Botswana Unified Revenue Service (BURS) to file VAT returns. To make matters worse, complicated paperwork meant hiring a tax agent who would charge up to 150 USD each time. Private citizens faced similar difficulties in filing their annual tax returns and paying income tax.
By contrast, the electronic system that Nortal built for BURS allows users to file their taxes online in about 5 minutes.
“By practically eliminating the burden involved in tax filing, Botswana substantially reduced its tax gap while making life easier for entrepreneurs and citizens,” Lang says. “More to the point, the millions of hours saved through this change can now be spent building the economy, raising families or just enjoying life.”
Building on the success of the tax filing system, Nortal has been contracted to go further, creating an entirely new tax management and revenue collection solution for (BURS) to be rolled out in stages by early 2019.
According to Lang, by increasing the efficiency of revenue collection and reducing the administrative burden for the state, entrepreneurs and taxpayers alike, the new solution will boost overall economic growth in Botswana.
Helping ordinary people by boosting their nation’s economy was also a primary motivation behind Nortal’s far-reaching PFM project in Nigeria. There, Nortal built the Government Integrated Financial Management Information System (GIFMIS), to bring the country’s chaotic public finance systems under control and deliver much-needed transparency. As part of the process, Nigeria moved all government money into a Treasury Single Account, a step that has saved more than 7 billion euros.
Even more beneficial than those billions, as far as helping Nigeria’s macroeconomic situation goes, is the better standing Nigeria can now have with international investors.
PFM reform, once treated by African governments as a burdensome requirement to satisfy major international donors, is now viewed more as a stepping stone to a healthier economy, as an EY report explains.
“Countries with improved public financial management practices are more likely to be able to borrow from international lenders in the open market to fund large infrastructure or service delivery projects,” the report says. “PFM reform can contribute to greater economic and policy certainty for the private sector, [which] will in turn allow for higher levels of private sector investment and job creation.”
“Raising per-capita GDP, creating much-needed infrastructure, having state finance systems that are transparent and well-functioning – these are all fundamental for improving the quality of life in any country,” says Lang. “And it’s amazing how big a difference technology can make in these efforts.”
To learn more about how Nortal has helped the Nigerian government save billions of euros, read our case study.
Rein Lang, Head of Policy and Legislative Consulting at Nortal, has more than 30 years of experience in legislation and policy making. He has held several ministerial positions in Estonia, including minister of justice and minister of cultural affairs. He has advised governments on strategy and change management on different continents and is more than happy to discuss details if you want to get in touch via email.