African countries can fill the aid gap with tax revenue

In the wake of the abrupt cuts to US foreign aid, African countries that relied on external assistance now face immediate pressure to fill the gap. Can countries mobilize the resources themselves through tax revenue, asks Kylee McVicker.

When the US recently cut back on foreign aid, the effects rippled across African countries where that support has long helped provide basic services. With lives on the line, governments now face a pressing question: how can essential functions be financed reliably and equitably from within?

Increasingly, African leaders and researchers are calling for self-reliance. Uganda’s Information Minister Dr Chris Baryomunsi, noted that the government is “progressively building internal capacity to sustain public services without relying on foreign support.” Nigerian scientist Christian Happi put it more bluntly and said it’s time to move beyond “a culture of begging.”

This moment is more than a funding shortfall; it is a strategic opening to reshape fiscal systems and development trajectories.

Many countries face real constraints. Narrow tax bases, large informal sectors, and weak administrative systems make revenue collection difficult. Colonial-era tax systems that were designed for extraction, not equity have left legacies that still shape today’s government operations.

Even where capacity exists, raising revenue requires political will, strong institutions, and careful design to avoid regressive impacts or public backlash.

Measuring fiscal capacity

Eight of the twelve countries in the sample are taxing below their potential. All but one (Malawi) could replace their US foreign aid allocations with the additional revenue. Nigeria collects just 41 per cent of its predicted capacity, with tax revenue amounting to only 4.1 per cent of GDP. If it reached its expected level, the country could unlock more than £21 billion. That’s nearly 100 times what it currently receives in US aid.

Table 1. African countries taxing below their predicted capacity

In these countries, expanding the tax base, through property taxation, digital compliance systems, and closing loopholes offers a viable path to sustainably replacing aid while also reinforcing state capacity and fiscal independence.

Some African countries are already collecting more tax revenue than expected given their economic fundamentals. Mozambique, South Africa, Zambia, and Zimbabwe fall into this category. For these countries, additional revenue gains may be limited unless paired with deeper economic and governance reforms.

Table 2. Countries Taxing Above Their Predicted Capacity

In these cases, closing the gap may depend more on improving public financial management and promoting expenditure efficiency than on simply raising more revenue.

However, tax effort scores must be interpreted within each country’s political, economic, and institutional context. A low score doesn’t necessarily mean taxes should be raised, nor does a high score imply there’s no room for change. What matters is how and why revenue is collected and what citizens receive in return.

From revenue to trust

At a recent Center for Global Development panel, African policymakers emphasised that replacing aid is not just about collecting more, it’s about building trust, transparency, and responsiveness. Mavis Owusu-Gyamfi, President of the African Center for Economic Transformation, highlighted the need to close loopholes and formalise overlooked revenue streams. Abdoul Salam Bello of the UN warned that unless tax increases are matched by visible improvements in public services, citizen trust will erode.

Former Côte d’Ivoire Minister Abdourahmane Cissé made the stakes clear: raising Africa’s average tax-to-GDP ratio from 16 per cent to 30 per cent could unlock £300 billion annually. This would be a transformative sum, but only if it was used well. While the immediate room for growth may not be so vast, given an average estimated capacity of just 14.3 per cent in this sample, the comparison underscores both the near-term opportunities and the long-term potential of domestic resource mobilisation, as institutional, administrative, and economic foundations continue to strengthen.

Fiscal capacity, political legitimacy, and the path forward

Many African countries have the fiscal space to replace aid with domestic revenue. But that’s only part of the story. As Gwaindepi puts it, “one obvious place to start is on improving service provision for nurturing trust and long-term commitment from taxpayers.” Revenue must not only be raised, but done so in ways that are legitimate, equitable, and clearly tied to better public services. This is what transforms fiscal capacity into lasting fiscal sovereignty.

As Moore et al pointed out: “expanded revenue collection is worthwhile only if that revenue is translated efficiently into valuable public goods and services.” Without that link, even well-performing tax systems can struggle to gain the public trust needed to sustain them.

As Zambia’s Central Bank Governor Denny Kalyalya recently put it, this moment is not just about surviving aid cuts. It’s about using them as a catalyst to build stronger, more resilient, and sovereign fiscal systems. For African governments, this is not merely a fiscal adjustment it’s an opportunity to reshape the social contract.

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