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With an increasing number of African countries embarking on a new generation of national development plans and industrial and urban policies to accelerate growth and transformation, and a pressing need to meet the socio- economic development needs of a growing population, there is a sustained commitment to increase the share of domestic resources in development financing. The Addis Ababa Action Agenda (AAAA) issued in 2015, has given a new impetus to this effort by calling for increased mobilization and effective use of resources underpinned by national ownership. The New Urban Agenda (NUA) that came on the heels of the SDGs and AAAA, underscored the transformative role of cities and called for leveraging urbanization to generate endogenous resources and revenues including capturing the benefits of urbanization.
Cities are increasingly the drivers of African economies, and hold potential to be drivers of revenues. Already Africa’s cities are generating a large share of GDP and are home to the manufacturing and services sectors leading economic structural transformation. Globally across countries, urbanization and a shift away from agriculture is associated with higher taxes as a percent of GDP. Agriculture is often difficult to tax due to the large number of unregistered, widely dispersed farmers who may operate below taxable thresholds; and natural resources revenues are volatile and can undermine countercyclical fiscal policy and macroeconomic stability. Urban-based tradable economic sectors, on the other hand, can provide a broad, stable and growing tax base. Therefore, cities and urban economies, which play a central role in economic structural transformation and are home to Africa’s consumer class, are becoming Africa’s engines of domestic revenue mobilization. However, African countries have yet to fully realize the revenue benefits arising from urbanization.