By Dr Ebrima Ceesay
There is a question that lies beneath almost every discussion about development in The Gambia, yet it is rarely asked directly: Who will finance the Gambia’s future?
For decades, The Gambia’s development has been supported by an extensive network of external partners: International financial institutions, bilateral donors, development agencies, foreign investors, non-governmental organisations and the Gambian diaspora have all played important roles in financing infrastructure, social programmes, public services and economic activity.
There is nothing inherently wrong with this. Indeed, international development cooperation has contributed enormously to the progress of many developing countries. No modern economy exists entirely in isolation, and even the world’s wealthiest countries borrow internationally, attract foreign investment and participate deeply in global financial markets.
The question, therefore, is not whether The Gambia should accept external financing. The more important question is whether external financing should remain a structural necessity for determining and implementing the Gambia’s development priorities.
That is a very different question. It goes to the heart of economic sovereignty. A sovereign country does not need to finance everything itself. But it should aspire to possess enough domestic economic and financial capacity to make strategic choices without being permanently constrained by the availability, or withdrawal, of external financing.
This is what “Beyond Aid” should mean. It should not mean turning away from development partners. It should mean gradually moving from a model in which external financing is often indispensable to one in which external financing increasingly supplements domestic capacity rather than substitutes for it.
For The Gambia, this is not simply an economic question. It is a question of statecraft. A country that cannot generate sufficient domestic resources to sustain its basic development priorities inevitably has less room for strategic choice. Its ambitions become vulnerable to donor priorities, international financial conditions, changes in geopolitical interests and the availability of concessional finance.
The objective should therefore not be what political economists call “financial autarky”. Autarky means economic self-sufficiency – a situation where a country tries to produce everything it needs itself and avoids relying on trade, foreign investment, or financial connections with other countries. In the context of the Gambia, that would be unrealistic and undesirable.
The central argument is that economic sovereignty does not require financial autarky, and this means that a country can maintain control over its own economic policies (economic sovereignty) without having to isolate itself from the global financial system or eliminate foreign financial relationships.
In short, the objective should be financial resilience. The Gambia should seek to become a country that welcomes external capital and development partnerships because they accelerate national transformation, not because national transformation cannot proceed without them.
That distinction could define the next stage of Gambian economic thinking. The starting point must be taxation.
Before considering diaspora bonds, sovereign wealth funds, capital markets or sophisticated public-private partnerships, every state must confront the fundamental question of whether it can raise sufficient domestic revenue to perform its core functions.
Taxation is often discussed as a burden imposed by government upon citizens and businesses. But taxation is also one of the foundations of modern sovereignty.
A functioning state requires resources to provide security, maintain infrastructure, educate its population, operate its institutions and invest in the future. Without sustainable domestic revenue, the state becomes structurally dependent upon borrowing, grants or external financing.
But taxation is about more than revenue. It is also part of the relationship between citizens and the state. When citizens pay taxes, they have a legitimate expectation that government will use those resources responsibly. When government provides visible and effective public services, citizens have greater reason to comply with the tax system.
This creates a potentially powerful cycle: taxation produces revenue; revenue finances public services; effective services build trust; trust encourages compliance; and compliance strengthens the fiscal capacity of the state.
The opposite cycle is equally damaging. Poor services undermine confidence. Low confidence encourages tax avoidance. Weak compliance reduces government revenue. Reduced revenue limits the state’s ability to provide services.
Breaking this cycle should be one of the central objectives of economic governance. But increasing tax rates alone is not necessarily the answer. The more important question is how to broaden the productive and formal economic base.
A large informal economy can present a difficult challenge to domestic revenue mobilisation. Yet formalisation should not simply be understood as a government effort to extract more taxes from small businesses.
The state must also make formalisation worthwhile. A formally registered enterprise should have better access to credit, government procurement, legal protection, digital payment systems, export opportunities and business support.
In other words, the tax system should become part of a broader social and economic contract. Citizens and businesses should increasingly be able to see what they receive in return for participating in the formal economy.
This is where governance becomes inseparable from finance. A country cannot sustainably mobilise domestic resources if its citizens do not trust its institutions. That brings us to one of The Gambia’s greatest potential sources of capital: its diaspora.
For years, the Gambian diaspora has provided enormous support to families and communities at home through remittances. These flows are important not only for household consumption but also for education, housing, healthcare and small-scale investment.
But there is a larger question: Can the relationship between The Gambia and its diaspora evolve from remittance dependence towards strategic investment?
The diaspora possesses more than money. It possesses professional expertise, international networks, business experience, technology, knowledge of foreign markets and access to global financial systems.
The strategic objective should therefore be to transform the diaspora from being primarily a source of household transfers into an increasingly important source of national investment capital and expertise.
One potential instrument is the diaspora bond. A properly designed diaspora bond could allow Gambians abroad to invest directly in national development projects or government securities. But the existence of a financial instrument is not enough. People invest where they have confidence.
A diaspora bond would require credible institutions, transparent reporting, sound financial management, appropriate regulation and confidence that funds would be used for their stated purposes.
The diaspora question is therefore ultimately another governance question. If the state wants Gambians abroad to invest their savings in national development, it must convince them that their money will be managed professionally.
There is another pool of domestic capital that deserves greater attention: institutional savings. Pension funds, insurance companies and other long-term financial institutions potentially represent significant pools of domestic capital.
These institutions are naturally oriented towards long-term investment. In principle, some of that capital could help finance productive assets within the Gambian economy, including infrastructure, housing, energy, agriculture and other commercially viable sectors.
But this must be approached with considerable discipline. Pension funds exist primarily to protect the retirement savings of workers. They should never become convenient sources of politically directed government finance. The objective should be professionally managed investment based upon risk, return, transparency and fiduciary responsibility.
If The Gambia can develop the institutions necessary to channel a portion of domestic long-term savings into productive investment without compromising the security of those savings, it would represent an important step towards deeper financial sovereignty.
This leads naturally to the question of the domestic capital market. A mature economy should not rely exclusively on commercial banks or external lenders to finance long-term investment.
Over time, The Gambia could benefit from deeper markets for government securities, corporate bonds and other investment instruments, provided that the necessary regulatory and institutional foundations are established.
A functioning capital market can give businesses access to longer-term finance, give investors more opportunities and provide government with additional mechanisms for managing public finances. But again, financial sophistication cannot substitute for institutional credibility. Capital markets depend upon confidence.
Investors need reliable financial information, credible regulation, enforceable contracts and confidence that the rules will not change arbitrarily. This is why financial development and institutional development must proceed together. The same principle applies to the idea of a sovereign wealth fund.
Sovereign wealth funds have become powerful instruments in countries that possess significant natural-resource revenues or other substantial sources of national capital. But The Gambia must be careful not to treat the sovereign wealth fund as a fashionable financial solution detached from economic reality.
The first question should be: What would capitalise it? A sovereign wealth fund cannot simply be created by legislation. It requires assets. For countries with large oil revenues, the answer may be obvious. For The Gambia, it is considerably more complicated.
Any future Gambian sovereign investment vehicle would therefore need a credible and sustainable source of capital, together with strong governance arrangements that protect it from political interference and short-term spending pressures.
The principle should be simple: institutions must precede financial engineering. Creating sophisticated financial structures without creating sophisticated governance can simply create new opportunities for mismanagement.
To be continued on Monday