How we’re investing in Africa’s financial future beyond foreign aid

Since 2023, global aid commitments have fallen by over 25%,¹ and the future of aid remains deeply uncertain. In low- and middle-income countries (LMICs), the loss of foreign aid has dealt a critical blow to public health and education programs that are relied on by millions of beneficiaries.

Philanthropy alone can’t replace that lost aid funding. The more important question is different: how can we help governments become structurally less vulnerable to funding shocks?

That’s been the question driving some of our team’s recent work, and our Catalytic Impact Fund recently made three grants, totaling over $1.8M, to help governments enable self-financing and improve financial resilience.

In this blog, we’ll share how these three grants work at different levels of the revenue problem, from a single city's tax base to the administrative machinery of national tax systems.

How can LMICs improve their financial resilience?

The most immediately feasible and durable path for governments to become less reliant on foreign aid is by increasing domestic tax revenue. Revenue raised at home is not subject to the political weather in donor capitals, and it strengthens the accountability link between citizens, taxes, and services.

LMIC governments face tough trade-offs in today’s climate. To cover immediate funding gaps, they must choose between a combination of slashing important services, reallocating funding from long-term projects, taking on more debt, or domestic resource mobilization through taxation. While countries may be able to productively reallocate some funds on the margin, low-income countries and many lower-middle countries simply do not have enough domestic government resources to bridge the gap, as we discussed in a recent piece on why Aid is Not Dead. Funding today’s programming comes at the expense of their future solvency and ability to fund forward-looking growth and infrastructure investments.

For these reasons, domestic resource mobilization stands out as their best and most sustainable option to build real domestic capacity.² Each of the organizations we spoke to in the tax space indicated that they’ve seen a recent uptick in interest from national revenue authorities. LMICs are likely to pursue this option regardless, and this is a critical moment to ensure that their policy responses are effective and equitable.

Small, achievable increases in domestic resource mobilization have the potential to be transformative. IMF research estimates that low-income countries could raise tax revenues by more than 6% of GDP just by making full use of their existing institutions, and our analysis suggests a tax gain of only 1% of GDP across Africa would more than replace the recent aid cuts.³

For driving tax revenue, our research points to two especially promising levers:

• (1) Improving tax administration to enforce revenue streams. Often, tax laws already exist, but don’t generate much revenue due to under-resourced tax administrations. Many tax offices in LMICs could benefit from audits, adding staff, simplifying tax policy, re-directing capacity toward high-value targets, and coordinating enforcement with other agencies. Improving a government’s tax administration is a light-touch way to capture revenue that existing law already provides for, without requiring difficult legislative change. It is also a high-leverage bet capable of multiplying the impact of many current and future reforms.

• (2) Introducing new property taxes to increase revenue. Property taxes stand out among underused revenue sources because they’re easier to enforce and less likely to reduce demand compared to many other types of taxes (such as excise taxes), which makes them more cost-effective. They’re also highly accountable, since the connection between local revenue and local spending is visible to the people paying. Property taxes have already been a particular success in Freetown, Sierra Leone, where a points-based valuation system built on satellite imagery quintupled the city's property tax revenue within two fiscal years.

How can philanthropists play a role?

We think the potential cost-effectiveness of some taxation interventions is quite high. Donor funding for tax capacity peaked around the launch of the Addis Tax Initiative in 2015 and has declined since. Several major funders have stepped back from the field entirely, making it a relatively neglected space in the face of increased demand from revenue-constrained governments struggling to maintain essential services for vulnerable populations.

This means opportunities exist where relatively small grants can make a lasting impact. Grants can fund pilots that governments sustain and larger donors potentially scale, ultimately unlocking revenue streams that dwarf the size of the original grant. These grants increase the expected value of long-term, reliable revenue streams so governments can finance their own life-saving and life-improving services, reducing reliance on aid.

This is the type of high-leverage work that the Catalytic Impact Fund exists to fund. In the past few months, we’ve funded three grantees to help governments improve financial resilience: Africa Urban Lab (AUL), the International Centre for Tax and Development (ICTD), and South Centre.

$400K to the Africa Urban Lab (AUL): proving out property taxes in East Africa

African cities are growing faster than their budgets, even as urban land values rise around them. Property tax is a natural instrument to close that gap, especially considering recent successes in Freetown, Sierra Leone.

Our $400,000 grant to the Africa Urban Lab (AUL) brings a pilot of that system to East Africa. The AUL is providing technical assistance to municipalities to implement satellite-based property tax valuation, working with the same implementation team that delivered the Freetown reform.

This two-year pilot is only possible through donor collaboration, combining funds from Coefficient Giving, the Founder’s Pledge Catalytic Impact Fund, as well as Laidir Foundation. This pilot has the potential to build evidence around effective revenue generation, as well as regional interest and capacity to catalyze expansion across more secondary cities in East Africa and beyond if successful.

$1M to the International Centre for Tax and Development (ICTD): strengthening tax administration

Revenue authorities in low-income countries often have ideas for tax reforms they want to implement and issues they want to resolve. What they lack is the research capacity to design and execute them well.

Our $1M grant to the International Centre for Tax and Development (ICTD) funds research conducted jointly with revenue authorities in up to ten Sub-Saharan African partner countries, with around five selected for in-depth projects, alongside training and policy engagement to carry findings across the region.

ICTD has a strong track record of translating research into impact. In Rwanda, ICTD’s research underpinned the removal of over 117,000 dormant "nil-filer" accounts, freeing administrative capacity and saving small businesses substantial compliance costs with no revenue loss. In Ghana, ICTD found that a simplified tax regime for small firms costs roughly nine times more to administer than it raises, and is now supporting resource-saving reform.

Traditional government funders have been withdrawing from the field, making private funding counterfactually pivotal for launching this work. We project that this grant will produce at least one major administrative reform whose revenue gains repay the grant many times over, and research capacity within revenue authorities that outlasts every individual project.

$435K to South Centre: recovering revenue lost to profit shifting and strengthening regional tax cooperation

Multinational enterprises comprise a huge portion of the tax base in LMICs. When they “profit shift”—attributing transactions made in higher-tax jurisdictions to their own subsidiaries in lower-tax jurisdictions—profits migrate on paper. That means some of the revenue LMICs need most is no longer accessible to them due to the erosion of the tax base. The Tax Justice Network estimates this profit shifting costs Africa nearly $7 billion per year, equivalent to roughly 15% of the continent's health expenditure, with Liberia and Sierra Leone alone losing an estimated $330 million annually.

Our $435,000 grant to the South Centre funds technical assistance to help Liberia and Sierra Leone conduct joint transfer price audits, the first project of its kind in the Global South. The grant covers expert support, training, and access to the commercial pricing databases auditors need to benchmark fair market value, an input stretched public budgets rarely cover. Auditing the same multinational simultaneously across two jurisdictions lets tax authorities pool resources and dramatically reduces disputes: OECD data on joint audits shows a near-100% resolution rate without litigation in high-income countries. We’re betting that tax cooperation can improve audit speed and outcomes in LMICs as well.

ECOWAS, the West African regional bloc, has committed to extending the initiative to all twelve member states if the pilot succeeds. We hope for tangible recovered revenue for two of the countries hit hardest by aid cuts, and a working model of regional tax cooperation that spreads well beyond them.

Join us in building resilient systems

None of these grants aims to directly replace lost aid. Instead, each one builds a piece of the machinery that makes countries less dependent on aid in the first place.

It can be easier to feel moved by funding a discrete, cost-effective bed net or cash transfer landing directly in someone's hands rather than by a more abstract tax administration reform. But these grants are aimed at rebuilding the long-term resourcing that lasts after any single grant or aid budget has come and gone, allowing low-income governments to continually provide the cost-effective services their citizens need.

If you want to join us in supporting high-impact organizations that are tackling the world's most pressing problems, consider donating to the Catalytic Impact Fund.

Notes

1. ODA fell 23.1% in real terms in 2025, the largest annual contraction on record; bilateral ODA to sub-Saharan Africa fell 26.3%. ↩

2. The Sevilla Commitment, which was adopted last year by consensus by 192 UN Members, also mentions enhancing capacity building for domestic resource mobilization. See page 9 of the outcome document on the Fourth International Conference on Financing for Development. ↩

3. Internal analysis: 1% of Africa's ~$2.8 trillion GDP is ~$28B, against ~$18B in aid cuts to Africa (25% of ~$71B in net bilateral and multilateral aid, per the OECD ODA dashboard). ↩