It is generally recognized that inadequate financing is one of the main barriers to Africa’s integration. Financial resources to support the regional economic communi-ties come mainly from assessed contributions, but external assistance has been the prime source of financing their operations. Actual paid contributions have declined over time and external support, in some cases, is no longer as forthcoming and suffi-cient to meet the needs of the regional economic communities. This disturbing trend needs to be considered against the backdrop of a major shift in the African integration landscape—the advent of the African Union.
The inevitable result has been an unhealthy financial situation. Consider the example of three regional economic communities—CEMAC, COMESA, and SADC (table 3.1). In some years CEMAC and COMESA have collected less than half the assessed contributions of member states. For COMESA and SADC extrabudgetary resources
Inadequate financing is one of the main barriers to Africa’s integration
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have outweighed member contributions. The gap between the needs of the regional economic communities and member contributions is already large, and projections sug-gest that it will grow (table 3.2).
The situation of these three regional economic communities is representative of that of most others:
• The regional economic communities that require equal contributions from mem-bers have to use the capacity of the smallest contributor to set the standard. For these, the budget cannot match needs and may remain too small for a long time.
• The regional economic communities that base contributions on equity determine members’ contributions according to their capacity to pay. While this approach is defensible in principle, over time the major contributors become reluctant to carry Table 3.1
Rate of collection of assessed contributions by CEMAC, COMESA, and SADC, 1991–98 (%)
Year CEMAC and COMESA CEMAC, COMESA, and SADC
1991 100.0 100.0
1992 55.0 77.5
1993 100.0 100.0
1994 80.0 90.0
1995 44.8 73.7
1996 47.4 —
1997 48.1 —
1998 51.9 —
— not available.
Source: Economic Commission for Africa, from official sources.
Table 3.2
Projected financial needs and revenue from member states’ assessed contributions for CEMAC, COMESA, and SADC, 2000–04 (US$ millions except as noted)
Item 2000 2001 2002 2003 2004
Medium-term financial
needs 176.1 180.7 185.7 198.7 204.5
Assessed contributions 22.7 24.8 26.7 28.8 30.0
Share of financial needs
covered (%) 12.9 13.7 14.4 14.5 14.7
Note: The projections of assessed contributions are based on past trends. A flat exchange rate of US$1 = CFAF 700 has been applied to the data for CEMAC. For SADC, whose fiscal year budgets span two calendar years, the data were split into calendar years by combining half of two consecutive budgets have been put together so that the data for all three organizations correspond to calendar years.
Source: Economic Commission for Africa, from official sources.
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the main burden of financing the budget. This led to the collapse of the West African Economic Community (CEAO) when Côte d’Ivoire and Senegal retained funds owed to the organization.
Experience shows that these formulas either fail to meet financing needs or become unviable over time.
To put themselves on a sounder financial footing, some regional economic communities—
UEMOA, ECOWAS, CEMAC, SADC, COMESA, and ECCAS—have explored other financing mechanisms. Several have chosen a scheme based on a levy on imports from third countries. UEMOA has already put the scheme into operation. ECOWAS and CEMAC have it partly in place.
Such self-financing mechanisms are reliable, lead to predictable resource flows, and safeguard funds from retention by member states because the funds are deposited in central bank accounts accessible only to the organization. More important, the resources generated by self-financing mechanisms are more likely than member contributions to meet the financial needs of regional economic communities.
Projections of the revenue from a community levy under high and low revenue hypotheses show that while this financing mechanism may not always meet the needs of regional economic communities, it would reduce the financing gap signif-icantly (table 3.3).
The financing record of the regional economic communities clearly suggests that assessed contributions are not viable in the long run. For the immediate future the only credible alternative to reliance on external financing appears to be self-financing
Self-financing mechanisms are reliable, lead to predictable resource flows, and safeguard funds from retention by member states
Table 3.3
Projected financial needs and revenue from a community levy for CEMAC, COMESA, and SADC, 2000–04 (US$ millions except as noted)
Item 2000 2001 2002 2003 2004
Medium-term
financial needs 176.1 180.7 185.7 198.7 204.5
High hypothesis
Revenue 180.8 188.8 194.9 200.5 207.7
Share of financial
needs covered (%) 102.7 104.5 104.9 100.9 101.6
Low hypothesis
Revenue 143.4 147.7 152.0 156.4 161.6
Share of financial
needs covered (%) 81.4 81.7 81.8 78.7 79.0
Note: Since extrabudgetary resources are by nature unpredictable and do not measure the effort of member states, they are not taken into account in assessing the financing gap.
Source: Economic Commission for Africa, from official sources.
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schemes (box 3.1). But these schemes must be carefully negotiated by countries to pre-serve their unique features:
• The autonomy of accrued resources from national budgets.
• The automatic nature of the levy, to ensure a regular flow of resources.
• The steady growth and sustainability of resources. The flow of resources should at least maintain the capacities of regional institutions and, ideally, support the expan-sion of integration activities through steady growth.
• The equity of contributions. Self-financing mechanisms must be equitable to ensure long-term viability. Equity does not mean mathematical equality but rela-tive equality, based on countries’ capacity to contribute.
So far the question of financing regional integration in Africa has been chiefly con-fined to the functioning of the African Economic Community and the regional eco-nomic communities. With the African Union, the magnitude of the issue has changed.
The spectrum of financing requirements goes beyond the operating expenses of the regional economic communities to providing resources for the meetings of the Union Assembly of Heads of State and Government, the Pan-African Parliament, the Executive Council, and the Economic, Social and Cultural Council, and for running the Commission.
If the Union is to make a decisive difference to the African Economic Community, then the financial institutions foreseen in the African Union Constitutive Act—the African Central Bank, the African Monetary Fund, and the African Investment Bank—must become effective, operational, and sustainable. It is imperative that a holistic financing strategy be put in place that takes into account the short-, medium-, and long-term financing needs of the African Union, the regional economic commu-nities, and other ancillary entities and technical arms, including the Pan-African Postal Union, the Union of African Railways, river basin organizations, and the like. By virtue of their specialized functions, such entities must also be strongly supported because they have certain comparative advantages that can complement the activities of the regional economic communities, advancing the African Union and Africa’s integration.