Financing policies and pracitices in transport and communications sectors in Africa

UNITED NATIONS

ECONOMIC COMMISSION FOR AFRICA

Distr.: LIMITED TRANSCOM/946/R November 1995 English

Original: French

v.1

INANCING POLICIES AND PRACTICES IN TRANSPORT AND COMMUNICATIONS

Transport, communications and tourism Division, P. 0, Box 3001, Addis Ababa, Ethiopia Telephone: (2511) 51 65 51 - Fax No.: (2511) 51 03 91

Executive Summary

The need to undertake this study on Financing Policies and Practices in the Transport and Communications Sectors in Africa is justified by (i) the limited achievement of UNTACDA I Programme, (ii) the poor performance of African countries in their effort to mobilize required financial resources in support of UNTACDA I; and (iii) the need to follow-up RMC studies on financial resources mobilization for the development of Transport and Communication Sectors

in Africa. %

The conclusion of the present study in financing policies and practices in transport and communications sectors in Africa can be summarized as follows: (i) The sector is mainly funded by the public sector through general and specific tax revenues, borrowing and grants. However, mention should be made of increasing private sector participation in such financing, through various mechanism such as self-financing, borrowing, co-financing, commercial management of public enterprise, performance contract, Build, Operate and Transfer (BOT), leasing, special fund, joint venture, privatization, etc. This private sector involvement is also expressed through the growing active penetration of informal sector in the African economic environment; (ii) Lack of required financial and fiscal data does not allow for a proper assessment of the extent to which Transport and Communications Sector in Africa are self financing; and (iii) The distribution of Transport and Communications priority expenditures into investments and operational costs varies from country to country; nevertheless, the majority of the countries which have relevant data show that, in these countries, investment share is higher; it is also the case for the planned expenditure as shown in UNTACDA II programme.

The study report makes a number of recommendations addressed (i) to African governments, (ii) to public enterprises, (iii) to private sector including financing institutions and (iv) to international community to effectively play their share of responsibility to increase the financial performance of transport and commumcations sectors. These recommendations are:

African

African countries should endeavour over the period 1996-2000 to obtain a 5 per cent annual average growth rate in their economies.

Recommendation Nos. 2-6

African countries should strive to diversify as much as possible the financing of their national economy in general and transport and communications in particular. In this connection, they should take appropriate steps as detailed in the body of this report in order to:

financing capacity of transport and communications enterprises;

Recommendation No.3: Concerning the contribution of domestic financing Ensure greater participation of the domestic financial sector in the development of African economy in general and transport and communications in particular;

Recommendation No.4: Concerning fiscal and non-fiscal revenue

To work towards the attainment, between 1990 and 2000, of an annual growth rate target of:

An average of 6.42 per cent in public revenues derived from income and profit taxes;

An average of 5.6 per cent in public revenues derived from social security contributions;

-..

An average of 3.8 per cent in external trade taxes;

An average of 0.92 per cent in domestic trade taxes;

An average of 0.82 per cent in non-fiscal public revenues; ? An average of 6 per cent in external debt.

Recommendation No.5: Concerning Africa debt problem

Significant effort should be made by African governments to convince donors to convert and reduce their debt through equity development aid and external trade development

programmes.

Recommendation No.6: Concerning the participation of the informal sector

Ensure increased participation of informal sector in financing these activities through:, (i) the establishment of an efficient taxation system based on forfeit incomes; and as

well as promoting effective tax administration;

(ii) effective mobilization of informal sector savings for the benefit of financing institutions operating in the region.

■

Recommendation No.7: Concerning measures geared to cost recovery and financial profitability fff transport and communications sectors

During the second Transport and Communications Decade in afhca, considerable efforts

should be made by African governments to provide their transport and communications public

enterprises with transparent and rigorous commercial management (through contract plans co- financing, leasing, road funds, build, operate and finance - BOT, etc.)

Recommendation No. 8: Concerning expenditures in transport and communications

sectors

Over the period 1996-2000, African governments should endeavour to provide a sufficient volume of resources (each country at its own pace) to the various components of transport and communications in Africa (investments, maintenance and rehabilitation, human and institutional resource development, etc.)

Recommendation No.9 Concerning rational allocation of revenue to transport and communications sectors

During the second Transport and Communications Decade in Africa, African governments should attach top priority to transport and communications development by annually allocating to it 2 to 4 per cent of their total public resources (including debt). They are advised further to establish clear policies whereby designated percentages of unearned revenues generated by the sector are allocated to the development and maintenance of infrastructure, equipment and facilities. To that end governments should encourage, support and extend to all successful experiences the operation of special funds for the development of transport and communications

sectors.

Recommendation No. 10: Regarding the establishment of partnership between ECA and all Funding Institutions for the financing of UNTACDA II programmes Any fund raising campaign in support of successful implementation of UNTACDA II programmes shall be undertaken in close coordination and harmonization by ECA with those organized by:

(a) UNDP, i.e. Macro-economic Roundtable;

(b) IBRD, i.e. World Bank Sectoral Consultative Group.

In this regard, ECA should sign a partnership contract with all interested parties especial y with the World Bank and UNDP.

African governments should make special efforts to improve information systems at national transport agency levels in order to improve transport statistics. They should also collaborate with national transport agencies in the establishment of national transport data bases and support ECA's efforts in the development of a regional transport data base.

r

TRANSCOM/946/Rev.

INTRODUCTION

CHAPTER I

TABLE OF CONTENT

Paragraphs 1-16

MACRO-ECONOMIC AND FINANCIAL ENVIRONMENT OF THE SECOND UNITED NATIONS TRANSPORT

AND COMMUNICATIONS DECADE IN AFRICA 4-:

1. Conclusions and Recommendations of the

Two RMC Study Reports 18-;

2. Past, Recent and Future Developments in■ '

Domestic Financial Resource in Africa 33-4 3. Past, Recent and Future Trends in Financial

Flows to Africa 42

4. Assessment of Available Financial Resources in Africa

5. Assessment of Resources for the Financing of Transport and

Communications in Africa 49-54

6. Strategic Objectives for Mobilization of

Financial Resources for Africa 55-75

CHAPTER H

Section A:

FINANCIAL POLICIES AND PRACTICES IN TRANSPORT AND COMMUNICATIONS IN AFRICA

Review of Policies and Practices

1. Expenditure on the Development of Transport and Communications in Africa

2. Implementation of Financing Instruments 3. Economic and Financial Performance of

Transport and Communications in Africa

76-1:

79-86

87-: ■1

102-114

Section B: Experience in Selected Enterprises in Africa

1. Potential Sources of Finance 2. Financial Performance of African

Telecommunication Companies in Africa

Paragraphs

115-138 116-118

119-138

CHAPTER III

Section A:

Section B:

Section C:

LESSONS DRAWN FROM THE STUDY Introduction

Difficulties in gathering appropriate and relevant selected data from African countries 1. The Case of Few Selected African Countries 2. Inadequacies at the Level of Other Secondary

Documentary Sources Used

Degree to which the Transport and Communication Sector are Financially self-sufficient in Africa

139-149 139

140-145 140-143

144-145

146-149

CHAPTER IV

Section A:

CONCLUSION AND RECOMMENDATION Conclusions

150-167

151-158

ANNEXES Tables Graphs

Presentation of the Moving Averages Method Used in this Report Questionnaires

TRANSCOM/946/Rev.l

LIST OF TABLES

Table a: Financial Performance of African

Telecommunications Corporations Per cent of Revenues (1992/93 Financial Year)

Table b: Internally Generated Funds in African

Telecommunications Corporations Per cent of Investment

Table 1: Central Government: Total revenue as percent of GDP Table 2a: GDP at current price, in million $US

Table 2b: Forecast of African GDP at 1990 prices for the year 2000 (in billion $US)

Table 3: Total public revenues in Africa (in million $US) Table 4a: Forecast of total public revenues in Africa

(in million $US)

Table 4b: Yearly arithmetic average over the period of 1976-2000, of public revenue in Africa (in million $US)

Type of public revenue in the world (as percentage of total revenues)

Forecast for the year 2000, of the percentage in total public revenue of the taxes on revenue and profits in Africa Table 7: Forecast of the year 2000 of the percentage

in total public revenue, of Social Security revenue in Africa

Table 8: Forecast for the year 2000, of percentage in the total public revenue of taxes revenue on domestic transaction in Africa

Page 45

Page 45

Annex 1

Table 9: Forecast for the year 2000, of percentage in total public revenue of tax revenue on external trade and transactions

Domestic debt trend in Africa (in million $US)

Annual average of domestic debt of

some African countries (in million $US)

Forecast of African domestic debt (in million $US) External debt trend in Africa (in million $US)

Forecast for the year 2000 of external debt in Africa (in million $US)

Forecast for the year 2000 of long-term external public debt in Africa (in million $US)

Forecast for the year 2000 of long-term private external debt in Africa (in billion $US)

Forecast for the year 2000 of short term external debt in Africa (in million $US) Forecast for the year 2000 of concessional debt in Africa (billion $US)

Trend of grant to Africa (in million $US)

Forecast for the year 2000 of grant to Africa (in million $US)

Table 20: Central Government: Sectoral distribution of

public expenditures as percentage of total public expenditures in Africa

Table 21: Trend of external public debt in Asian and

Latin American developing region (in million $US)

Table 22: Central Government: Total expenditures as a

percentage of GDP; and corresponding total public expenditures (in million $US)

Table Table

Table Table Table

Table

Table

Table

Table

Table Table

10a:

10b:

11:

12:

13:

14:

15:

16:

17:

18:

19:

Table 23:

Table 24:

Table 25a:

Table 25b:

Table 26:

Table 27:

Table 28:

Table 29:

Table 30:

■

Table 31:

Forecast for the year 2000 of public expenditures in Transport and Communications in Africa (in million $US)

Public expenditures in transport and

communications sector in Africa as a percentage of total public expenditures

Public expenditures in transport and

communications in Africa (in million $US) Distribution of transport and communications expenditures in selected African countries: yearly average estimated during a period of 3 to 5 years (in million $US)

Yearly average resources (calculated within a period of 3 to 5 years) for support of Transport and communications in selected African

countries (in million $US)

Exchange rates trend in selected African countries Employment created in transport (including warehouses) and communications in selected in African countries (in 1000 jobs)

Arithmetical yearly average for the period

1974-2000 of (i) Public expenditures in transport and communications; and (ii) GDP at current prices (in billion $US).

Estimates of yearly average of total resources in Africa for the period 1986-2000 (in billion $US) Arithmetical yearly average over large period of African rates of (i) GDP at current prices; and (ii) 1990 constant price.

TRANSCOM/946/Rev.l

Annex 1

LIST OF CHARTS, GRAPHS AND FIGURES

Chart I: Type of revenue in Africa (As percentage of total revenue)

Chart 2: Trend of domestic debt in Africa

Graph 3: Central Government: Main distribution of public enterprise in percentage of total expenditure in Africa

Graph 4: Public expenditure in transport and communications sector

Telecommunication pre-tax profit

Telecommunication revenue as a % of GDP Telecommunication investment as a % of GFCF -11: Annex 2

Page

29

9 50 1

TRANSCOM/946/Rev. 1

INTRODUCTION Background

1. The United Nations Economic Commission for Africa (UNECA) was established in 1958, which coincided with the period of accelerated momentum for political independence of African countries. The mandate of UNECA was to assist member States in their development efforts by tailoring its activities to the priorities of member States and alerting them to emerging problems, issues and trends that would have an influence on their socio-economic development. UNECA has articulated policies, strategies programmes and plans for development, with increased emphasis on the imperative of regional cooperation and integration.

2. Upon the attainment of political independence by the majority of African countries in the early 1960s, the Organization of African Unity was formed in 1963 as a forum for regional cooperation in pursuit of sustainable development goal. In fact, Article II of the Charter of the Organization of African Unity which was adopted in 1963 called for Africa's economic integration as a prerequisite for political unity and stipulated that, among other things, member States should coordinate and harmonize their policies on economic co-operation, including trade, industry, transport and communications.

3; Many regional programmes have since been formulated and implemented, to various degrees of success, including most notably, the Lagos Plan of Action (LPA) in 1980 and the Abuja Treaty (1991) establishing the African Economic Community (AEC). The Economic Commission for Africa actively participated in the formulation of all these programmes by, among other things, providing critical technical inputs.

4. The development of transport and communications sectors has been at the centre of most of these programmes and pursued collectively since 1978 within the framework of the first United Nations Transport and Communications Decade in Africa-UNTACDA. The programme is designed as a vehicle for the development of the sector through a coordinated cooperative effort among all the countries, their inter-governmental organizations as well as partners in development. The first UNTACDA programme was implemented during the period 1978-1988 and, based on the encouraging results obtained, a second decade programme, UNTACDA II, has been prepared for implementation during the period 1991-2000.

5. UNTACDA Hwas carefully drawn up taking into considerations the lessons learnt from the first programme^ and one of the major lessons was'that the success of a large programme such as UNTACDA depended to a large extent on the capacity to mobilize the required resources for its implementation. During UNTACDA I, funds from domestic sources accounted for about 40 per cent of the total US$12.8 billion mobilized, with the rest coming from external sources.

However, due to the changed international development environment, the domestic resources will have to assume a more critical role now than during UNTACDA I.

6. The necessity to put more effort on the mobilization resources for UNTACDA II led to the establishment of the RMC for UNTACDA II, now renamed Consultative Committee for Promotion of UNTACDA II Programmes. This committee shall inter-alia advise member States, NGO's and IGO's on the potential sources of financing for UNTACDA II, collaborate and assist on request various beneficiary subregional, and regional organizations in the search for financial resources in support of UNTACDA II regional projects and programs that are economically viable.

7. The United Nations Economic Commission for Africa(UNECA) was designated as lead agency for the UNTACDA programmes and in this capacity, it has the responsibility to support the African countries in all aspects of the programme. The UNTACDA II programme thus forms the core of the work programme of the Transport, Communications and Tourism Division (TCTD) of the Commission up to the year 2000.

8. The programme of work of UNECA is derived from the United Nations programme in support of regional cooperation for development in Africa. The medium-term plan, covering the period 1992-97 pays special attention of the measures for accelerated implementation of the major priority programmes, including the Abuja Treaty (1991) establishing the African Economic Community. The work programme focuses on the promotion of sub-regional and regional policies and strategies to bring about a greater measure of economic cooperation and integration among African countries, including in particular in the production, trade, monetary and financial, infrastructure and institutional fields.

9. The above programme is divided into nine major sub-programmes, among which is one on Infrastructure! and Structural Transformation with focus on assisting African countries in formulating policies and implementing strategies, including the application of appropriate science and technology for the development of sustainable industrial capabilities and efficient transport and communications systems in Africa, with particular emphasis in the implementation of the programmes of the Second United Nations Transport and Communications Decade in Africa (UNTACDA II), and the Second Industrial Development Decade for Africa (IDDA II).

10. The Transport and Communications component of the sub-programme aims at assisting the African countries implement the programme of UNTACDA II. Based on the experience gained from the implementation of the first UNTACDA programme between 1978 and 1988, it was determined that resource mobilization is a major input to the successful implementation of this programme. Thus, this paper on methods of financing the development of transport and communications sectors fulfils the programme requirements of TCTD.

TRANSCOM/946/Rei Pa

11. The need to undertake this study on Financing Policies and Practices in the Transport and Communications Sectors in Africa is justified by (i) the limited achievement of UNTACDA I Programme, (ii) the poor performance of African countries in their effort to mobilize required financial resources in support of UNTACDA I; and (iii) the need to follow-up RMC studies on financial resources mobilization for the development of Transport and Communications Sectors in Africa.

2. Objective and Scope of the Study

12. The objective of the present study is to examine the current policies and practices in financing the development of transport and communications in Africa, and assess the possibilities for mobilizing additional resources for the implementation of UNTACDA II programme including recommendations.

13. It will draw from some of the recommendations of Studies on Financing which were carried out by RMC and examine data from selected countries and operating entities in order to assess the potential for additional resources mobilization from public funding, retained earnings (internal generation and utilization), general and specific taxes, equity financing, debt, joint ventures and other forms of private sector participation. Experiences from countries in other developing and newly developed countries will also be evaluated as much as possible.

3. Organization of the Report

14. The report is organized into four chapters. Following the introduction, Chapter I reviews the recent trends in financing transport and communications development in Africa, taking into consideration the prevailing macro-economic and financing environment. A summary of the ADB/RMC study is presented along with an update of recent trends in external financial flows into Africa.

15. An analysis of current financing policies and practices in selected African countries is presented in Chapter II. This will include analysis of investment in the sectors, economic and financial performance, additional financial support as well as the role of the private sector in development and operations of transport and communications in these countries. Finally, this Chapter analyses the financing practices in selected African communications enterprises. Chapter III deals with lessons learnt from the study. The conclusions and recommendations are presented

in Chapter IV.

4. Methodology

16. The report has been prepared on the basis of data received from the reports of local consultants in the selected countries and available information at the ECA Headquarters.

CHAPTER I

MACRO-ECONOMIC AND FINANCIAL ENVIRONMENT OF THE SECOND UNITED NATIONS TRANSPORT AND COMMUNICATIONS

DECADE IN AFRICA

17. At the start of the preparation of UNTACDA II programme, it was evident that the

macro-economic environment in which the programme was to be implemented was not very encouraging for Africa. The key macro-economic indicators were and still remain rather

distressing: the staggering debt burden; depressed world commodity prices; unfavourable terms

of trade; high population growth; etc.

18. Aware of these problems, the Conference of African Ministers of Transport,

Communications and Planning decided at its Seventh meeting held in Tangiers, Morocco in 1989

that the formulation of UNTACDA II programme must take into account the macro-economic environment in which it would be implemented. In this regard, the Resource Mobilization Committee of UNTACDA II, under the chairmanship of the African Development Bank, commissioned the two studies, and recommendations of which are summarized in Chapter I. This

chapter is broken down as follows:

4.

5.

Conclusions and Recommendations of the Two RMC Study Reports

(a) Impact Study of the Macro-economic and Financial Environment on the Development of Transport and Communications in Africa;

(b) Methods for Resource Mobilization and Expected Results.

Recent developments in domestic financial resource flows within Africa;

Recent developments in external resource flows to Africa and to other developing regions;

Assessment of available financial resources in Africa;

Assessment of available financial resources in support of transport and communications in Africa; and

Strategic objectives for financial resources mobilization for Africa.

1.

TRANSCOM/946/Rev 1 Page 5

Conclusions and recommendations of the two reports presented by the African Development Bank on: (a) the impact of macro-economic a"fl financial environment on transport and communications development in Africa and: (b^ methods of resource mobilization.

19. The study on the impact of macro-economic and financial environment on the development of Transport and Communications in Africa, highlighted the major problems facing transport and communications in Africa as well as the constraints on the macro-economic environment (population, financial, trade, institutional constraints, etc.) which must be addressed in order to obtain harmonious, efficient and realistic development of these two sectors.

20. In order to solve these problems and attain the 4-5 per cent economic growth target, an amount equivalent to 5 per cent of the average GDP of the African region will be required;

however, exact figures were only available for sub-Saharan Africa ($US 7.5 billion per annum, i.e. $US 75 billion for the decade) 64 per cent of which will be sourced locally and 36 per cent externally. Other problems facing these two sectors were enumerated in the report as follows:

(a)

(b) (c) (d)

(e)

(0

(g)

(n)

(i)

Accumulated delays in maintenance work, maintenance and rehabilitation of infrastructures and transport and communications equipment;

Low network density and volume of equipment, several physical interruptions;

Several non-physical barriers;

Poor management and use of transport and communications infrastructures, services and equipment;

Inadequate human resources for effective development of transport and communications;

Insufficient knowledge of the sectors due to lack of reliable statistical data and information systems;

Lack of back-up industries in transport and communications in Africa for the manufacture of equipment and spare parts, for the construction and maintenance of infrastructure and equipment;

Poor distribution of infrastructures, to the detriment of transversal link between the rural areas and the outskirts of big cities, where the majority of the population resides;

Problems of transport and communications safety, as well as environmental degradation.

21. The report on resource mobilization underscored the inadequate resource mobilization capacity for UNTACDA I by African countries (only 38 per cent of the resources' required were mobilized for UNTACDA I), and identified possible causes for this shortcoming as, among other things, due to lack of appropriate strategies, inadequate preparation of donor agencies meetings, lack of effective follow-up mechanism for the financial pledges made during the advisory technical meetings with donors.

22. The strategies included the general pledging conference which was organized by the United Nations Secretary General in New York in 1979; the technical consultative meetings organized by UNECA for each sub-sector of transport and communications between 1980 and

1985; followed by the co-financing meetings in 1987 and 1988.

23. Other shortcomings, especially in the preparation of meetings, included:

(i) The selection of inappropriate and inconsistent projects at variance with the national and subregional priorities set out for the transport and communications

sectors;

(ii) The non-specialized nature of technical consultative meetings, bearing in mind the types of projects submitted (for instance, technical assistance projects, maintenance and rehabilitation projects, new construction projects, reform projects and institutional measures, etc.);

(iii) Little justification for projects and programmes submitted, most of the time with neither specific policy guidelines nor objective cost estimates based on reliable feasibility studies, etc. Furthermore, donor agencies were not given sufficient time to study in detail the relevant documents so that their participation in the technical consultative meetings to which they were invited could be effective, useful and profitable.

24. In order to remedy the above-mentioned anomalies, the various national, subregional, regional, sectoral and international bodies which form the institutional machineries for UNTACDA II (the National Coordinating Committees (NCC's), subregional groups, subsectoral groups, RMC, etc.) were urged to make adequate preparations for the various phases of the programme development, namely; identification, study and appraisal.

25. This report, like the previous ones, also indicates, without indicating exactly, the minimum level of national resources required (4-5 per cent of the GDP) to finance transport and communications development in Africa, i.e. 20 per cent of the investments which accounted for a 4-5 per cent annual increase in the average GDP of African economies. The report further suggested that resources for funding transport and communications development would be allocated in order of priority as follows (regarding especially sub-Saharan Africa); 69 per cent

46/Rev.l Page 7

for maintenance, rehabilitation and improvement of infrastructure and equipment; 16 per cent for the development of infrastructure and renewal of equipment; 7 per cent for institutional development; and 8 per cent for operation and services.

26. In view of the expected continued insufficient financial resources due to insufficient tax revenues, far reaching reforms in taxation would have to be undertaken in order to achieve the 64 per cent target of financing transport and communications programmes in Africa through local

resources.

27. Moreover, the report suggested that African countries should develop a consistent strategy for external resource mobilization by for example, persuading the donor countries to effectively raise to 0.7 the percentage of their public GDP earmarked for development assistance; and to incorporate transport and communications programmes into the structural adjustment programmes which several countries in Africa are implementing.

Recommendations from the two RMC reports:

28. The study on the impact of the macro-economic environment made the following eight

(8) recommendations: ;

(a) The African continent should strive to remove some of the external constraints to the cooperation agreements entered into with the international communities: the target of 0.7 per cent of the GDP fixed by the Development Assistance Committee should materialize in the 1990s;

(b) Africa needs to pursue the structural reforms currently undertaken through stabilization and adjustment policies which must include a social component;

(c) Transport and communications sectoral policies should be incorporated into structural adjustment programmes; :A& iv.

(d) Efforts towards sensitizing partners in transport and. communications development (users, concerned policy makers, international community, etc.) should be bolstered;

(e) Programmes should focus on the maintenance of existing infrastructures and sectoral institutional reforms;

(f) Africa should mobilize on average the equivalent of 5 per cent of its GDP for investments in transport and communications;

i:

(g) Mobilization of local resources through taxation and cost recovery should be strengthened;

(h) Member States should focus further attention on the links between transport and communications and socio-economic development.

29. The study on methods for resource mobilization made a total of ten recommendations:

(a) African countries, subregional and regional organizations should evolve a more rigorous assessment of resource requirements for the Second Transport and Communications Decade in Africa, on the basis of a realistic strategy which take into account the relationship between needs and means, the optimum allocation of resources and the macro-economic environment constraints;

(b) African countries should unfailingly look for ways and means of improving cost recovery of services and use of transport and communications infrastructures;

(c) Domestic savings should be encouraged through public awareness campaign, and through tax rebates and social incentives;

(d) African countries should be able to borrow money from national financing institutions;

(e) The private sector should be encouraged in industrial activities and services in line with the objectives of the Second Transport and Communications Decade;

(f) African States should pursue efforts towards the improvement of their national budget structures and allocation of resources;

(g) African countries and Inter-government organizations should take special steps towards financing multi-lateral projects with emphasis on integration and explore the legal, technical and financial avenues for raising multi-national loans and establishing special funds;

(h) African States should further diversify their external resource mobilization efforts and formulate proposals towards the specialization of foreign aid agencies;

(i) Member States and subregional organizations should strive to mobilize resources from the private financial sector;

(j) The coordination of strategies with donor agencies should be significantly strengthened;

TRANSCOM/946/Rev 1 Page 9

30. The report noted that these recommendations reflected the "components of an operational programme" which would translate strategies into specific actions on national, subregional and regional levels.

31. The two studies summarized in the preceding section contained some positive aspects as well as a few shortcomings. Among the positive aspects are the following:

A reminder of the major problems facing the transport and communications sectors in Africa;

A set of recommendations on strengthening current resource mobilization capacity for the two sectors especially through higher tax revenues, cost recovery, diversification of domestic and internal sources of financing, a greater involvement of the private sector, etc.;

(c) A better targeted and coordinated awareness campaign for alternative financing

sources; and

(d) Better follow-up actions on the outcome of consultations between donor agencies.

32. However, the relevant issues mentioned hereafter should be further examined thoroughly

in order to give substance to the recommendations contained in the two reports. In this regard, the following sets of questions must be addressed:

(a) What are the exact financial requirements for UNTACDA II programme?

sum of $US 75 billion, apart from the fact that it was presented in the report as

indicative of the requirements for only a part of Africa (sub-Saharan Africa) for the ten years covering the UNTACDA II programme, does not adequately explain how this amount was arrived at. It is neither easy nor advisable to assess UNTACDA II programme requirements on the basis of the projects already approved by the Resource Mobilization Committee (RMC); indeed, new projects will be submitted thereafter. Nevertheless, a satisfactory assessment of these requirements will be absolutely necessary to establish the credibility and operationality of all the measures proposed for financial resource mobilization.

Such assessment should certainly take into account trends in the financing capacities for transport and communications under UNTACDA II. Projections should be made up to the year 2000 (through a three-year moving average) for the volume of public expenditure likely to be allocated.

(b) What are the past, present and future financial resource mobilization capacities in Africa for transport and communications development? Grants, domestic and an external debt will in particular be reflected in this assessment with recommendations calling for raising these resources to the required realistic levels.

One of the overriding factors, in this regard, is the growth rate of the entire African economy, which, according to ECA analysis, is estimated by the year 2000 at only +0.68 per cent of the GDP at 1990 prices, against an arithmetic average of +5.67 per cent for the growth rate at current prices (the latter figure is very close to the ADB one, which is 5 per cent).

2- Past. Present, and Future Trend of Domestic Financial Resources in Afriva 33. The estimate for the year 2000, of domestic financial resources will be ascertained by using the three years moving average method applied to time series covering the period 1974/76 to 1987/89. (see Annex 3) Furthermore, the following charts (1 & 2), concerning different types of public revenue in Africa, as well as the trend of African domestic debt shows the trend of the

many components of domestic resources in Africa. (See also Annex 2) (a) Estimates of domestic resources

34. Domestic resources which comprise of tax revenues, non-fiscal revenues and domestic debt, tax revenues are derived mainly from income and profit taxes, contributions to social security, domestic and external trade taxes. Non-fiscal revenues consist ofinterest generated from financial placements made by the Government, public revenues accrued transfers of movable and fixed assets and various provisions made for public enterprises. Domestic loans is the overall domestic public resources, and are estimated at $US 7,536.9 million in 1976 as against $US

187,527.18 million by the year 2000 (Tables 4b and 11).

35. This total includes $US 45,490 million (1976) and $US 63,898.16 million (2000)

representing domestic debt; and $US 32,046.9 million (1976) and $US 123,629 million (2000)

representing fiscal and non-fiscal revenues.

«.--■-■■=,.»-.-.,'.««-.-....--■ CHART1

TRANSC0M/946/Rev.1 s,-Page11 TYPEOFREVENUEINAFRICAJASPERCENTAGEOFTOTALREVENUE)

Types de revenus en Afrique (en pourcentage des revenus totaux)

40 35 30 25 20 15 10

Taxessurrevenuselprofit; 33J5 Revenusneprovenonfpasdetaxeset'rofs 2.242.052.0S1.%

37.05 Taxessurtransactionsintirieuresrelativesauxmarchandesetservices TaxessurEecommerceettransactionsavedI'exterieur 16.36-1SJ8- 14.95 Contribution6Lsecuritesociale 233 T5T

2.382.42.S 197619771978197919801981,19821983198419851986198719881989 Ann6es SOURCE:AnnuairestatistiqueduFMIreIatifauxfinancespubliquos:Annies1982a1992

TRANSCOM/946/Rev.1 Page

12 CHART2 TRENDOFDOMESTICDEBTINAFRICA

Evolution de la dette interieure en Afrique

140000 120000 100000 80000 c60000 i 40000 20000

—■ 1 45490

blob*:70604""

58636__

75544s

73398

>

⁹²⁹¹⁵ Dettesi _~—-———

81233 it£FJeures

74289

j3\

52672 197619771978197919801981198219831984198519861987 Ann6es SOURCE:Nosestimations6partirdesdonn6estlitasdasstatlstlquasduFMIsurlasdSpensespubliquas.

TRANSCOM/946/Rev. 1 Page 13

(b) Comparative analysis of the domestic resources in some regions of the world

i

36. In 1976, non-fiscal revenues in Africa accounted for only 20.16 per cent of public revenues compared to 79.84 per cent for fiscal revenues; the latter is distributed as follows:

(i) Domestic and foreign trade taxes 44.45 (Table 8 and 9);

(ii) Income and profit taxes 33.15 (Table 6);

(iii) Contribution to social security 2.24 (Table 7).

37. In all developing countries, 17.21 per cent of public resources was derived from non- fiscal revenues in 1976; (i.e. 82.79 from fiscal revenues); compared to 10 per cent (i.e. 90 per cent from fiscal revenues) for the world's standards (Table 5).

38. Tax revenues for developing countries were 47.58T 13.62 and 15.82 per cent respective derived from business taxes, income and profit taxes and contributions to social security. The world ratios for 1976 were 23.36, 38.37, and 28.27 per cent respectively.

39. It would be observed from the foregoing that:

(i) The bulk of public resotirces was derived from tax revenues; almost 80, 83 and 90 per cent respectively for Africa, the developing regions and the entire world;

(ii) In the developing regions, domestic and foreign business taxes accounted for the highest percentage of tax revenues (48 per cent in 1976); as against 44.45 and 23r36 per cent respectively for Africa and the rest of the world;

(iii) Income and profit taxes yielded more in the other parts of the world: 38.37 per cent in 1976 compared to 33.15 and 13.62 respectively in Africa and the developing countries;

(iv) The world's social security contribution rates were higher: 28.27 per cent in 1976, compared to 15.82 per cent and 2.24 per cent respectively for the developing regions and Africa.

(c) Some conclusions regarding the African region (Table 7-11) 40. By the year 2000, the distribution of revenues for Africa would be as follows:

(a) 17.28% of the public revenues derived from non-fiscal revenues; and

(b) 82.72% of the public revenues derived from tax revenues. This further divided as follows:

(i) 31.1 % of the public revenues derived from business taxes;

(ii) 48.4% of the public revenues derived from income and profit taxes; and (iii) 2.82% of public revenues derived from social security contributions.

.

41. With these projections, based on a three-year moving average, for the domestic official debt patterns in Africa, it will be possible to reach conclusions on setting specific targets for resource mobilization for each of the following components:

(a) An increase in the public revenues through taxes: 82.72 per cent by the 2000 compared to 79.84 per cent in 1976; i.e. from 1976-2000, a 2.88 per cent increase in 24 years; the realistic mobilization target to be achieved in this area is estimated as follows (Table 6-9):

99r359 - 25r586.2 = 288.3 per cent for the period 1976-2000

25,586.20 (i.e. an annual average rate of 12.01 per cent);

(b) A possible decrease in the public revenues accounted for by non-fiscal revenues:

17.28 per cent by the year 2000 as against 20.16 per cent in 1976; in such a way that the target of $US 20,755.9 millions by the year 2000 will be achieved for non-fiscal public revenues on the basis of a non-fiscal revenue growth rate of 57.37 per cent for the period 1976-2000, (i.e. an annual average rate of 2.39 per cent) (Table 4b).

(c) A considerable decrease from 58.67 per cent in 1976 to 33.94 per cent by the year 2000, in domestic public debt within the domestic resources, in such a way that over the period 1976-2000 a target growth rate of 35.65 per cent of domestic debt will be attained (i.e. an annual rate of 1.49 per cent) (Tables 10a, 10b and 11).

TRANSCOM/946/Rev. 1 Page 15

3. Past, recent and future trends in financial flows to Africa

Financial flows to Africa consist of external borrowing (loans), grants, and direct investment and remittances.

43. Financial flows to Africa are estimated at a total of $US 460.1 billion for the year 2000, compared to $US 183.9 billion in 1983.

(a) The external debt of Africa compared to other developing regions (i) The trends in Africa (Tables 12,13,14,15,16 and 17)

44. Africa's external debt volume is estimated at $US 431.792 billion by the year 2000 compared to $US 177.9 billion in 1983, with the following components:

(a) $US 144.3 billion (1983) and $US 294.9 billion (2000) for the long-term external debt, consisting of:

(i) $US 80.7 billion in 1983 for long-term official external debt (i.e. 55.9 per cent of the long-term external debt) as against $US 63.6 billion in 19!

for the long-term private debt (i.e. 44.1 per cent);

(ii) Long-term bilateral debt: $US 54.4 billion in 1983 (i.e. 37.7 per cent of the long-term external debt) consisting of $US 31.9 billion (i.e. 58.64 cent of the long-term bilateral debt) at concessional terms;

(iii) Long-term multilateral debt: $US 19.4 billion by the year 2000.

■

(b)

(c)

(d)

i -

$US 33.6 billion in 1983, compared to $US 38.94 billion by the year 2000, for short-term external debt;

Decrease by the year 2000 in the external debt accounted for by the long-term debt: 81.1 per cent in 1983 as against only 68.3 per cent by the year 2000. This translates into an increase in short-term external loans: 18.9 per cent in 1983 as against 31.9 per cent by the year 2000;

Long-term external debt under concessional terms; $US 43.5 billion in 1983 i.e.

30.15 per cent of the long-term external debt as against 50.42 per cent by the year 2000 (i.e. $US 148.7 billion); thus, this will translate into a considerable increase in the share of the long-term external debt, accounted for by concessional loans.

It must be borne in mind that loans under concessional terms are the most suitable

for the financing of capital intensive investments, especially infrastructures (transport, communications, water, energy, etc.) due to the fact that they generally attract low interest rates (3.65 per cent on average for middle-income countries). Furthermore:

(i) The grace period is longer (7.64 years on average for low-income countries, as against 5.3 years for middle-income countries); and

(ii) The loan maturity is 25.2 and 17.2 years respectively for these two categories of countries, i.e. these terms provide some relief for the financial costs of long-term loans required for investments in transport and communications in order to make them competitive and financially profitable.

(ii) The trends in the developing regions of Asia and Latin America: (Table 21) 45. The external debt for these two developing regions is estimated at $US 236.2 billion and

$US 383.7 billion for 1983, respectively for Asia and Latin America.

46. These totals comprise:

a. For Asia

(i) $US 192.1 billion (1983) for the long-term external debt consisting of:

$US 111.1 billion for long-term external official debt (i.e. 57.83 per cent of the long-term debt) as against $US 81 billion for long- term private debt (i.e. 42.17 per cent of the long-term external debt);

$US 68.7 billion in 1983 for long-term bilateral debt (i.e. 35.8 per cent of the long-term external debt), including $US 45.3 billion (i.e. 65.94 per cent of long-term bilateral debt) at concessional terms; this ratio of 65.94 per cent is higher than the one (58.64 per cent) for Africa;

$US 42.4 billion in 1983 for multilateral external debt, including

$US 17.1 billion at concessional terms;

$US 62.4 billion for long-term external debt at concessional terms;

i.e. 30.15 per cent for Africa;

TRANSCOM/946/Rev.l Page 17

Short-terra debt: $US 44.1 billion in 1983, i.e. 18.7 per cent of Asia's external debt - a rate almost identical to Africa's (18.9 per cent).

For Latin America

■--:■

(i)

$US 321.2 billion of long-term external debt in 1983 (83.7 per cent of external debt) consisting of:

$US 258.8 billion long-term official debt in 1983 (i.e. 80.6 per cent of long-term external debt) as against $US 62.4 billion (19.4 per cent) for long-term private external debt. With 55.9 per cent and 57.8 per cent respectively, Africa and Asia earmarked a lower percentage of their long-term external debt to long-term official loans;

$US 46 billion in 1983 of long-term bilateral debt (i.e. 14.32 of long-term external debt), as against 37.7 per cent and 35.8 per cent respectively for Africa and Asia. Of this sum of $US 46 billion,

$US 8.4. billion (18.3 per cent) is at concessional terms; Latin America comes far behind in the third place in comparison to Africa (58.46 per cent) and Asia (65.94 per cent) which respectively come second and first;

$US 266,6 billion (83 per cent of the long-term external debt) in 1983 for the long-term multilateral external debt including $US 3.9 billion at concessional terms (i.e. 31.71 per cent of long-term external debt at concessional terms);

$US 12.3 billion for the long-term external debt at concessional terms; i.e. 3.83 per cent of the long-term external debt; this is considerably lower that the figures recorded for Asia (32.48 per cent) and for Africa (30.15 per cent);

Short-term debt $US 8.6 billion; i.e. 2.24 per cent of the total external debt; as against 18.17 per cent and 18.9 per cent respectively for Asia and Africa.

(b) Grants for Africa: (Tables 18 and 19)

47. In 1980, grants given to Africa amounted to $US 6.0073 billion, compared to 28.3584 billion projected for the year 2000.

>

4. Assessment of available financial resources in Africa:

48. These financial resources comprise public revenues, domestic debt, external debt and grants to Africa; they are estimated at a total of $US 641.97 billion by the year 2000.

5. Assessment of resources for the financing of transport and communications in Africa:

(a) Projection to the year 2000 of public expenditures on transport and communications (Tables 22,23,24 and 25a)

49. An initial assessment of the financial resources required for transport and communications development in Africa will consist of projecting to the year 2000, on the basis of a series of statistical data covering 1974-1991, the volume of public expenditures for transport and communications in Africa.

50. The projected volume of expenditure by the year 2000 is estimated at $US 10.382 billion, i.e. an annual arithmetic average of $US 6.705 billions over the period 1974-2000; that translates into 1.28 per cent of the annual average ($US 524.2 billion) of public resources over the period 1986 to 2000.

(b) Assessment based on the UNTACDA 1 financial performance rate 51. Financial resources effectively mobilized for UNTACDA I programme are estimated at

$US 12.857 billion for the period 1978-1988, i.e. about $US 1.286 billion per annum, which translated (cf tables 3,12,14 and 20) into 0.21 per cent in 1988 of the total public resources ($US

604.82 billion).

52. With this annual rate of 0.21 per cent applied to resources forecast for year 2000, $US 1.0676 billion will be available per year for transport and communications.

53. These 1.28 and 0.21 per cent rates fell far short of the 2.92, 3.48 and 6.23 per cent!/

recently recorded respectively by Uganda (low-income country), Cameroon and Senegal (middle- income countries) (cf table 26).

LI N.B. (i) 6.23per cent= $1IS 176.617million

$US 2,834.777million (ii) 4.21 per cent » 2.92 + 3.48 + 6.23

3X100

TRANSCOM/946/Rev. 1 Page 19

54. The three rates (0.21%, 1.28% and 4.21%) thus identified in the three preceding paragraphs will be applied to the following three scenarios pertaining to the objective on the mobilization of annual financial resources for support to the development of transport and communications in Africa. This choice was made mainly on account of the fact that the three scenarios are based on experiences acquired: , :;

(i) during the implementation of the UNTACDA I programme;

(ii) by low revenue African countries; and

(iii) by intermediate revenue African countries. Another reason derives from the concern about realistically reconciling the pattern of annual resources earmarked for transport and communications in Africa with that of the sector's expenditures, the scenarios proposed are presented below:

- ■

(a) Assumption I:

(b) Assumption II:

(c) Assumption III:

0.0021 x $US 524.2 billion = $US 1.1 billion

0.0128 x $US 524.2 billion = $US 6.71 billion,.

0.042 x $US 524.2 billion - $US 22.069 billion.

6. Strategic targets for financial resources mobilization in Africa

55. The three above-mentioned low, medium and high scenarios will only be possible if all the components of total official resources closely follow over time the trends observed and projected for most of them, in such a way that an annual average of public resources totalling

$US 524.2 billion will be ensured over the period 1986-2000. Hence, the following strategic objectives will be required:

(a) Tax and profit revenues: (cf Table 4b)

56. Obtaining from this source of public revenues, an annual contributive average capacity of $US 34.00 billion from 1976-2000; i.e. 44.75 per cent of public revenues; this translates into raising from $US 37.864 billion in 1990 to $US 62.173 billion by the year 2000 the income and profit tax contributive capacity in Africa; i.e. an average annual 6.42 per cent growth rate for the period 1990 to 2000; such an annual growth seems quite achievable if the following appropriate steps are taken:

(i) extending to activities of the informal sector!/ income tax, this particularly involves improved registration of these activities, the level of salaries generated the latter and the staff employed; to this and the tax department should conduct an in-depth survey with a view to assembling relevant information on the identified informal operators: annual income, annual profits, rates of effectiveness of tax collection services, operational constraints, etc.

(ii) ensuring more effective taxation of profits from informal activities; to this end, there will be need to subject the enterprises concerned to regular keeping of accounts, at least basic accounts indicating the operating account and the balance- sheet for each fiscal period. There will also be need to sensitize enterprises in the informal sector on the advantages they stand to gain by regularly keeping their accounts submitting their tax declarations and acknowledging the role of taxes;

(iii) Make deductions from salary within the context of a deliberate policy for the promotion of compulsory savings while paying very attractive interests on their

savings; and

(iv) Find an appropriate revenue taxation method in kind and for the mobilization and monetorization of taxes derived therefrom; this implies in particular an objective estimate of rough taxable revenue as well as the strengthening of tax

administrations in Africa.

57. As you may recall, the informal sector is basically composed of many small scale low capital enterprises employing unskiUed workers, and making high profit and most not registered which makes it difficult for income tax authorities to collect necessary tax. The enterprises in the informal sector employs a large number of unlettered people. What is more, they operate without strict operational procedures. The International Labour Office Statistics show that it is a sector ottering a large amount of employment opportunities in Africa. In Africa, South of the Sahara employment generated by this sector represents 21 % of the total employment generated in 1991

as against 24.4 per cent of 95.044 million employment in Africa

21 Mechanics, muhwn, tony drivers, electricians, small-scale traders, bakersJewellers

small-scale farmers, shoe repairers, owners of coffee shops, farmers, hairdressers',

butchers, photographers, hawkers and telephone booths, etc....

TRANSCOM/946/Rev. 1 Page 21

■

(b) Contribution to social security (Table 4b)

58. A contribution to social security would rise to $US 3.561 billion by the year 2000 as against $US 2.283 billion in 1990 (an average of $US 2.06 billion over 1976-2000), i.e. an annual growth rate of 5.6 per cent. Such annual growth rate target could only be possible if there existed: greater participation by the private sector; and, at the same time an increase in payroll with a view to raising the general level of contributions by the employees, especially in the

transport and communications sector.

(c) Domestic business tax (Table 4b)

59. For a target of $US 19.138 billion to be attained by the year 2000 from domestic business tax on goods and services in Africa, it would require, on the basis of a revenue of $US 17.521 billion in 1990, an annual growth rate of 0.92 per cent, (i.e. for the period 1976-2000, an average of $US 15.8 billion). Such target is quite achievable if the following steps are taken in order to increase domestic business tax, especially banking services, insurance, transport and communications taxes, etc. The enterprises and businesses concerned will further be subjected to taxes such as patent, motor vehicle, insurance contract tax, vehicle inspection fee, fuel sales

tax, transport equipment tax, etc. These revenues would be obtained mainly:

(i) through continuous updating of the list of tax payers, on the one hand; and (ii) by extending the above-mentioned list to informal activities specially to the

generally unregistered small transport companies.

(d) Foreign business tax (Table 4b)

60. A strategic target of $US 25.047 billion should be set for the year 2000 (as against an annual average of $US 16.339 billion over the period 1976-2000, with regard to business taxes on goods and services with the outside world, i.e. on the basis of fiscal revenue of $US 18.149 billion in 1990, an annual growth rate of 3.8 per cent. In order to achieve such an objective it would be necessary to (i) curtail customs fraud especially through tougher sanctions and by providing customs officers with incentives and more resources for their operations; and (ii) in addition, there is the need to project the required level of financial guarantees by the concerned enterprises as well as the modalities for their mobilization; in other words, it is necessary to accommodate as much as possible the African customs administrations' interest with the requirements of an efficient management of the concerned enterprises (especially companies

importing transport and communications equipment).

.

(e) Non-fiscal public income (Table 4b)

61. A strategic annual growth rate target of 0.82 per cent is suggested for non-fiscal public revenues in Africa, i.e. $US 13.71042 billion and $US 12.67132 billion respectively by the year 2000 and in 1990 (i.e. an annual average of $US 11.527 billion calculated over the period 1976- 2000).

62. Such a performance would require the following measures:

(i) Diversification and if possible bolstering of bilateral and multilateral cooperation with special emphasis on a well targeted strategy for increasing the grants component of public and received;

(ii) Improved management of public enterprises with a view to making them financially self-sustaining. In this respect, the formula of a contract plan, currently initiated in some sectors and especially in transport and communications in Africa should be encouraged and extended between these enterprises and their governments in such a way as to put an end to the very frequent interference of the latter in the day to day management of public enterprises;

(iii) The public enterprises for their good management should be authorized by the public authorities to develop a judicious policy for the preservation of their assets by making adequate provisions for depreciation, insolvency of their customers, various risks, etc.;

(iv) The contract plans can serve as a basis for the transport and communications enterprises as well as the concerned administrations for the gradual recovery of

costs.

(f) Strategic objectives for domestic and external debt (Table 30)

63. The cumulative domestic and external borrowing by African countries will be US$ 509.61 billion up to the year 2000.

64. Africa's strategy as regards debt is to effect the most suitable reduction and conversion mechanisms for the continent's indebtedness.

65. To that end, it will become necessary to bring about an appropriate environment, by:

(i) setting up credible privatization and debt-conversion programmes; in particular, relevant programmes for the transport and communications sectors;

TRANSCOM/946/Rev 1 Page 23

(ii) seeking potential investors interested in purchasing African debt and guaranteeing those investors an economic and regulatory environment that is congruent with the advancement of private enterprise; and

(iii) offering proof of future capacity to repay the debt so rescheduled.

66. These are the fundamental conditions that will ensure that the African countries concerned benefit from the various available mechanisms of reduction and conversion of their debts while guaranteeing the growth of their economies, particularly in the transport and communications sectors.

Debt reduction and conversion mechanisms

(f-1) Reduction conversion of bilateral debt and of secured private debt

Here, the applicable mechanism varied according to whether the debt in question is bilateral debt/secured private debt; or unsecured private debt.

68. The reduction and conversion of bilateral debt and of secured private debt are treated by the Paris Club in accordance with the mechanisms described below for each of the two categories of debt. ' :

a. In the case of secured private debt:

(i)

on a certain date (the due date) the debtor country submits to the Paris Club a application for debt relief, the two parties agree on a period known as the consolidation period (two or three years, for instance), to run from the due date;

the total repayment due (principal and interest, including repayment arrears) within the consolidation period mentioned above, constitutes the consolidated amount:

(iii)

(iv)

(v)

the secured private debt incurred after the due date cannot, in any case, rescheduled;

*

the effect of debt relief mechanisms will vary depending on which of the following options A,B,C is adopted in the rescheduling of the debt;

option A envisages the cancellation of 50 per cent of the consolidated amount; the remaining half is, simultaneously with the rest of the secured private debt, rescheduled at market rates;

(vi) option B envisages the rescheduling of the entire consolidated amount, but at a lower rate of interest, such that the total interest reduction is equivalent to half of the consolidated amount; the grace period and the life of the obligation are longer;

the latter may, for instance, be set at twenty-three years;

(vii) option C envisages a 50 per cent reduction of the consolidated debt and an exceptionally long maturity.

b. In the case of bilateral deht

69. Here, the rescheduling conditionalities envisage a twelve-year grace period, a thirty-year debt-rescheduling period and more concessionary interest rates.

70. Significantly too, the conversion of secured private debt into equity participation and development and is limited to 10 per cent and 20 per cent respectively, up to a maximum of

$US 10 to US$ 20 million and 100 per cent of the consolidated amount, for the bilateral debt.

f.2) Unsecured private debt

71. The rescheduling of this category of debt is dealt with exclusively by the London Club.

It comprises a large forum of creditor commercial banks interested in offering their debtor clients improved facilities for repaying their debts; this is done through the rescheduling and conversion into company equity of the commercial debt.

72. Interested clients (NGOs, private investors, etc.) purchase from the commercial banks in

question, at reduced market rates (for example, 20 cents per US dollar), a portion (small at present) of the secured private debt; that element is then resold (at, say, 30/40 cents per US dollar of unsecured private debt) to debtor countries, through:

(i) Equity participation in companies;

(ii) Export development programmes for the country concerned; and (iii) Economic and social development programmes, etc.

f-3) Def>t cancellation

73. The debt relief mechanisms described above seem to have a limited impact on the

reduction of Africa's indebtedness; on the basis of available indicators:

TRANSCOM/946/Rev. 1 Page 25

the ECA notes that only 13 per cent of Africa's debt obligations are eligible for rescheduling on concessionary consolidated-debt reduction terms; and that if, for instance, 100 per cent of the bilateral debt qualified for relief, the amount of debt converted would be only $US 37 billion;

(i)

(ii)

(iii) it has also been observed that the distribution of debt servicing (principal and interest over a longer period and at relatively concessionary interest rates in the short- and medium-term, translates in the long term into more severe debt-service obligations.

74. The cancellation of a more or less sizeable portion of Africa's indebtedness is therefore by far the best way to achieve a significant reduction and relief of the debt.

75. It should be noted, however, that the effects of the initiatives so far taken to alleviate Africa's indebtedness are very insignificant: according to recent World Bank Report, about US$

15.1 billion in official debt obligations for development has been cancelled during the period from 1978 to 1992.

CHAPTER II

FINANCIAL POLICIES AND PRACTICES IN TRANSPORT AND COMMUNICATIONS IN AFRICA

Section A: Review of Policies and Practices

76. Financial policies address the following:

(i) Expenditure priorities (such as investments, operating expenditure, maintenance,

and rehabilitation expenditure, training, etc.)

(ii) Priority given to financial resources mobilization objectives, fiscal and non-fiscal

revenue, strengthening of private sector participation, borrowing, special funds,

etc.

77. This section analyses:

(a) the extent of the funding needs of transport and communications sectors in Africa;

(b) the instruments created to finance these needs;

(c) and factors such as the sectors' performance, the priority accorded to transport and communications in Africa and any other strategies that might enlighten leaders responsible for economic development in Africa and guide their decisions on financial resource allocation. The part on fiinding policies and practices in African countries will consequently focus on the points mentioned below:

(i) expenses (including investment expenses) pertaining to support to transport

and communications sectors;

(ii) funding instruments set up in transport and communications sectors:

(a) analysis of financial support to these two sectors (governmental

support, conditions regulating loans to the sectors, etc.); and

(b) the role assigned to the private sector in the development of

transport and communications (regulatory framework, role of the private sector in the promotion of the capital market, etc..) (iii) financial support, economic and financial performance of the transport and

communications sectors (contribution to the GDP, contribution to the generation of employment, of profits/cash-flow, fiscal revenues generated by transport and communications investments in Africa, etc..);

(iv) Experiences of selected African communications enterprises.