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Is the African Union’s financial independence a possibility?

24-08-2016

Miyandazi, L. 2016. Is the African Union’s financial independence a possibility? ECDPM Talking Points blog, 24 August 2016.

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As a continental organisation, the African Union (AU) is in a constant struggle to cope with the multifaceted social, economic and political problems that have become particularly worrisome over the last two decades. Consequently, resolving this has great resource implications. Yet, the quest to find alternative, adequate, stable, and predictable funding for a fully functioning AU has been discussed severally at various experts and ministerial meetings, but with no formal decisions being made. A ray of hope, however, comes in the form of the recent adoption of a more bold declaration on AU financing at the 27th AU summit. The big question is: Could this be what the union needs to finally meet financial independence?


Who funds the AU?


Between 2009 and 2010, 66.36% of the total AU budget was financed by only five countries (Algeria, Egypt, Libya, Nigeria, and South Africa). More recently, each of these countries continues to face grave internal and external challenges. Hence, AU’s dependence on partner financing gradually increased from 45% of the budget in 2010 to over 70% today. For example, payments by the European Commission increased from €91 million in 2010 to €330 million in 2015, of which almost 90% was for peace and security. Other major donors to the AU include the United States, World Bank, China and Turkey.

A major step to generate more funds for the AU was first taken through the formation of the High-Level Panel on Alternative Sources of Funding the African Union. The Panel suggested options including: “a) US$2.00 hospitality levy per stay in a hotel; and b) US$10.00 levy on flight tickets for flights originating from Africa or with destinations in Africa”. If realised, these two options were expected to generate $728 Million for the AU by 2017. Additionally, the panel proposed a US$0.005 per SMS levy, which was to raise $1.6 billion if applied by 2017. The AU Assembly approved these options in principle with mechanisms for their operationalisation back in 2013. They further requested that the possibility of increasing statutory contributions from Member States be explored.

Collection of the taxes (levy on air tickets and the tourism levy) was to be carried out in close collaboration with Member States. In particular, it was suggested that flight tickets levy be enforced in partnership with the International Air Transport Association and national transport agencies, while the tourism tax be collected in close collaboration with the Ministries in charge of Tourism in Member States. Accounts were then to be opened in Member States’ Central Banks to receive the resources collected from the two taxes.

Despite the positive nature of the suggestions, the proposals posed evident worry about increasing the tax burden of citizens in Africa. Moreover, countries that depend heavily on tourism were worried about implications of the flight levy charges and stakeholders in the mobile phone sector insisted that the implementation of the SMS levy charge would trickle down to affect millions of mobile subscribers in Africa by increasing the threshold of SMS charges. Ultimately, in 2014, African finance ministers rejected the High-Level Panel’s proposals. Nevertheless, in 2015, the AU Assembly adopted a proposal by AU finance ministers to increase Member States’ contributions to fund 100% of AU’s operational budget, 75% for the programme budget and 25% of the peacekeeping budget. This was to be implemented within five years from 2016 on-wards.


A new dawn…


Current developmental matters in Africa are anchored on implementation of two key initiatives, Agenda 2063 and the Sustainable Development Goals (SDGs) 2030 Agenda. Financing for development based on those key agendas for Africa hinges almost entirely on its ability to mobilise financial resources within the continent, as opposed to externally. For instance, to implement the SDGs, Africa is estimated to need between $614-$613 billion per year. Additionally, there is a need for the Union to allocate funds for issues of Peace and Security.

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More recently, during the 2016, 27th AU Summit in Kigali, Rwanda, Donald Kaberuka, AU High Representative for the Peace Fund, presented a plan expected to yield more internal funds for the Union. He proposed a 0.2% levy on all African eligible imports,. The Kaberuka proposal expects to bring in up to $1.2 billion yearly for the AU. This is estimated to cover 100% of AUs’ operating budget, 75% programme budget and 25% peace and support operations budget.

Member States’ contributions are grouped in three tiers: as of 2016, 60% of the budget covered equally by countries with shares of gross domestic product that is 4% above the continent’s total (Algeria, Angola, Egypt, Libya, Nigeria and South Africa), 25% equally covered by countries with shares of GDP between 1% and 4% (12 countries), and the third tier consists of countries with shares lower than 1% (36 countries) to equally contribute to the remaining 15% of the budget.

This formula is a more forward-looking proposal in line with the AU’s strategic plans of financing its own inclusive growth and sustainable development. However, questions around modalities of implementation, transparency and compliance by countries and the overly ambitious plan to have this levy already working by 2017 have still not been addressed and these are likely to be the core factors that decide whether the Kaberuka report actually works.


The views expressed here are those of the author and not necessarily those of ECDPM.

Photo courtesy of UN Photo by Eskinder Debebe.

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Comments

Olawale Rasheed

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2016-09-06 10:12:34

Great insightful informative article. We will publish it on our news platform,Sahelstandard.com

Yukabel

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2016-08-31 23:57:59

The piece offers an insightful summary for those of us involved in research on this matter. It is sad that the AU is not “thinking outside the box” to focus on simple innovation in financing. Am having trouble getting further in depth readings on the Donald Kaberuka report for some research i'm doing, on the concrete steps that African countries are taking at national level to finance agenda 2030. Any recommendations please?

Hannah

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2016-08-27 19:35:21

I find this article very enlightening. Learning about how the AU is financed and the various proposals for sustainability shows a forward thinking approach. Kudos to the writer, you make big issues easy to understand.

African institutionsDevelopment Finance and TaxationTransitions in AfricaAfrican Union (AU)TaxAfrica