Funding top agenda on EAC summit as federation is put on back burner

Saturday January 10 2015

The East African Community has put talk about political federation on the back burner as the heads of state turn their focus to securing additional funding for joint projects.

This is the key agenda at their February 20 summit in Nairobi, which is a make-good for the one that aborted in November after Tanzanian President Jakaya Kikwete fell ill in the United States. Then, a timeframe for a federation was the top agenda although a preparatory meeting of the EAC Council of Ministers had dwelt on infrastructure financing.

READ: EAC Secretariat to decide on next Summit

Dropping of the federation agenda represents a setback for Uganda, which had wanted a roadmap for the political union and writing of the constitution expedited.

Burundi, Kenya, Rwanda and Tanzania had however sought more time to consult on the scope and timelines for the union scheduled to be in place in a decade.

“This is yet to be resolved and the partner states have not had time to meet and conclude on this for a report to be presented to the summit,” EAC sources said.


READ: States fail to adopt EAC federation plan

The sources added that the differences had informed the change in the summit agenda despite the insistence by Uganda that the roadmap had been agreed upon and should be presented to the presidents for adoption as earlier directed.

“However, the presidents may just be advised by the Secretariat to officially request the partner states to consult and present the report later,” the source explained.

This means the experts will be required to meet again to review the recommendation by all the states and reach a consensus, making March 30 the earliest that the ministers can have the report ready.

Tanzania is expected to take over the EAC chairmanship from Kenya’s President Uhuru Kenyatta at the rescheduled summit.

Peter Mathuki, a Kenyan East African Legislative Assembly representative, said the other three pillars of the EAC integration — Customs Union, Common Market Protocol and monetary union — should be implemented to lay the ground for the political federation.

“We can’t fast-track it if the three pillars are not functional,” said Mr Mathuki.

Meanwhile, the debate on the alternative financing method for the EAC has been on the table at the Secretariat since 2012. The bloc has been negotiating for an equitable formula for determining how much each country contributes to its chest in an effort to meet its budget, 72 per cent of which is provided by donors.

READ: Which state will call the tune in EAC? The funding question

The EAC presidents will decide whether a member’s contribution should be based on GDP, imports from non-EAC countries, intra-EAC exports or tax revenues.

The options were proposed by a team of experts and any of them would replace the equal contribution system that is in place at present, amid fears that unequal assessments could give some countries more clout in Community affairs.

Apart from equal contributions, all the other option would see countries that contribute higher amounts carry more weight at EAC headquarters in Arusha. Bigger economies such as Kenya, with a GDP close to $55.2 billion, will have to contribute more.

Donors to the EAC budget include Canada, Denmark, Finland, France, Germany, DfID-UK, the European Union, the World Bank and Norway. They however finance selected programmes instead of giving the grants to the Community.

READ: EAC’s $125m budget under strain as donors withhold funds over graft claims

“This dependency on donor funding has left the Community vulnerable, making it hard for it to make an independent decision on implementing projects and programmes that span economic, social, political, defence and security areas,” said Andrew Luzze, executive director of the East Africa Business Council.

Further, the EAC Partnership Fund, which finances almost all the programmes in the community, such as infrastructure and trade, is managed by donors.

According to Samuel Nyandemo, an economist at the University of Nairobi, in order to ensure the continuity of the EAC’s activities, partner states should enhance the capacity of the General Reserve Fund to enable it to finance activities of at least three months’ budgetary appropriations in the event of delays in receipt of contributions from partner states.

Last year, the Council of Ministers approved a proposal to impose a one per cent levy as an additional charge on the existing import taxes. However, the heads of state directed that consultations continue so that more options are considered.

Experts warned that the levy could raise the prices of goods shipped from outside the bloc — including oil and machinery, the main imports — which would have an impact on the cost of living for residents.

The prices of commodities such as fuel, food, cars, machinery and second-hand clothes, the most common goods sourced outside the EAC, are likely to go up. Because of this, it is understood that the Secretariat is angling for contributions to be based on GDP because it is easier to administer and provide for in national budgets.

It would also form the entrance basis for new members with penalties for late remittance, such as denial of voting rights, enforcing payments.

A Community levy is the main source of funds for blocs such as the EU and Ecowas. The levies work well where integration has reached higher levels, especially with regard to trade and sectoral policies.