Which state will call the tune in EAC? The funding question
Saturday October 06 2012
The East African Community partner states are seeking an equitable formula for determining how much each country contributes to the regional bloc’s budget.
A team of experts has presented a report discussing several possible scenarios, including: The current equal contribution; assessed contribution based on the member states’ GDP; assessed contribution based on imports from non-EAC countries; assessed contribution based on intra-EAC exports; and assessed contribution based on taxation.
Apart from equal contributions, all the other options could see countries that contribute more carry more weight at EAC headquarters in Arusha.
Bigger economies like Kenya, with a GDP close to $30 billion, would have to contribute much more than smaller ones like Burundi at $2.33 billion.
READ: EAC proposes new funding model
According to the experts, the best option would be to have countries contribute equal amounts to the first half of the budget, and then distribute the other half under the assessed contribution method, based on the GDP or intra-EAC exports, or both.
Any change to the current structure of funding the budget would, however, require an amendment of Article 132(4) of the East African Community Treaty and partners states’ legislation.
It is hoped that a new equitable funding structure will enable the EAC to meet its budget, 72 per cent of which is provided by donors.
The 2012/2013 budget will be financed by partner state contributions through the Ministries of EAC ($35,375,722); partner states through other agencies ($4,825,709); development partners ($97,079,329); and other income ($1,035,695). Each partner state will contribute $7,075,144.
The donors, who include Canada, Denmark, Finland, France, Germany, DfID-UK, European Union, World Bank and Norway, however, finance their programmes instead of giving the grants to the Community.
“This dependency on donor funding has left the Community vulnerable, making it hard for the community to make an independent decision on implementing projects and programmes that span economic, social, and political, defence and security areas,” said Mr Sindiga.
The Swedish government has been financing EAC experts to attend the Economic Partnership Agreements (EPAs) negotiations between the EU and African countries that are still ongoing, through the Swedish International Development Cooperation Agency (Sida).
“In this case, EAC cannot have an independent and open-minded decision during the negotiations because they are bound by the Swedish sponsorship,” said Mr Sindiga.
The EAC Partnership Fund — which finances almost all the programmes in the Community like infrastructure and trade — is managed by the donors.
The Partnership Fund members are Canada, Denmark, Finland, France, Germany, DfID-UK, the European Union, the World Bank and Norway.
The EAC Council of Ministers this year commissioned a study by a team of experts from all the partners to explore sustainable funding mechanisms for the Community that will guarantee adequate resources, equitably funded and remitted on time.
In order to ensure the continuity of EAC’s activities, it is recommended that partner states enhance the capacity of the General Reserve Fund to enable it to finance activities for at least three months’ budgetary appropriations, in the event that there are delays in receipt of contributions from partner states.
Aneson Cadribo, African Union advisor and political analyst, says the advantage of the current modality of equal contribution is that it allows for equal ownership and voting rights and the drawback of the system is that it does not reflect the ability to pay as some countries like Burundi still have small and upcoming economies and end up straining to come up with their contributions.
Wanyama Masinde, a director at the Catholic University’s Institute for Regional Integration and Development, says that the advantage of assessed contribution based on the member states’ GDP is that it is in conformity with the principle of ability to pay.
“The disadvantage is the underlying possibility of some partner states demanding a bigger ‘voice’ based on the level of contribution in sectors of employment, political matters and representation at all levels” Dr Masinde said.
“But since such contribution may be pegged to the relative benefits derived from the Community, such demands may not be warranted.”
Kwame Owino, CEO of the Institute of Economic Affairs (IEA-Kenya) however said that the modality should also consider other social and economic obligations that partner states may be facing, like national debts, security, health and education.
In this assessed contribution, the experts only considered that the share to be contributed by each partner state may be established on the basis of that country’s ability to pay and did not take into consideration various factors such as levels of development; general quality of life; resource endowment; population; and size of the country.
A community levy is the main source of own resources for EU and Ecowas though they are applied in various ways.
The EU Community levy system works well because of high level of integration between members states. In particular, harmonisation of trade and sectoral policies facilitates the implementation of the system.