Wednesday, January 18, 2012

Deconstructing ECOWAS’s war chest of $US252million, or a Brief Tale on Financing African Integration (2)

The Accidental Ecowas & AU Citizen”:
Deconstructing ECOWAS’s war chest of $US252million, or a Brief Tale on Financing African Integration (2)
By E.K.Bensah Jr

January is always a great month to review and refresh everything – including money. It is no surprise, therefore, I have chosen to focus on an aspect of resource-mobilization in fulfillment of the African Integration narrative which ought to see continental union—as per the Abuja Treaty of 1991—by 2034. True, it seems quite a long way away, but whoever thought the Millennium Development Goals (as prescribed in 2000) would now only be two years away? There’s no gainsaying that the road to economic emancipation for Africa is very long and hard, so it remains paramount to get more serious now, more than ever, on management of finances of the eight regional economic communities populating the African integration landscape.

Last week, I touched on innovative financing and offered an insight into how it is an old battle that needs a little warming up by both African integration watchers and the African populace alike. It needs must go beyond being a discussion rendered to abstraction by cognoscenti of African policy-makers to a place where media across the continent can begin to discuss and engage. Never mind that the idea of financing African integration seems to be a preserve of “specialists”, it needs moving to a place where all can freely discuss and debate it.

Proposals for innovative financing paths
The original study by the Commission of the African Union proposed no less than eight scenarios of innovative financing sources. These sources are to be structured around: (a) tax on imports; (b)tax on revenue from hydrocarbon exports; (c)tax on insurance premiums; (d)levy on airline tickets; (e) involvement of the private sector through sponsorship and other forms of support; (f) the sale of items and other products carrying the African Union symbol. However, as a consequence of a series of expert meetings and ministerial conferences, the Commission’s choice was limited to the following main components or instruments: (i) levy on imports from the rest of the world; (ii)levy on airline tickets; and (iii)levy on insurance policies.
In order to obtain a greater insight into how these three instruments are used in levying taxes for some of the AU’s regional economic communities, we shall look at the cases of the Economic Community of Central African States(ECCAS); UEMOA/CEMAC; and ECOWAS.

Truth be told, ECOWAS, UEMOA, ECCAS and CEMAC are the only RECs that have been implementing the levy on imports from non-member countries with some degree of success

The case of ECCAS and its Levy on Imports
For an organisation that barely makes the news in this part of the world [for example, they just concluded the 15th session of their summit on Monday, which major outcome was to call for the application of the convention on free movement of good and people, including the fixing of the date of 1 July, 2012 for the launching of an free-trade area to be fully realized by 2014], one might find it hard to believe that it has a fully-functioning financing mechanism.

In ECCAS, the levy is called the *community contribution for integration (CCI)*. Consumer goods, originating from third countries, imported by member states are subject to the CCI. Products that are excluded from the field of taxation are products originating from the Community and imported goods under “suspensive customs regimes”.

In this grouping, the taxable value is the customs value of goods. In other words, the CIF(cost insurance freight) or the transaction value. The rate of the CCI is calculated as 0.4%. In other words, if the customs value is 2,000,000CFA, the CCI is 2,000,000 X 0.4% = 8000CFA. This is collected by national authorities – or customs or the Treasury.

These amounts collected under the CCI are deposited into an account opened on behalf of ECCAS at the Central Bank of each of the 15 member countries of ECCAS. In addition, a central account for ECCAS is also opened at the Central Bank of the country, which hosts the headquarters – as in the case of the cash account in Libreville, Gabon.

On the plus side, if the CCI is well-implemented and all countries have a surplus in t he ECCAS account opened in their central bank, it is the entire region that is strengthened.

The case of UEMOA/CEMAC
According to the AU’s “Bulletin on Fridays”, these two organizations implement fully the Community levy system. One of the major reasons for this is because they are both customs unions, which facilitates the implementation of this measure.
The levy rate in UEMOA is 1%. As a consequence, the levy rate in the member countries of UEMOA is 1.5%, broken down as follows: (i)1% for UEMOA; (ii)0.5% for ECOWAS countries.

The case of ECOWAS
In ECOWAS, as in ECCAS, the community levy is placed on taxable value of goods imported into the Community from third countries and marketed for consumption. The following are exempt from the community levy: (i)aid, grants and non-repayable subsidies for a state, public corporations and state-approved charities; (ii)goods imported from third countries through financing provided by foreign partners, subject to a provision exempting such products from all tax levies; (iii) good imported by firms under the existing tax system at the date of entry into force of this Protocol; (iv) the goods having been charged the community levy under any previous tax regime.

ECOWAS Community levies are predicated on: (i) CIF (cost insurance freight) value at the port of landing for imports by sea; (ii) the CIF value of imports by land at the point of entry into the customs territory  of the Community; (iii)the customs value at the port of landing (APOD) for imports by air; (iv)the market price list of the respective goods.

The actual rate, as in the case of ECCAS being at 0.4%, is set at 0.5% of the value of goods imported from third countries. This rate, however, can, if necessary, be changed every three years by the Authority of Heads of State and Government on the recommendation of the Council and the collection is done by heads of competent customs offices. To this end, an additional line is opened in their accounting books in which daily collections of the Community levy are recorded.  In turn, the Commission of ECOWAS, on its own behalf, opens an account in the books of the Central Bank of each member state (for countries having their own Central Bank) and with a branch of the UEMOA-based BCEAO.

Based on the import value of imported goods, the customs requires the importer (who is also from the private sector) to issue two cheques: one in favour of UEMOA(1%) and the second in favour of ECOWAS(0.5%). The Customs Services in turn deposit the cheques received from importers to the accounts of UEMOA and ECOWAS, which have been opened at the Central Bank of each state.

Finally, in ECOWAS, what will be most useful to the reader is how these funds are used. First, the funds go to the regular budget of the Community and its institutions’, such as the West African Monetary Institute (located around the Tetteh-Quarshie interchange) and the Spintex Road-based ECOWAS Regulatory Electricity Authority (ERERA). The funds exclude the budget of the Cooperation, Compensation and Development Fund; (ii)the budget to compensate revenue losses suffered due to trade liberalization; (iii) the financing of development activities; and (iv)any other allocation decided by the Authority or the Council including the capital increase of the ECOWAS Fund.

In the interests of space, I will conclude next week’s third part by providing greater insight into that so-called “war chest” I have alluded to in the two parts. It goes without saying that without an explanation of how ECOWAS innovatively-finances its funds for regional integration, it would be veritrably difficult understanding how one arrived with a “war chest” of that considerable sum!

In 2009, in his capacity as a “Do More Talk Less Ambassador” of the 42nd Generation—an NGO that promotes and discusses Pan-Africanism--Emmanuel gave a series of lectures on the role of ECOWAS and the AU in facilitating a Pan-African identity. Emmanuel owns "Critiquing Regionalism" ( ). Established in 2004 as an initiative to respond to the dearth of knowledge on global regional integration initiatives worldwide, this non-profit blog features regional integration initiatives on MERCOSUR/EU/Africa/Asia and many others. You can reach him on / Mobile: +233-268.687.653.


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