Here’s how ECOWAS ended up with a War Chest of $US252million (3), and How the African Integration narrative is far from over!

By E.K.Bensah Jr

Last week, I touched on proposals for innovative financing paths; the case of ECCAS and its levy on imports; the case of UEMOA/CEMAC; and the case of ECOWAS.

On the proposals, you may re-call that a study by the AU commission had proposed no less than eight scenarios, which included (a) tax on imports; (b)tax on revenue from hydrocarbon exports; (c)tax on insurance premiums; (d)levy on airline tickets, but that the AU had proposed three, which are: : (i) levy on imports from the rest of the world; (ii)levy on airline tickets; and (iii)levy on insurance policies.

ECCAS has a levy, which it calls community contribution for integration (CCI), which is calculated as 0.4%. UEMOA’s levy rate is 1%, whereas ECOWAS’s is 0.5% of the value of goods imported from third countries.  So far, so straightforward. The real story and one I hope has left one salivating long enough is how on earth ECOWAS ended up with a so-called “war-chest” of 252million. If you know your figures for how much ECOWAS made between 2007 and 2009 from imports, it is not difficult at all to understand how between that period, it managed to bag that amount.

In ECOWAS, during 2007 and 2009, revenue from the Community levy amounted to US$230, 314 and 360 million respectively. In that same period, the approved budgets of ECOWAS institutions run to US$160, 220 and 274 million, respectively. This left a positive balance of US$72, 94 and 86 million, respectively.

It is clear that in the three years, ECOWAS achieved “a cumulative positive balance of US$252million” and recorded in its books as carried forward earnings. This balance is what the AU’s “Bulletin of Fridays of the Commission” considers a veritable “war chest”, offering ECOWAS “considerable leeway in implementing its mandate”. There are two significant things about this development. First, that while the world was going through the financial crisis in 2008, here was West Africa, through its innovative fund-raising mechanisms raising revenue and secondly, getting a surplus for good measure.

Levy on Insurance Policies and airline tickets: Africa Solidarity tax

Even after all this good news on financing African integration, the story is not quite over – as exemplified by discussions on more levies. In this specific proposal, which is also known as “a citizen tax”, the idea is to get this levy to involve “all African citizens” through insurance subscriptions: automobile and real estate. Heath insurance is exempted.

The so-called “solidarity tax” is so-named because most of the tax is supposed to come from G8 and G20, and can be applied to flights leaving Africa and with destinations in Africa; flights departing from Africa with destinations outside Africa, with the Commission of the African Union proposing US$2 for short distances, and US$5 for ling distances.

How Senegal innovatively-finances (integration)…and way forward?

Truth be told, ECOWAS member state Senegal has been doing this for a while. In the country, the tax applies only to flights departing from airports in the country. Collection of the levy is done through IATA for all airlines associated with it. At its monthly payment operations, IATA pays the share due Senegal into a bank account (escrow account) held with the BNP Paribas.

If we stop and reflect on this for a nano-second, can we really say we need to continue depending on donors, or is it perhaps not time to re-consider that fallacy of needing an “aid-exit” plan to woo investors and so-called FDI? If we can get past this mindset – and I believe the sub-region has the capacity to do so, as exemplified by my post last year where I expatiated on how instrumental the Ecowas Bank for Investment and Development has been – then the sky will certainly offer itself as the proverbial limit on seed funding for continuing the narrative of African integration which continues to be written summit after summit.

AU summit: 23—30 January, 2012

Speaking of which, this week of 23 January is a great week for African integration as between 23 and 30 January, the AU hosts its 18^th summit in the home of the AU, with the theme “Boosting Intra-African Trade”.

Reports online indicate that although the main theme is intra-African trade, it will be a significant summit for the manner in which it will cover the following topics: Election of the Chairperson; the Deputy Chairperson and the other commissioners; the state of peace and security in Africa in relation to the North Africa Revolution; the issues of “shared values”: good governance; elections and human rights; the humanitarian situation in Africa; the review protocol of the African Court of Justice and human rights; the future of the Pan-African Parliament; the way forward on the political transformation of the AU.

It goes without saying that this will be the first AU summit without Gaddafi, and also the first that will include the full participation of the new Libyan and Egyptian authorities. It remains an exciting time for the AU on account of the fact that the AU is no less than 10 years this September. No less than the Chinese President Hu Jintao will be in Addis to officially hand over the new gargantuan AU Headquarters to the African Heads of State.

In 2009, in his capacity as a “Do More Talk Less Ambassador” of the 42^nd 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" (http://critiquing-regionalism.org). 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 ekbensah@ekbensah.net / Mobile: +233-268.687.653.

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 15^th 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 42^nd 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" (http://regionswatch.blogspot.com ). 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 ekbensah@ekbensah.net / Mobile: +233-268.687.653.

Deconstructing ECOWAS’s war chest of $US252million, or a Brief Tale on Financing African Integration (1)

“The Accidental Ecowas & AU Citizen”:

Deconstructing ECOWAS’s war chest of $US252million, or a Brief Tale on Financing African Integration (1)

By E.K.Bensah Jr

One of the major highlights of the festive season was hearing on no less than the BBC world service business news that apart from Africa’s supposed rise (which has spawned the now-platitudinous “Africa rising” tag), the regional economic communities are doing well. Truth be told, as in the case of the Economist magazine apologizing for calling the African continent “hopeless” in 2001 in its Dec 2011 edition, we really did not need the venerable BBC to acknowledge the presence of the RECs to know that they are making waves. 

Those African integration actors at the UN Economic Commission for Africa(UNECA); the African Union(AU) and the African Development Bank(AfDB) who have been working tirelessly and assiduously to ensure the narrative is consistent with that of the Abuja Treaty are perhaps the unsung heroes of the fight for continental integration.  It is good to know that their efforts have not been in vain. The fact, though, is that these achievements cannot have happened without resources.

It is an article of faith of the continental integration naysayer to claim that institutions like the AU and the RECs will never get far because apart from the political will, they do not have resources. Those of us that have grown thick skins to this kind of criticism appreciate the castigation as a valid point, but also readily dismiss it as we know this case to be untrue. While it is a well-known fact that a major part of the funds that the AU and institutions like ECOWAS receive is that of donors, it is also true that apart from ECOWAS, another AU-REC—the Economic Community of Central African States(ECCAS)—, and two other non-AU-RECs—UEMOA(West Africa) and CEMAC (in central Africa)—have innovative financing methods. Now, the key word here is “innovative”. 

History of Innovative Financing in African Integration

The fact is that the recondite idea of innovative financing for organizations like the African Union is not new as they have been ongoing since 2001. The actual idea emanated from a summit in Lusaka, Zambia in 2001. In conceiving of the AU, the Heads of State and Government of the AU appreciated the fact that they needed to pursue the idea of a new source and mechanism to finance the AU. In doing so, they realized that there were limitations to the existing financing mechanism. To this end, they authorized the Commission of the African Union to undertake studies, with the assistance of experts, to identify what one AU press release of December 2010 calls “alternative modalities of funding” the programmes of the then-OAU.

 

Currently, the African Union funds are predicated on two sources of financing: member states contributions and partner’s contributions. It is conceivable that the major constraint associated with these two sources constrain the AU from implementing its integration agenda. At no time has this become as important as now when the effects of the 2008 financial crisis are affecting Africa in different ways. As a consequence, AU policymakers believe it is high-time the AU got its act together by implementing the decisions of the Lusaka Summit.

Explaining the Lusaka Appeal

The Lusaka Appeal is contained in Decision AHG/Dec.160(XXXVII), which reads as follows:(1)The Conference authorizes the Secretary-General to: (i)Explore the possibility of mobilizing extra-budgetary contributions from member states, OAU partners and others; (ii)Undertake studies, with the assistance of experts, to identify alternative modalities of funding the activities and programmes of the OAU, bearing in mind that the Union cannot operate on the basis of assessed contributions from member states only, and to make appropriate recommendations thereon.” It goes on to list challenges, which include funding that fluctuates and is “paltry”; funding sources that are limited and “are not diversified and remain permanently uncertain”; the “largely inadequate” and “unstable” funds that are given to the AU, and which are not given “in real-time”.

It finally concludes that “the one and only solution allowing Africa to meet all these challenges lie in Africa making available to the AU and its organs, their own resources that are stable, substantial and more or less permanent; and hence the Lusaka Appeal of July 2001”.

How the AU Commission has responded

The study was first validated by independent expert, followed by experts from member states. At the request of experts of member states, the study was further complemented by an impact study measuring the effects of the proposed instruments on the economies of individual African countries. Truth be told, all the theoretical issues, such as the practical aspects of introducing the initiatives or the adoption of alternative sources of funding, have been explored in-depth. Furthermore, the study has even been the subject of two extraordinary conferences of African ministers of Economy and Finance (CAMEF). 

As one might expect, the implementation of the Lusaka Appeal has been fraught with challenges, which include, for example, country delegations. Most often than not, the experts working on the Appeal are not the same ones from one meeting to another; and the government changes in our countries also change with every government, inevitably taking with them vital information that would have been necessary as input for the implementation.

This trend has inevitably derailed the “virtually-permanent achievements” of previous meetings, with each new delegation wanting to make its mark on the proposed instruments.

The good news is that a decision was adopted at the 15^th ordinary sessions of the Assembly of the AU in Kampala, Uganda, in July 2010, and that decision reflects the firm political will of the Heads of State and Government to finalize the issue. Furthermore, the political will expressed by Heads of State and Government in the Kampala Decision invites experts as well as the ministers, to truly address the issue and make clear, consensual and concrete recommendations very much-needed for innovative financing to make the impact it so needs for African integration. 

In the second part, we’ll be looking at the scenarios for innovative financing; the different cases of the regional economic communities; as well as how ECOWAS ended up with a surplus of USD252million in its coffers from its innovative financing under the ECOWAS Levy.

In 2009, in his capacity as a “Do More Talk Less Ambassador” of the 42^nd 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" (http://regionswatch.blogspot.com ). 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 ekbensah@ekbensah.net / Mobile: +233-268.687.653.