28 March 2014

A New Strategy for Financing Integration in North Africa

press release

One of the major reasons the integration process in Africa is lagging behind relates to the insufficient or irregular resources mobilized for the regional cooperation. Given the lack of the necessary financial means, the implementation of common sectoral policies seems to be the weakest area of the regional integration schemes. For UMA (Arab Maghreb Union) as for some other RECs on the continent, financing of activities still relies on the traditional system of the Member States' contributions, from their national budgets and treasures.

These contributions are fixed annually by the deliberating bodies, according to criteria specific to each REC, and are supported by the national budgets which are in turn elaborated and implemented under the priorities and constraints of each country. The dependency arising there from and the financial constraints of the States have led, inter alia, to the chronic insufficiency of budget allocations to the regional institutions, coupled with the accumulation of arrears of contribution, all these resulted in delays in the implementation of the schemes of trade liberalization in the absence of adjustment mechanisms and given the poor implementation of integrating projects (in particular infrastructure). If assistance from development partners has helped sometimes to compensate some of these weaknesses, it remains uncertain, limited and conditional, and often confined to timely technical assistance, regarding studies or the organization of seminars/workshops.

This failure of traditional mechanisms of resources mobilization for the regional cooperation has led actors and facilitators of the integration process in Africa -drawing on the European experience- to redirect their efforts towards seeking and implementing more autonomous and regular alternative financing mechanisms of the regional economic communities, able to permanently remove the outstanding obstacles. Gradually, the concept of autonomous financing has been incorporated into the substantive law of the majority of the second and third generation regional treaties (such as CEAO, then UEMOA, ECOWAS, CEMAC, ECCAS, COMESA), as well as in the Abuja treaty establishing the African Economic Community (Article 82).

The first goal of these autonomous financing mechanisms is to secure and -in particular- ensure the irreversibility of the integration process, by providing sustainable answers to the limits, uncertainties and difficulties pertaining to the traditional system of contributions on the national budgets, without prejudice to the contributions expected from the development partners.

The second goal -not less relevant than the first one, is to make RECs more autonomous, both with respect to the national budgets and treasuries of Member States and towards the support from foreign partners. The experience of other RECs shows obviously that the regional integration process is likely to stall -at best- if the existing dependence relations with the national budgets are not broken or at least their impacts mitigated. Similarly, the foreign aid, though very appreciable, will serve as an additional resource, but is not intended to substitute the efforts of the States and their leadership for financing community projects and programmes.

The ambition of the UMA -as expressed in its founding treaty is to set up an integrated economic area, with its classical components: building a common market, establishing an enabling regulatory framework for investments, elaborating and implementing common sectoral policies, promoting a peace and security environment. The achievement of these goals requires the mobilization of more substantial and -in particular- sustainable financial resources, well beyond the coverage of the only operating expenses of the Secretariat General and other bodies of the Union. As shown by the delay in the capitalization of the Maghreb Bank for Investment and Foreign trade (BMICE), financing the UMA is still an outstanding issue, given the scale of expressed ambitions, the current level of mobilized resources and the objective limits of the existing system. To ensure sustainability of its legitimacy and have a good visibility of its Member States, UMA must have the necessary resources to efficiently perform its role as a catalyst in the elaboration and implementation of the integrating programmes and projects.

Under the multi-year programme of cooperation between ECA-UMA, the ECA office for North Africa initiated in 2013 a support project to the Secretariat General of UMA aiming at providing this REC with a mechanism of autonomous funding. To this purpose, a feasibility study has already been carried out, and will be followed in the short-run by supporting actions and other counseling services in the process of negotiation-adoption of the new mechanism. The recommended approach is based on the establishment of a parafiscal levy on all or part of the national expenditures which will be set, liquidated and collected by the national administrations on behalf of UMA, instead of the contributions of the Member States.

The study identifies:

- The specific goals to be achieved;

- The guiding principles and performance criteria of an autonomous financing system;

- Possible options for UMA;

- Legal and tax parameters of the recommended levy;

- The management mode of the mechanism and the respective roles of actors;

- A working methodology for negotiation, adoption and implementation.

The operationalization of the new instrument will allow a fast upgrading of UMA and its optimum positioning within the spectrum of the economic groupings in construction, by providing it with the capacity for initiative and action to implement its goals, in particular through a regular funding of its operating expenses, technical studies, an equalization fund of costs and benefits of its free trade zone, and of some of its integrating programmes and projects.

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