17 May 2017

East Africa: EA States Split On Funding Plan

Photo: The Citizen
East African Community headquarters in Arusha.

Arusha — East African Community (EAC) partner states are divided on the proposed financing mechanisms to bail out the cash-strapped regional body.

While the founding members, Tanzania, Uganda and Kenya, want to maintain the existing equal contribution arrangement, Burundi and Rwanda prefer differentiated contribution.

A guidance on the matter will be sought during the 18th Ordinary Summit of the Heads of State scheduled to take place in Dar es Salaam on Saturday.

Sustainable financing mechanism for the EAC will be among the key items on the agenda, but a report seen by The Citizen indicates that the partner states are not agreed on the proposed alternatives.

One of them is to raise funds for the Community's projects and programmes is to slap a 0.7 per cent levy on the value of dutiable imports from outside the bloc.

The percentage should be reviewed after every five years by the Council of Ministers which is the policy organ of the Community and the most supreme after the leaders's Summit.

Hybrid option

The other mechanism recommended is a hybrid option which will use various parameters for each country. It is favoured as a means to promote equity and fairness.

An alternative financing mechanism for the EAC has been on the cards for years and has been proposed to increase the budget of the rapidly expanding Community whose institutions have lately increased.

The option also aims to overcome the cash woes facing the regional body due to dwindling financial support from donors and delayed remittances by the partner states.

A summit of the regional leaders held in Arusha in March last year directed that the modalities required to establish the proposed mechanism be fasttracked.

But, according to a report from the EAC secretariat, the operationalisation of the proposed 0.7 per cent levy on the value of imports from outside could hit snag or could take longer to be rolled out.

"Most EAC partner states have too many levies on imports. Therefore, imposing a levy will increase the burden on tax payers and raise the cost of doing business in the region," the report said.

This was echoed by a recent ministerial session of the Sectoral Council on Finance and Economic Affairs held in Arusha which noted that the proposed mode would require amendment of the EAC Treaty which require equal contribution by the partner states.

The option would also oblige the partner states to make the necessary amendment of their revenue authority acts to enable the latter "develop new modalities for real-time collection and remission of funds to the EAC special collection account".

The ministers stressed that a new financing mechanism and other contributions for EAC should either be on equal basis or differentiated according to ability of the partner state to pay.

Divergent views

Tanzania, Uganda and Kenya have divergent views. "EAC partner states are equal partners and should, therefore, contribute equally to avoid the potential need for introducing voting rights based on the contribution of each country."

Equal contribution (by the partner states) was also provided for in Article 132 (4) of the EAC Treaty.

Burundi and Rwanda, which joined the bloc in 2007, preferred differentiated contribution, including the option of a levy on imports from outside the region.

"Equal contribution may not be sustainable since it puts a heavier burden on some partner states considering the size of their economies," Burundi and Rwandan officials argued during the meeting.

EAC and its institutions gets its annual expenditure funds from the development partners who accounted for 60 per cent and around 40 per cent being budgetary contributions from the partner states.

During the current 2016/2017 financial year, it has budgeted to spend a total of $ 101.6 million, with each of the five partner states contributing $ 8.3 million.

However, according to statistics availed to this newspaper early this month, only Kenya has remitted 100 per cent of what it was supposed to remit, followed by Uganda (90 per cent) and Rwanda 51 per cent.

Tanzania has remitted about 35 per cent of $8.3 million while Burundi is reported not to have contributed anything for 2016/2017 despite assurances made by its officials in Arusha recently. The tiny country has arrears for 2015/2016.

But some Burundi leaders have repeatedly attributed their country's financial crisis to aid cut by its traditional donors, especially the European Union following extension of tenure of office by President Pierre Nkurunziza.

Strife-torn

The EU suspended direct financial support for Burundi last year after concluding that the authorities in the EAC nation had not done enough to find a political solution to a conflict that has seen over 200,000 Burundians fleeing violence to neighbouring Rwanda, Tanzania, Uganda and Congo.

But the strife-torn country announced last December it would increase public spending by 5.3 per cent this year despite a cut in aid from donors linked to political turmoil.

The aid-dependent nation has been forced to rely on domestic tax resources and modest revenues from coffee and tea exports ever since.

Burundi has been wracked by political violence triggered by President Pierre Nkurunziza's decision to run for a third term in April last year. Western powers fear the country could slide back into civil war.

The East African Legislative Assembly (Eala) has repeatedly urged partner states to do something about cash remission that have fallen way behind budget.

"I know generally that there is pressure on our economies, but the point of concern here is that partner states committed to contribute money equally to the integration process. But these commitments are not coming in time and therefore affecting the EAC integration process," said Eala Speaker Daniel Kidega in Nairobi last year.

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