OPINION: Will “Kaberuka Equation” cure A.U financing headaches? - CNBC Africa

OPINION: Will “Kaberuka Equation” cure A.U financing headaches?

Special Report

by Arnold Segawa 0

Dr Donald Kaberuka. Picture: World Economic Forum

The African Union is no stranger to turning heads. From outrageous commitments to the embarrassing fact that the anti-International Criminal Court (ICC) and ever vocal body is 59% funded by Western governments and handouts.  The 27th African Union summit was however concluded on a high note with a new financing arrangement agreed upon by the leaders – a 0.2% import levy on eligible imports. A formula that has been colloquially dubbed the “Kaberuka Formula”.  But, is this destined to be another poorly implemented protocol on the long list of A.U bloopers? 

Up until July 2016, African Union had failed to wean her coffers off development partners’ aid and donor handouts. Last year alone, an astounding $247million equivalent to 59% of her budget was footed by donors and development partners. Ironically, the Union deemed this Summit the perfect podium to drag the ICC, a body unequivocally supported by the West, through the mud.

So the search for alternative means of financing began.  A high level panel was led by one of the few army men to hand power to a democratically elected civilian president. Yes you guessed it – His Excellency Olusegun Obasanjo. After a lot of deliberations, three options gained popularity.

1. $2.00 hospitality levy per stay in a hotel

This hardly adds up for a continent which accounts for less than 10% of global recreational and business tourism. If the model was deployed in the Asia Pacific, it would be ideal as the region accounts for close to 22% of the tourist pie.

Besides the under-exploited tourism sector on the continent, I can argue that this financing methodology would leave turbulent states like Somalia without any obligations as their services industry is almost none existent.

2. $10.00 levy on flight tickets for flights originating from Africa or with destinations in Africa.

Statistically, Africa accounts for only 1% of the world’s air travel yet the continent has 12% of the world’s population. The discourse would leave the Union trifling for scraps after national civil aviation authorities and corrupt officials (In no particular order, of course.)

3. $0.005 an SMS levy

This was another proposal which was received with pessimism as it would bite into the telecom companies which pay arguably the heftiest taxes on the continent.

Return of the “Don”

Again, the continent turned to Dr Donald Kaberuka for guidance. Kaberuka had tons to do with Rwanda’s turnaround during his tenure as Minister of Finance and Economic Planning from 1997-2005, and don’t get me started about his spell at the African Development Bank.  His answer: a 0.2% import levy on eligible imports to be credited to a special blocked account in each country’s respective central banks.

With the “Kaberuka Equation”, simulations show that the African Union can easily raise up to $1.2 billion (over and above her $447 million budget for 2016), but what about defaulting? In May this year, The EastAfrican newspaper reported that member states had contributed less than 30 per cent.  

Defaulting is a borderless pandemic on the continent. While speaking to an African Union official during the summit, he joked about many members clearing their dues within weeks to the summit to avoid embarrassment. Well, the new equation provides for this as the funds are to be fed through a special account central bank as opposed to collecting from the treasury.

With the formula adopted at the retreat of Heads of State and Government and finance ministers on 16th July 2016, here are some of my concerns:

1.Will the African Union impose an Index of commodities that qualify for an eligible good?Will the Tax bodies need to form an index to catalogue all eligible goods or shall wefollow the International Trade Agency Index?

 2. HARMONY. With 53 countries, who will handle oversight? Speaking to the EastAfrican,Dr Kaberuka said, “We are not going to change the regulations (Customs) and rules ofeach country. We are simply going to adopt them to ensure that they provide 0.2 percent of that money to A.U account located at the national central bank.”

3.FISCAL AMBIGUITY. The East African states had their national budgets approved inJune. How then do they re-adjust for 0.2% of their projected eligible tax inflows in afiscal year that has already commenced?

In conclusion, Africa wouldn’t run back to her colonisers for financing her ambitious yet grandiose continental projects if she controlled the Illicit Financial Flows (IFFs) out of the continent which are between $50-$80 Billion dollars annually. Besides, with close to 66 per cent of the A.U budget footed by South Africa, Egypt, Algeria, Nigeria, and Angola, maybe there isn’t any need for concern.

But when all is said and done, credit to Dr Kaberuka whose equation takes into account Africa’s net importer status and subtly takes advantage of Africa’s woeful Terms of Trade record thus passing the Union's ornamental agenda to the gullible everyday African.

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