SANF 17 no 39 – by Joseph Ngwawi in Pretoria, South Africa
Southern Africa should move with speed to quicken the process of developing regional capacity to fund its own development programmes and avoid costly over-reliance on international partners whose support often comes with strings attached.
These were the words of incoming Southern African Development Community (SADC) chairperson, President Jacob Zuma of South Africa at the opening ceremony of the 37th Ordinary SADC Summit of Heads of State and Government in Pretoria on 19 August.
Delivering his acceptance speech after assuming the rotating SADC chair from King Mswati III of Swaziland, Zuma said the current model of funding regional integration in southern Africa favoured the funding partners at the expense of member states.
“Currently, the nature of funding or loans from the International Cooperative Partners is such that the conditions imposed ensure that benefits yield to the lending countries,” Zuma said.
He said the loans usually come with conditions “that dictate which companies to use in project implementation and sometimes even dictating the sourcing of raw materials.”
This state of affairs, therefore, demands the urgent need to “mobilise regional resources to fund regional projects.”
Recent studies commissioned by the SADC Secretariat revealed that the region has potential to raise more than US$1.2 billion annually from alternative and innovative sources of funding as part of efforts to wean the region from over-reliance on donor support.
According to the studies, SADC could access a huge pool of resources available in the region if it adopts some or all of six options on alternative and innovative sources of funding that have been considered.
The options are the introduction of an export and import tax; a tourism levy; a financial transaction tax; a lottery system; philanthropy; and income from the hosting of regional events.
For example, a study on the introduction of an Export and Import Levy found that regional taxes on exports and/or imports are a common practice for raising revenues by some Regional Economic Communities (RECs) elsewhere in the world.
It noted that the use of such taxes is the most commonly pursued form of raising funds for African RECs such as the Economic Community of West African States (ECOWAS) and the Economic Community of Central African States (ECCAS).
ECOWAS has operationalised a 0.5 percent import levy on all imports originating from outside its region while ECCAS has adopted a 0.4 percent regional integration tax on all goods originating from outside the block.
The African Union is in the process of introducing a similar tax. The AU Summit in 2016 approved a 0.2 percent levy on eligible imports, with each AU region expected to contribute about US$65 million per year.
The study said a simulation on a potential SADC import tax showed that, based on 2014 SADC trade figures, the imposition of a 0.2 percent levy on all member state imports from outside the region could generate at least US$331.3 million revenue annually.
For this to happen, the study recommended the introduction of a dedicated legal instrument in the form of a protocol or agreement to strengthen the legal and policy framework provided by the SADC Treaty.
It will also be necessary that each member state puts in place national legislation to enable revenue authorities to collect the import tax.
Another study showed that a Regional Tourism Levy is a possible viable source of domestic resources for funding SADC regional integration.
While there are several ways of introducing such a levy, the study noted that two options – tax on international travel tickets or tourism levy – are most viable. It is estimated that US$123 million per annum could be raised through levies on air tickets alone.
The main challenges with this option, however, are that it is only viable in countries with significant tourist and other travel activities, and that the sector is sensitive and unpredictable.
The proposed Regional Tourism Levy is in line with continental and international best practices.
The AU Assembly has approved a tourism levy on tickets amounting to US$2 for short trips and US$5 for long trips. It also approved a 0.5 percent tourism tax on income from tourism activities by member states.
France and Germany implement similar levies and provide the current best practice.
Based on the study, it is recommended that SADC considers adopting a 5-10 percent levy on tourism activities by SADC member states.
A study on Regional Financial Transaction Taxes showed that such taxes are and can be a viable source of resource mobilization. They have considerable potential for SADC to harness in order to fund its development programmes.
Similar taxes have been used in a number of African, Asian and Latin American countries as well as in the United Kingdom.
The study recommended that SADC focuses on remittances sent through money transfer agencies.
It is projected that a 0.1 percent levy on these transactions has a potential of raising US$691 million per annum, enough to fund the implementation of the Revised Regional Indicative Strategic Development Plan (RISDP).
Although a legal framework is required, it is already generally provided for under the SADC Memorandum of Understanding on Cooperation in Taxation and Related Matters of 2002, and also appears in Annex 3 of the SADC Protocol on Finance and Investment.
Philanthropic initiatives are fast emerging as another innovative way of mobilizing resources for development.
These are on the rise in Africa as new sources of innovative financing. Several studies show that there are huge amounts of money from high net worth individuals, foundations and private sector that flows from and to Africa. It is estimated that Africa gets between US$1.25 billion and US$3 billion from philanthropic activities.
The United Nations and AU have taken advantage of this by forming the United Nations Foundation and the African Union Foundation, respectively, to mobilise resources in this regard.
The proposal is for SADC to also establish a SADC Foundation as a platform for mobilising resources from the private sector, philanthropic foundations and individuals.
The Foundation could be used as a fundraising instrument for the proposed SADC Regional Development Fund.
According to a Global Gambling and Consultants Report of 2002, SADC has the potential to raise over US$30 million per annum from lottery games.
A legal framework is required to provide for a lottery-based revenue sharing formula amongst member states.
The institutional arrangements for collection at national and regional levels as well as the format of the lottery governance would need to be worked out.
A separate study on the possibility of raising resources through regional events showed that a number of events that can be undertaken at regional level to generate funding for regional integration development projects.
These include organisation of regional trade fairs, sports events, business summits and other expositions.
As in the cases of philanthropy and lottery, this option of funding requires a professional managerial institutional mechanism in the form of a foundation or a similar institution.
Other long run possible sources of funding that the SADC region can consider for funding its regional integration agenda include the introduction of a carbon levy, blended finance, transport levy, venture capital and curbing illicit financial flows.
The need to look for alternative and innovative sources of financing SADC programmes was one of the major decisions of the 35th Summit of Heads of State and Government held in Botswana in August 2015.
This was in realization of the fact that the current situation – where most SADC activities, programmes and projects are supported by development partners – is not ideal nor sustainable.
It is estimated that less than 10 percent of regional projects are currently funded by SADC member states while the balance comes from International Cooperating Partners, according to the SADC Secretariat. For operational costs, the proportion is much better, with 60 percent of the SADC Secretariat budget coming from member states.
The SADC Secretariat was tasked earlier this year to assess the impact of the various options on member states.
The over reliance on donor funding has compromised the ownership and sustainability of regional programmes. sardc.net
