Concern as alternative funding model for EAC not yet in sight

What you need to know:

  • The regional body, which has expanded to seven nations from three in 2000, is still partly dependent on donor support to finance its activities

Arusha. The alternative funding mechanism for the East African Community (EAC) is not yet in sight, over 20 years after it was mooted.

The regional body, which has expanded to seven nations from three in 2000, is still partly dependent on donor support to finance its activities.

Minimal progress has reportedly been made despite an earlier commitment to roll out the new funding model by 2018.

“The Council of Ministers has failed to set a definite time frame within which this matter should be concluded,” a just-released report said.

The report tabled before a recent sitting of the East African Legislative Assembly (Eala) in Bujumbura, Burundi, noted:

“We need a self-sustaining community rather than a donor-dependent one.”

Members of the General Purpose Committee of the House expressed their displeasure over the failure to conclusively address the matter.

They said the regional organization should seek sustainable financing mechanisms, including domestic revenue mobilization.

Ever since it was proposed in 2000, the Community has grown in terms of membership as well as organs and institutions.

The member states were Tanzania, Uganda, and Kenya. Besides the EAC, then, had only three institutions.

Currently, there are three organs and nine institutions scattered across the board, and a host of projects fall within the same geographical distribution.

The MPs stressed the need to urgently put in place a sustainable funding mechanism for the EAC, which is often hit by a cash crisis.

“One would have expected the increased number of partner states to see a proportionate increase in the partner states’ funding,” they said.

However, that was not to be.

“Instead of the partner states increasing funding, they have reduced their annual contributions towards the EAC budget,” they said.

For instance, in 2006, the annual contribution per partner state stood at $8 million, but in 2019/20, the annual remittances had reduced to $6 million.

Some years ago, the Council of Ministers made a commitment to finalise a sustainable financing mechanism for the EAC by 2018.

But only two weeks ago (April 4th), the chairperson of the ministerial Council revealed that some partner states had requested time to consult.

The House Committee insisted that delayed or non-remittance of funds by some partner states remains a drawback for the regional body.

The report commended Tanzania, Uganda, and Kenya “for regularly honouring their financial obligations” towards the EAC.

It was noted that the other partner states, notably Burundi, South Sudan, and the DR Congo “have been falling short on this requirement”.

The shortfall not only impacted the implementation of the planned activities but continued to cripple the operations of the Community.

An alternative funding model for the EAC has also been proposed to address the declining funds from the development partners to the EAC budget.

One of the options mulled years ago by taxation experts was taxation of goods imported into the bloc.

This was to be implemented by slapping a 0.7 percent levy on the value of dutiable imports from outside the bloc.

However, some countries are said to have opposed the arrangement on the grounds that they will be forced to remit more than others because they attract more imports than others.

But in November 2021, the EAC came up with another financing model that would require the partner states to contribute equally the 65 percent of the total budget.

Under the hybrid model, the remaining 35 percent of the total budget will be contributed based on the assessment of partner states’ average nominal GDP per capita for the previous five years.

The agreement on the new model came after the findings of a study on the required reforms to align the EAC structure, programmes, and activities with the financial resources available.

The secretariat, the EAC executive arm, maintains that this would not only ensure the sustainability of the Community but also reduce the dependency syndrome on donors.

The new financing model was agreed upon by the Sectoral Council on Finance and Economic Affairs but has yet to be approved by the authoritative EAC Council of Ministers.

The study identified key priority projects and programmes that can be implemented with minimal delays using the available funds under the hybrid model.

The EAC secretariat said then that the model was adopted by the Trade Sectoral Council because it was simple “in terms of parameters to be used.”

These include the size of the partner states’ economies, an assessment of the contribution component, and the principles of equity and equality.

The EAC expenditure budget for the 2022/23 financial year was $91.6 million, slightly less than the $91.7 million passed in 2021/22.

Out of the total amount, some $37.5 million was to be sourced from the development partners, almost at the same level as the $37.6 million sourced from the donors in 2021/22.