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					AFRICAN UNION

UNION AFRICAINE UNIÃO AFRICANA

STATEMENT BY H. E. DR. MAXWELL M. MKWEZALAMBA COMMISSIONER FOR ECONOMIC AFFAIRS AFRICAN UNION

ON THE OCCASION OF THE OPENING OF THE MEETING OF GOVERNMENTAL EXPERTS ON ALTERNATIVE SOURCES OF FINANCING THE AFRICAN UNION

29 MAY, 2006 ADDIS ABABA, ETHIOPIA

Chairperson Distinguished Ladies and Gentlemen It is my pleasure to welcome you all to Addis Ababa, Ethiopia, and to the African Union Commission in particular. I know some of you are here for the first time and I hope that you will have time to see the beautiful City of Addis Ababa. I am equally glad to make a few remarks at this consultative meeting where we are seriously and critically examining how we can find new sources of financing the African Union. As we may all be aware, assessed contribution of Member States was the principal source relied upon for the Organization of African Unity (OAU) regular budget from inception. Based on a scale of assessment that reflected the ability to pay in accordance with Member States’ GNP, OAU regular budget revenue assessments were initially made to fully accommodate the funding needs and requirements of budgeted expenditure. With time, Member States started accumulating arrears as they failed to meet their obligations. Accumulation of outstanding contributions and lack of viable alternatives or supplementary revenue options severely constrained the budgetary activities of the OAU and its operational capacity to respond to its mandate. In addition to accumulation of contribution arrears, assessed contributions are marked by delays. On average, only around 40% of statutory contributions are collected on time every year. For instance, in 2005, only US$36 million out of US$63 million of assessed

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contributions, representing around 57%, were collected as at end of December 2005. The creation of the African Union increased operational requirements and the programmes that have been agreed upon to forge ahead with the integration process calls for more resources. Additional financial resources are, therefore, needed not only to operate the various organs of the African Union, but also to implement its continental programmes and activities. Thus, in 2005, the AU budget increased substantially to around US$158 million, representing US$63 million for operations and US$95 million for programmes. Out of this budget of US$158 million, Member States could only contribute towards the operational budget, leaving out US$95 million for which funding needed to be sourced from partners. This budget could not be financed as Member States could only contribute US$36 million by the end of 2005 and partners could not meet their commitments. This picture is likely to obtain in 2006, which has an approved budget of US$129 million, of which Member States are expected to contribute US$58 million with the balance expected from partners. Following a decision made in Sirte in 2005, beginning in 2006, five (5) Member States will be contributing 75% towards the AU’s operational budget. This situation is not sustainable and alternative means of funding the African Union ought to be sought. Besides, the funding is only for the operational budget. There is now a school of thought that argues that Member States should contribute to the whole of the AU’s budget.

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Several alternative sources of financing the African Union have been proposed, including those of His Excellency President WADE of Senegal, entailing the imposition of an import levy and tax on insurance; the proposal of the Pan-African Resource Solidarity involving the imposition of taxes on airline tickets by the African Organization of Civil Societies; and others like the mobilization of resources through the private sector. Pursuant to this, the Conference of Ministers of Economy and Finance held in May 2005, in Dakar, Senegal, discussed the various proposals and decided that Member States be given more time to study the proposals. In line with this, the AU Commission solicited comments on His Excellency President Wade’s proposals in August 2005. In January 2006, in Khartoum, the Sudan, the Executive Council requested the African Union Commission to study and propose alternative funding mechanism for the African Union for consideration during the Banjul Summit to be held in June-July 2006. This meeting, therefore, comes at an opportune time as we prepare for the Banjul Summit I am convinced that if we all put our minds together, we will be able to make some concrete recommendations for the consideration of the Banjul Summit. Looking at the proposals, we need to handle the matter with the seriousness it deserves. There are a number of questions that need to be raised including the following:

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1)

Do the proposed taxes and levies meet the canons of taxation? That is, are the taxes we are proposing efficient in terms of resources allocation and are they equitable and fair?

2) 3)

What should be the rate of tax? We need to find technical justifications for the rates we propose. What is the revenue impact? President Wade proposals made an attempt to produce revenue impacts. I wish to call for some simulations to be made.

4) 5) 6)

Are there other alternatives? What needs to be done to strengthen the current system of assessed contributions? What should be the collection mechanism? – There is a need to design a system that will not only work but one that will work efficiently.

7)

These are some of the questions you will need to address.

Thus, it is expected that the meeting will i) ii) evaluate the various proposals made; and make recommendations regarding proposals that should be submitted to the Executive Council in Banjul. These proposals will also be examined at a Meeting of Ministers of Finance and Economy to be held in the third quarter of 2006. Please, allow me to once again welcome you all to the African Union Commission. Let me also thank you for giving us the opportunity to

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consult on this very pertinent issue that has been on our agenda for some time. It is my sincere hope that the outcome of this meeting will enrich all of us and provide concrete solutions to the current financial difficulties the African Union continues to face. Together, let us make the current financial difficulties facing the AU history. It is now my singular honour to declare the meeting of Experts on Alternative Sources of Financing the African Union officially opened. I wish you all successful deliberations. I thank you for your kind attention.

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