African Union’s Quest for Alternative Sources of Finance: Lessons from the Recovery and Rehabilitation Tax of Eritrea

To tap into contributions from African Diasporas might be the only viable, standalone alternative source of funding for AU
To tap into contributions from African Diasporas might be the only viable, standalone alternative source of funding for AU

By Elias Begashaw,

The African Union has been struggling to find adequate finance to pay for its activities for as long as its existence. The annual contributions from the Member States only cover a fraction of its expenses. Up to 96% of the programme budget of the organs of the Union is hence covered by donations from external sources.

There is consensus that the existing model of financing is unpredictable and exposes the union to undue external interferences. Accordingly, the need to secure “adequate, reliable and predictable financing” has been on the agenda since the days of the OAU.

Over the years, a plethora of alternative sources of finance, ranging from levy on insurance premiums to tax on SMS, have been considered. Several meetings were held at different levels to identify the best proposals. In the latest Summit held in May 2013, the AU adopted ‘in principle’ the report presented by H.E. Olusegun Obasanjo, the Former President of Nigeria and Chairperson of the High Level Panel on Alternative Sources of Funding the AU. President Obasanjo’s report has narrowed down the options to:

* US $2 hospitality levy per stay in a hotel in the Member States of the AU, and

* US $10 travel levy on flight tickets originating from Africa and Africa-bound flights

Consultations are going on to select the most applicable options. While weighing the pros and cons of the available proposals, it is imperative to continue the search for other options. One area that has not received adequate attention is the mobilization of the African Diaspora as an alternative source of finance.

Africans living abroad play a significant role in the economies of their countries’ of origin. According to the African Economic Outlook (AEO) 2013, the money they send home to their families has surpassed the financial inflows to the continent in the form of official development assistance (ODA) and foreign direct investment (FDI). The afore-mentioned report which is produced jointly by the AfDB, OECD, ECA and UNDP estimates that in 2012 Africa received USD 60.4 billion in remittances. The figure is projected to reach USD 64 billion in the current year. However, the African Union has not utilized this huge potential.

In this regard, Eritrea offers a model that has proven successful for several decades. The Eritrean Diaspora’s contribution towards strengthening Eritrea’s political, economic and social development dates back to the days of the armed struggle for independence. Inspired by the history and in an effort to make this noble practice systematic and sustainable, the Government in 1995 issued the Proclamation on the Recovery and Rehabilitation Tax.

In accordance with the provisions of the Proclamation, eligible Eritreans who live abroad contribute 2% of their net income to rebuilding their motherland. Payment of the tax gives them political and economic rights on a par with those who reside in the country and have fulfilled their obligations. These include the right to elect and be elected, the right to acquire business licences in sectors reserved to citizens, the right to obtain land for business or residential purposes… etc. This innovative approach has expanded Eritrea’s tax base while, more importantly, strengthening the ties Diaspora Eritreans have with their country of origin.

Eritrea’s experience with the Recovery and Rehabilitation Tax amply demonstrates the existing opportunity to tap into the huge potential in the African Diaspora to create an alternative source of finance to the Union.

Strengthening the participation of the African Diaspora in financing the AU is also likely to increase the sense of ownership among the Diaspora vis-à-vis the Union. Such an initiative directly contributes to the implementation of the Plan of Action outlined by the Global African Diaspora Summit held on 25 May 2012 in South Africa, inter alia, to “take concrete measures that would promote and sustain linkages between AU and the Diaspora.”

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