Kenya puts new model for funding integration on hold

Asks for more time to consult on the GDP basis

THURSDAY December 16, 2021

The East African Community flag (Far Left) hoisted along with those of partner states of the bloc. PHOTO | EAC

By Joe Lihundi

The Tranquility News Reporter, Tanzania

Kenya has smelt a rat in the hybrid model of financing the East African Community (EAC) Budget and succeeded to stop the Council of Ministers from adopting and submitting it to the Heads of State Summit, the policy making organ of the bloc.

With the newly devised model, the EAC partner states will be equally contributing 65 per cent of the budget and the remaining 35 per cent inputs will be determined by sizes of their GDPs. Their average nominal GDP per capita for the previous five years as assessed by the World Bank will be applied.

The new model is the brainchild of a study Ernst & Young LLP carried out to find out the EAC structure, programmes and activities that are commensurate with the partner states’ contributions in a bid to guarantee sustainability of the integration agenda and address the dependency syndrome rocking the bloc.

Besides the hybrid model, the study identified key priority projects, programmes and activities the partner states can foot without slowing down the integration drive and at the same time adhering to principles of equity, solidarity and equality. The proposed hybrid model will be reviewed after three years of its implementation.

The rat

Kenya will contribute a lion’s share to the integration agenda once the EAC Council of Ministers adopts the hybrid model and the summit blesses it, given its highest size of economy in the bloc.

Kenya boasts having a GDP of $100 billion followed by $55 billion of its southern neighbhour, Tanzania, and $32 billion of its proximate peer on the west, Uganda. Currently, Article 132 of the EAC Treaty requires partner states to contribute equally to the budget of the bloc with development partners and other well wishers complimenting it.

Founding fathers of the defunct East African Community, from Right presidents Julius Nyerere of Tanzania, Jomo Kenyatta of Kenya and Milton Obote of Uganda in one of their souvenir pictures. PHOTO | EAC

The existing model of financing has been found not to be sustainable enough to the community, as some partner states have been delaying to submit their contributions lately.

The model in place was adopted when the bloc had only three partner states, namely Kenya, Uganda and Tanzania, whose economies were almost comparable. With the admission of Burundi, Rwanda and South Sudan, the structures and sizes of partner states’ economies do not only differ, but also overstrain some partner states.

This explains the reason the partner states, mostly Burundi and South Sudan, owed the bloc $33.1 million by April last year, inhibiting organs, institutions, programmes and projects of the regional economic community from taking full charge of the integration agenda.

Fault procedures 

The Kenya delegation poked holes in the proposed model during the meeting of the Council of Ministers held in Arusha recently before it asked for time to consult back home to ascertain if it tallies with provisions of its Constitution.

The delegation contended that the agenda was prematurely submitted to the council for consideration and referring it to the summit, a report of the 41st Meeting of the EAC Council of Ministers says.

Retreats of policy makers are intended to facilitate understanding of issues, not to generate binding decisions within the framework of decision-making processes of the community.

“Procedurally, outcomes of retreats for policy makers are expected to go through proper channels of the community in order to become formal decisions of the council,” the Kenya delegation argued.

BACKGROUND: Proposed Hybrid Model

The East African Community (EAC) Secretariat in September 2019 contracted Ernst & Young LLP to find out structure, programmes and activities of the bloc that are commensurate with the partner states’ contributions. The EAC Sectoral Council on Finance and Economic Affairs (SCFEA) approved the Ernst & Young’s inception report in January last year, enabling the consultant to develop a first draft report of the study in June 2020 as stipulated in the contract. The ministerial session of the 12th meeting of the SCFEA held early in May this year considered and approved most of the study recommendations. The hybrid model initially proposed that 50 per cent of the EAC Budget would be contributed equally by all partner states and the remaining 50 per cent be assessed based on GDP per capita (40 per cent), Intra-EAC Trade (5 per cent) and imports from outside EAC (5 per cent). The SCFEA, however, directed the secretariat to convene a session of the EAC Ministers of Finance and Central Bank Governors by September 2021 to consider the proposed hybrid model and finalise the matter.

The delegation explained that the outcome of the retreat of the ministers of Finance and Economic Affairs should have been adopted in a formal meeting of the respective Sectoral Council of Finance and Economic Affairs (SCFEA) before the same was submitted to the Council of Ministers for it to adopt

“Failure to follow this process may expose the community to litigation on the decision-making process,” warned the Kenya delegation, stressing: “The outcome of the retreat is not and cannot be deemed to be a recommendation of the SCFEA.”

Going by Article 14 (3)(i) of the EAC Treaty, decisions of a sectoral council are considered to be of the Council of Ministers.

Kenya proposed that the recommendations of the retreat of the ministers of Finance and Economic Affairs should seek the SCFEA consensus before they are submitted to the Council of Ministers for consideration and adoption.

The Council of Ministers may then refer the recommendations to the Sectoral Council on Legal and Judicial Affairs (SCLJA) for legal input, as all matters referred to it must first have a policy decision.

Railway lines across Kenya, Uganda and Tanganyika opened up the region for colonial development under the management of the East African Railways Cooperation. PHOTO | EAC

The Uganda delegation concurred with the Kenyan argument saying the next session of the Council of Ministers should consider the comments without going through the Coordination Committee.

“The consideration of the matter emanates from a Heads of State Summit’s directive and as such, the council should accordingly submit a report to the summit on the progress made in implementing its decision,” the Uganda delegation added.

Burundi and Tanzania delegations were also in a view that the decisions of the ministers of Finance and Economic Affairs on the proposed model should not be opened at the Council of Ministers’ meeting.

The Council of Ministers urged Kenya to conclude its internal consultations on the proposed sustainable model of funding the community and submit its comments to the EAC Secretariat prior to the 45th extraordinary meeting of the council.

They agreed with the ministers of Finance and Economic Affairs that the proposed model was anchored on principles of equity, equality and solidarity. “The proposed three-year period within which the model will be reviewed will ensure no partner state is prejudiced,” the Council of Ministers said.

Kenya, Tanzania and Uganda shared a single currency during the colonial regimes. PHOTO | EAC

The SCFEA Retreat comprising ministers of Finance and Economic Affairs met in Mombasa, Kenya, mid last month to consider sustainable financing mechanisms for the community.

They finally approved the hybrid model and directed the EAC Secretariat to implement cost cutting measures to ensure the cost of running the community is as low as possible.

They cautioned that the SCLJA should clear all legal issues such as the provision on the amendment of the provision of the treaty on equal contribution before the proposed model was referred to the summit for consideration.Ω

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