by Joseph Ngwawi in Mbabane, Swaziland – SANF 17 no 4
Southern Africa has the potential to mobilise more than US$1.2 billion from alternative and innovative sources as part of efforts to reduce the reliance on donor support.
According to a series of studies commissioned by the SADC Secretariat, the Southern African Development Community could access a huge pool of resources available in the region if it adopts some or all of the six options on alternative and innovative sources of funding being proposed.
The six options for innovative sources of financing regional integration in SADC are the introduction of an export and import tax; a tourism levy; a financial transaction tax; a lottery system; philanthropy; and regional events.
The study on the Export and Import Levy found that a regional tax on exports and/or imports was a common practice for raising revenues by national governments or Regional Economic Communities (RECs) worldwide.
It noted that the use of an import tax is the most commonly pursued form of raising funds for other African RECs such as the Economic Community of West African States (ECOWAS) and the Economic Community of Central African States (ECCAS).
A benchmarking with similar organizations on import levy revealed that ECOWAS has operationalised a 0.5 percent import levy on all goods and vehicles originating from outside its region. ECCAS has adopted; a 0.4 percent regional integration tax on all goods originating from outside the region.
The African Union (AU) 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 contributing about US$65 million per year.
The study said a simulation on a potential SADC import tax showed that, based on 2014 trade figures, imposition of a 0.2 percent levy on all SADC member states imports from outside the region could generate at least US$331.3 million revenue annually.
It said there is need for 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 put in place national legislation to enable revenue authorities to collect the import tax. However the existing collection infrastructure makes it easy for national collection of the levy once adopted.
The study on the tourism revealed that a Regional Tourism Levy can be introduced in a number of ways but two options – tax on international travel tickets and a tourism levy – are most viable and recommended to start with.
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.
It is estimated that US$123 million per annum could be raised through levies on air tickets alone.
No domestic legislation is envisaged, but further studies may be necessary for the tourism activities to be operationalised.
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.
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 largely 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 in 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 collections at national and regional levels as well as 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, expositions and many others.
As in the cases of philanthropy and lottery, this option of funding requires a professional manager in the form of a foundation or a similar institution.
Other long run sources of funding that the SADC region can consider for funding its regional integration agenda are 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 and sustainable.
It is estimated that less than 10 percent of regional projects are presently funded by SADC member states while the balance comes from International Cooperating Partners, according to the SADC Secretariat.
This situation has compromised the ownership and sustainability of regional programmes. sardc.net