7 Nov 2013

Mobilising Domestic Resources and Innovative Sources of Financing for Africa Regional Integration

by Etambuyu Gundersen, African Capacity Building Foundation (ACBF)

Most economies in Africa are too small and fragmented to achieve economies of scale on their own. Regional integration has the potential to pool resources, enlarge markets and stimulate national production, trade and investment. In addition, regional integration offers African countries substantial potential for competition. That is why efforts to promote regional integration in Africa, in order to attain sustainable social economic development, have gained traction over the past decade. One of the major challenges to this ambitious initiative, however, is the mobilising of internal resources within the continent. Appropriate policies and programmes also need to be in place in order to ensure sustainable integration, however, the implementation of regional initiatives requires adequate capacity at local levels and financial resources.

Potential of Innovative Sources of Financing 

Improving avenues for domestic resource mobilisation, broadening tax revenue streams either in the context of a country’s own regional integration process or in the negotiation of free trade agreements is essential. Investing in national tax reforms that seek to broaden the tax base and increase compliance with tax systems is one financing instrument available to regional economic communities. Given the continent’s emergence as an attractive region for investment during the past decade, this offers an opportunity for countries across Africa to mobilise resources beyond donor aid and support. In this context the private sector’s role could be significantly enhanced in terms of financing of large- scale projects and programmes, thereby relieving some of the fiscal strains on the budget of governments.

Strategies aimed at leveraging resources independent of financial support traditionally provided by donors may include establishing development funds across the continent, whose specific purpose is to facilitate the alignment of national and regional priorities in planning and budget allocation.

Other potential avenues of innovative financing can come from exploring remittances from the African Diaspora. The growing economic importance of remittances cannot be ignored in terms of policy allocation. UNDP in its 2011 report on remittances Towards Human Resilience: Sustaining MDG Progress in an Age of Economic Uncertainty points out that recent policy measures on mobilizing remittances from the diaspora and aimed at leveraging economic growth include; developing retail payment systems for remittance transfers, reducing the costs of remittance transfers and leveraging remittances for capital market access of financial Institutions or Countries. From this perspective, developing financial instruments to harness diaspora resources is pivotal. The African Development Bank (AfDB) confirms the large remittances to the Continent and notes that these can be transformed into a stable source of finance for Africa. In 2009 there was an estimated figure of 21 billion USD in remittances to Sub Sahara Africa alone. Liberia, Zimbabwe and Ethiopia are some of the countries that have put in place policy measures concretising the harnessing of diaspora resources.

Challenges in mobilising domestic resources

The challenges of mobilising domestic resources range from dependence on external resources and capital flight to debt. ACBF found that (A Survey of the Capacity Needs of Africa’s Regional Economic Communities 2008) the overlapping membership of Africa’s regional economic communities (RECs) has so far made regional integration costly, inefficient and ineffective. This also complicates Africa’s trade and economic relations with the rest of the world as has been evidenced by the negotiation process involving the Economic Partnership Agreements (EPAs) with the European Union.

In addition, ACBF finds that the multiplicity of organisations soliciting financial assistance independently of one another in support of the same projects has implications for resource mobilisation from donors and institutions. In recognising that regional integration offers possibilities to leverage and extend comparative advantage in ways not accessible through national programs, ACBF notes that regionalisation of economic activity will enable national economies to build up capacities in all critical areas allowing space for political stability and democratic values. It recommends that in overcoming physical, technical and Institutional capacity constraints, innovative instruments for generating adequate resources, to finance programs and projects, will have to be developed.

Africa’s leadership have long recognized the importance of regional integration as a way of supporting economic development. While the Continent’s speed at implementing regional economic initiatives has been inconsistent, there is some progress in regional economic co-operation. The Eastern African Community (EAC) is one such example, illustrating that effective integration requires going beyond the removal of tariffs and quotas, it also involves the significant elimination of all measures that affect the movement of people, flow of goods, services and investments.


Photo by Paul Watson.


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