Contents Introduction 2 Historic evolution of the union from creation to present date. Spiral of evolution with years of boom and depression. 2 The birth of CEMAC 3 CEMAC structure and decision-making procedures 3 The Conference of Heads of State 3 The Monetary and the Economic Union 3 The  CEMAC Commission 4 The CEMAC Parliament and the Court of Justice 4 The Ministerial Councils 5 The CEMAC region has recorded a fairly strong overall economic performance, supported by high oil production and revenues, but continues to face substantial development challenges. 5 CEMAC’s strong economic growth in 2012 was largely driven by public investment. 6 Yeas of oil discovery and economic boom 6 Recourse to other sources of financing the economy 6 Encroaching on the Forests 7 Economic plans 7 Structured Depression and Bailout Plan 7 Chapter 1: No Re-adjustment of the current currency parity. 8 What is currency parity? 8 How can it affect the development of a country or region? 8 Prices 8 Wages and Employment 9 Currency Considerations 9 Availability of Credit 9 Matrix of Monetary and Fiscal Regimes 10 Is the CFA still optimal today and a stabilizer for the sub region? 10 What is the Franc Zone? 10 Consequences of an independent currency 12 Comparative analysis with other countries with individual currency (Ghana, Nigeria, etc.) 12 What is optimal for the CEMAC member countries going forward? 13 Chapter 2: Adoption of measures to reverse the negative trends in the economy of the Sub-Region. 14 Weak fiscal policy mix .downward spiral in oil prices 14 Reforms show oil volatility curb but are not sustainable in the long run 15 Monetary policy framework is impaired 16 Chapter 3: Implementation of infrastructure to promote sustainable development for the benefit of the population. 17 Infrastructural development vision 17 Assessment needs of infrastructure development in the region 18 Financing gap for infrastructure projects 18 Resources 19 Historical Evolution of Public Procurement 20 1. Performance 21 2. Public service 21 3. Socio-economic development 21 Limits and challenges of public procurement 22 PPP as a bail out for transformational development 22 Infrastructure development plan (who builds, maintains, operate, service debts, cash traffic, rate of return on investments, high return on investments vs high net social value 23 Building wealth through infrastructure development 23 Nevertheless, Cameroon remains attractive to investors because of its strategic location: Cameroon is a founding member of the African Union, the Economic Community of Central African States and the Economic and Monetary Community of Central Africa (CEMAC); it shares a long and porous border with Nigeria, Africa’s most populous country; and it is the gateway to the land-locked countries of Chad and the Central African Republic. 23 With its strategic placement, investments in Cameroon have a potential market of some 250 million consumers. 23 Build Operate and Transfer as what has worked in other countries (how can Africa build from the S Korean, Chinese, Singapore and advanced African countries models? 24 Chapter 4: Attachment to community solidarity in the face of current and future economic and security shocks. 26 Principles for Shock Measurement 26 What are the causes of these shocks 27 What is an 'Economic Shock' 27 BREAKING DOWN 'Economic Shock' 27 Impact of these shocks 28 Comparative analysis on economic and security shocks 28 BEAC Assessment of the Oil Shock Impact 30 Geo-strategy and geopolitics 30 How can the current or future shocks be turned around for a greater benefit to Africa 30 Conclusions, projection solution to avoid such happenings 32 Chapter 5: Freeze limits on the statutory advances of the BEAC to the level set in 2014. 34 What are statutory advances? 35 CRISIS MANAGEMENT AND SAFETY NETS: Crisis Management and Resolution 35 How does it limit the development of the sub region? 35 Key policy recommendations 36 What are alternative measures to these statutory advances? 36 Ware forward 37 Gaps of banking in the sub region 41 Chapter 6: Engage BEAC in the adoption of measures to promote migration to finance by capital markets. 45 Chapter 7: Strictly pursue budget adjustments needed to balance public finances. 49 Budget Execution 49 Current budget practices and their limitations 53 Chapter8: Conduct targeted budgetary policies while preserving social gains. 57 Cut government spending 58 Other Evaluation of Cutting Government spending 59 Tax increases 59 Economic Growth 59 Bailout 60 Default 60 Net social value is always obtained at the expenses of high net return on investments? 60 First, what is 'Return on Investment - ROI' 60 Developments in ROI 60 How can the African continent strike a balance between increase in GDP and high net social gains? 61 Chapter 9: Gradually restore the balance of the state budget to below 3% in less than 5 years. 62 Perhaps less universally accepted are: 62 A stable and strong rate of economic growth 62 Low unemployment 62 Stable and low inflation 63 A structural fiscal budget balance and a low (or zero) level of debt If the central government’s expenditures are greater than its revenue a budget deficit results. Budget deficits add to government debt. It is generally accepted the actual government budget will (and should) fluctuate between deficit and surplus during, respectively, downswings and upswings in the economy. Unlike the actual budget balance, the structural balance is basically the budget deficit or surplus after accounting for cyclical movements in the economy – the balance when conditions are normal or average. 63 Other indicators 63 What are the current actions? 63 What are the stakes? 65 Chapter 10: Privilege concessional financing and promote public-private partnerships. 67 What is BOT? 69 Benefits and Pitfalls 70 Overview of Concessions, BOTs, DBO Projects 71 Key Features 72 Concessions 72 BOT Projects 73 Contractual Structure 74 Examples of projects done by BOT in other parts of the world esp. developing countries 75 Chapter 11: Welcomes the sound advice and technical assistance of development partners. 78 Evolution of development partners presence in Africa 78 Gains of development partners 79 When and how development partners should be called 81 Current status 82 Criticism 82 Leveraging our expertise and gains 83 African Development Bank Group Capacity Building Strategy 83 Africa needs a strategy for ‘emerging partners’ 84 Chapter 12: Open and conclude bilateral negotiations with the IMF to structure an exit from the crisis. 86 How the crisis hit Sub-Saharan Africa 87 Channels of transmission of the financial and economic crisis: is there a fragile countries specificity? 88 Trade 89 Economic crisis in the central African sub region 89 Impact of fall in commodity prices 90 Chapter 13: Solicitation each country for Strengthening more flexible international cooperation. 95 What is International Corporation? 95 How can African nations build from international cooperation? 95 What is a Trust Fund? 96 Why do we need a Trust Fund? 96 WHICH COUNTRIES are covered by the Trust Fund? 96 THE TRUST FUND IN FIGURES 97 Chapter 14: Recourse to multilateral partners for the strengthening of the balance of payments and the continuation of projects. 98 What is balance of payment? 98 Chapter 15: Finalization of the free movement of people and goods and implementation of security projects. 100 Regional integration 103 Consensus on Need for Enhanced Regional Integration 105 World Bank Working Hand in Hand with CEMAC 105 Evaluate the potential gains from regional integration in African countries in the Franc Zone 106 Why support regional integration? 107 How can regional integration be strengthened? 107 Joint Initiatives on Regional Integration 108 Chapter 16: Promotion of wealth-generating activity, mobilization of internal tax revenues in the CEMAC zone. 109 Government revenues: a sustainable method of financing development 110 Measures 111 Regional integration and cooperation on African continent 111 Chapter 17: Strengthening international tax cooperation, Combating fraud, tax evasion and optimization. 114 Accountability as a tool for fight against corruption 114 VAT fraud: 115 Forensic science as a tool to curb corruption practices 117 Consequences of Corruption 120 Alleviating corruption through modern tools 121 Nine ways to use technology to reduce corruption 121 1 | Remember deterring corruption is the best solution 121 2 | Use technological tools to develop institutional trust 121 3| Automate tax collection 122 4 | Share information across borders 122 5 | Digitise public services 122 6 | Take inspiration from other initiatives around the world 122 7 | Pay attention to local contexts 122 8 | Be aware using technology to fight corruption is not risk free 123 9 | And remember technology doesn’t always democratise access 123 Chapter 18: Diversification of the economy by making it less vulnerable and competitive in the face of trade liberalization. 124 Opening and liberalizing the economy 126 Chapter 19: Follow-up measures taken at the Extraordinary Summit by the Program for Economic and Financial Reforms. 129 Key financial reforms for the sub-region 129 Budgetary discipline - Cash discipline 129 Chapter 20: Regular regional -level meetings for monitoring and evaluation 131 Mile stones for economic growth 135 Projecting development 137 Introduction Historic evolution of the union. The Central African Economic and Monetary Community (CEMAC) is made up of six States: Gabon, Cameroon, the Central African Republic (CAR), Chad, the Republic of the Congo and Equatorial Guinea. With a total population of about 37 million, it covers a total surface of around 3 million km2. Together with the larger Economic Community of Central African States (ECCAS) and the mainly inactive Economic Community of Great Lake Countries (CEPGL), CEMAC presents one of the Central African regional Communities established to promote cooperation and exchange among its members. http://www.internationaldemocracywatch.org In the context of a general revival of regional cooperation on the African continent during the 1990's, Gabon, Cameroon, the Central African Republic, Chad, the Republic of the Congo and Equatorial Guinea decided to give new impetus to their regional economic cooperation. They agreed to replace by a new regional Community the largely neglected customs union, the Union Douanière des Etats de l’Afrique centrale (UDEAC), they had established following their independence in the 1960's. http://www.internationaldemocracywatch.org The Central African Economic and Monetary Community (CEMAC) was created in 1994 and became operational after the treaty’s ratification in 1999. The resumption of regional cooperation in Central Africa implied a general review of UDEAC's agenda and objectives and adaptation to the regional and global context. It also included an institutional restructuring and the creation of new common bodies. In line with most other regional organizations on the African continent that followed the so called “second wave of regionalization” in the 1990’s, the newly restructured Central African Community was given a more open and democratic image. The creation of a common Court of Justice and a Parliamentary Assembly was supposed to give additional dynamic and transparency to the regionalization process. A major concern was to avoid new deadlocks and bottlenecks similar to those that had slowed or interrupted the previous regionalization efforts. The birth of CEMAC In 1994, in line with the general revival of regionalization initiatives on the African continent, UDEAC’s Member States decided to give new impetus to their regional cooperation. They agreed to initiate a comprehensive reform process. The subsequently created CEMAC was to replace and improve the customs union. The 1999 ratified N’Djaména Treaty defined as main objectives of the Community to converge and monitor national economic policies, to coordinate sectoral policies and to progressively create a single market. An additional protocol to the treaty addressing the institutional and juridical system of the Community was signed in Libreville, Gabon, in July 1996. http://www.internationaldemocracywatch.org  CEMAC structure and decision-making procedures While building on its predecessor’s structures, CEMAC’s institutional architecture is more complex. In addition to the Executive Secretariat, the Councils of Ministers and the Conference of Heads of State, CEMAC is based on four main institutions: The Monetary Union (UMAC) and the Economic Union (UEAC), the Parliament and the Court of Justice, as well as several regional bodies. Under the common legal framework provided by the N’Djaména Treaty, each of these four institutions is regulated by a specific convention which has the same legal force than the treaty. http://www.internationaldemocracywatch.org The Conference of Heads of State The main decision making power is given to the members' political leaders, gathered annually in the Conference of Heads of State. The presidency of the Conference is rotating and must be entrusted each year to the Head of State of a different Member State, following alphabetic order. In 2009, the President of CEMAC was the Head of State of the CAR, François Bozizé. http://www.internationaldemocracywatch.org The Conference's main function is to determine the main orientations of the Community and its institutions. It moreover decides upon the admission of new members. It nominates the heads of most Community bodies, such as the Executive Secretary and its deputy, the Governor, Vice-Governor and Secretary General of the BEAC and the directors of all affiliated institutions. Only the Director of the BDEAC is not elected by the Conference of Heads of States but chosen by the Bank’s General Assembly, composed of representatives from the CEMAC Member States, the BEAC and the African Development Banks, as well as from external donors, such as France and Kuwait. http://www.internationaldemocracywatch.orgAll decisions of the Conference of Heads of State are taken by consensus. The Monetary and the Economic Union The Monetary Union UMAC and the Economic Union UEAC present the Community’s two main pillars. They are supposed to guide and root the regionalization process. UMAC hereby relies on the structure previously set by UDEAC. UMAC’s main institution remains BEAC that issues the common currency Franc CFA and guarantees its stability by defining and managing monetary policies, exchange operations and reserves in Member States. The other core element of the CEMAC community, the economic union UEAC, is currently less advanced and still in a set up process. According to CEMAC’s treaty, a three-step plan is supposed to progressively lead to the establishment of a common market and the set-up of the economic union by 2015. This process is expected to go from the harmonization of national and elaboration of common economic legislations (1999-2004), to the establishment of free movement of goods, services, capital and persons (2005-2009) and to end with a final step to consolidate and evaluate the achieved results (2010-2015. Despite a very comprehensive body of legislations, UEAC’s development has so far been slower than expected. It currently lags behind the plan. The implementation of common legislations on the national level has for instance taken longer than scheduled. Although the end of the second stage is now approaching, the agreement on the free movement of citizens has not been put into reality. Most States still require visa from CEMAC citizens entering their territory. Officially, CEMAC became a free-trade area by the end of 2000. But many tariff and non-tariff barriers still exist and largely explain the low level of intra-regional trade. http://www.internationaldemocracywatch.org The CEMAC Commission The main management and administrative body of CEMAC is the Executive Secretariat. With the aim of making it become a stronger and sufficiently independent institution, the Heads of State have decided in 2007 to transform the Secretariat into a Commission. Following the example of the European Union, the Commission is composed by an equal number of Commissioners from each Member State, led by a President and a Vice-President. In June 2008, the First Commission has been appointed with four Commissioners dealing in different policy fields: the common market, infrastructures and sustainable development, human rights and good governance, and economic and monetary policies. Commissioners are appointed by the Conference of Heads of State for a period of four years, renewable for one term. The CEMAC Parliament and the Court of Justice Besides the two unions, the Community Parliament and Court of Justice constitute the other two institutions of CEMAC. The decision to establish them marks a fundamental difference between CEMAC and UDEAC. At least de jure, these institutions present a supranational democratic element that has been absent before.  They seem to break with the intergovernmental tradition of UDEAC. http://www.internationaldemocracywatch.org Composed of a Judicial and an Audit Chamber, the Court of Justice integrates judicial and audit functions. In contrast to the Parliament, the Court is already in place since 2000. It is located in Chad's capital of N’Djaména. Assuming a judicial and an audit function, it is composed of two Chambers, each composed of six judges.   Whereas the Judicial Chamber has to control the respect of the CEMAC treaties and agreements, the Audit Chamber monitors CEMAC’s budget and accounts. Each Chamber is headed by a President, elected among its members. A First President oversees the activities of both Chambers. http://www.internationaldemocracywatch.org The Ministerial Councils Besides the Conference, there are two Ministerial councils to guide and monitor the implementation of the two unions: the Ministerial Committee in charge of UMAC, and the Council of Ministers for UEAC. Each comprises three Ministers from each Member State and holds meetings twice a year. The main role of these councils is to ensure the direction of the two unions and promote the progressive harmonization of policies. The UMAC Ministerial Committee in addition supervises the activities of the BEAC, ratifies the Bank’s budget and accounts and examines its annual report. The committee’s members decide by unanimity or by a 5/6 majority. Regarding the UEAC Ministerial Council, decisions are generally taken by consensus, or according to the issue concerned, upon simple or qualified majority. http://www.internationaldemocracywatch.org The annual presidency of both Ministerial councils is assured by the same Member State that is heading the Heads of State’s Conference. The CEMAC region has recorded a fairly strong overall economic performance, supported by high oil production and revenues, but continues to face substantial development challenges. Oil producing countries (five of the six CEMAC countries) have embarked on ambitious public investment programs to fill infrastructures gaps, which have boosted non-oil GDP growth in the last few years. The peg of the exchange rate to the euro has continued to contribute to stable and moderate inflation. Yet, despite large spending out of oil wealth, poverty, income inequality and formal unemployment (especially youth unemployment) remain high, and meeting most of the Millennium Development Goals by 2015 seems unlikely. Moreover, oil-related surpluses have posed challenges for macroeconomic policymaking, with a tendency of fiscal policies to be proxy clical and very large liquidity being accumulated in the financial sector. The business environment, one of the most difficult in Africa, severely constrains private investment. The region’s main challenge is to implement the necessary structural policies that would help promote sustainable and inclusive growth, while adapting the macro policies framework to maintain macro financial stability and improve resilience to possible shocks. Regional institutions still face substantial capacity constraints and need to be strengthened to ensure that reform efforts are better supported and coordinated. IMF country report no. 13/322 central African economic and monetary community (CEMAC) staff report on common policies for member countries CEMAC’s strong economic growth in 2012 was largely driven by public investment. Supported by high oil revenues, an increase in public investment programs in most member countries (Cameroon, Chad, Congo, Equatorial Guinea and Gabon) and buoyant domestic consumption contributed to a 6 ½ percent growth in the non-oil sectors, while oil production growth fell by around 1 percent. As a result, overall GDP growth reached 5½ percent. Inflation remained moderate, slightly below the regional convergence ceiling of 3 percent. IMF country report no. 13/322 central African economic and monetary community (CEMAC) staff report on common policies for member countries Yeas of oil discovery and economic boom A major reason for pro-cyclical spending in the CEMAC is that when government receipts from taxes or royalties rise in oil booms, governments tend to increase spending. Two large budget items that account for much of the increased spending during the commodity boom are investment projects and subsidies and transfers. Investment in infrastructure can have long-term pay-off if it is well designed and executed in a cost-effective manner. Conversely, general consumption subsidies and transfers, which are not targeted at the poor in society, have no lasting developmental impact. There have also been instances in CEMAC when oil windfalls have been spent on higher public sector wages. Subsidies and wage bill increases are difficult to reverse when oil prices decline. IMF Country Report No. 16/290: CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY. September 2016. CEMAC relies heavily on oil. It is the Community’s main export commodity —at the onset of the oil-price slump in mid-2014, the oil sector represented 29 percent of the regional GDP; 79 percent of regional exports; and 54 percent of regional government revenue. Foreign exchange earnings are strongly linked to oil-sector developments. Four of CEMAC’s member countries are large oil exporters (Equatorial Guinea, Republic of Congo, Gabon, and Chad, in declining order of share of oil exports in total exports); one is a small net oil exporter (Cameroon); and the last one (CAR) is an oil importer. Recourse to other sources of financing the economy Medium-term prospects for CEMAC are uncertain. Despite their recent stabilization, oil prices are projected to remain well below pre-shock levels in the medium term. In addition, oil production is projected to start falling after 2017. This puts the burden of ensuring macroeconomic sustainability on boosting non-oil revenue, prudent public spending, and improving the competitiveness of the non-oil economy. The fall in imports related to the public investment programs will contribute to improving current accounts. Because of the magnitude of the required adjustment, maintaining this course of action will be a challenge. Moreover, a relapse in the security situation in the Lake Chad region or in the Central African Republic could curtail efforts to invest in regional infrastructure —a key factor for non-oil growth—and could weaken an already difficult business climate. In this context, CEMAC’s main challenge is to embark on an ambitious reform agenda to underpin macroeconomic stability and better support sustainable and inclusive growth. The regional institutions should be the cornerstones of this effort. Central African economic and monetary community (cemac): common policies of member countries—press release; staff report; and statement by the Executive Director; IMF Country Report No.15/222, July 1,2015-cr15222 A gas plant and deep sea port are being constructed at Kribi on the coast. A pipeline has also been laid to the port of Kribi to transport oil from landlocked Chad. Electricity is produced by a number of hydro-electric plants and more are planned. However, many regions of the country are still without a reliable power supply. Three-quarters of the population use wood for cooking fuel. Village livestock farmers are at the center of a new project to use manure as a source of cheap bio-gas. Methane is released from decomposing dung. When captured in a purpose-built bio digester, it can be used to run generators, lamps and cooking equipment. Methane capture plants are also being built at waste disposal sites in cities. Encroaching on the Forests As well as diamonds, the country has deposits of aluminum, cobalt, nickel, manganese, iron ore and rutile (a source of titanium). The government wants to encourage investment in mining which will allow for these resources to be exploited further. Economic plans The government’s 'Vision 2035' plan sees the expansion of mining and construction projects as the way forward for economic development and lowering levels of poverty. Our-africa - Economy & Industry Structured Depression and Bailout Plan One explanation for CEMAC’s negative TFP contribution to growth could be its challenging business climate and governance. Empirical analysis using firm survey data have established the links between poor business climate and low productivity in developed and developing countries (Bastos et al., 2004, Eifert etal. 2005, Lall et al., 2005). CEMAC countries lag behind other SSA countries in terms of the quality of the business climate—this is shown by indicators on perceived corruption (Transparency International); ease of doing business (World Bank); or governance (World Economic Forum). Figure below compares the 2015 Doing Business rankings and the evolution of the indicators between 2007 and 2015 for CEMAC and it benchmark groups. It shows that CEMAC has the lowest rankings, behind most of the benchmark groups. Between the 2014 and 2015 rankings, four CEMAC countries regressed, one kept its ranking (Chad), and one advanced by one position (Congo). IMF Country Report No.15/308 CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) At the end of the CEMAC Extraordinary Summit on 23 December 2016 in Yaounde, the Heads of State decided inter alia to prohibit the repatriation of all the profits made in the sub-region by the foreign companies operating there. During a meeting with the leaders and members of his party, on December 26, 2016 in Ndjamena, Idriss Deby Itno, the President of Chad revealed that foreign companies will not be able to repatriate 100% of their profits. It was after his participation in the Extraordinary Summit of the Economic and Monetary Community of Central Africa (CEMAC), on 23 December 2016 in Yaoundé, Cameroon. “We want these profits to be reinvested locally, to create more wealth and jobs. It will be hard, it’s going to drive investors away, we know. But it is better than devaluing the FCFA which can only make things worse, “said the President of Chad. Lcclc : Cameroon – Crisis in the CEMAC zone: Foreign companies will not be able to repatriate 100% of their profits Chapter 1 No Re-adjustment of the current currency parity. What is currency parity? Currency parity accordingly to britannica.com on international exchange; parity refers to the exchange rate between the currencies of two countries making the purchasing power of both currencies substantially equal. Theoretically, exchange rates of currencies can be set at a parity or par level and adjusted to maintain parity as economic conditions change. The adjustments can be made in the marketplace, by price changes, as conditions of supply and demand change. These kinds of adjustment occur naturally if the exchange rates are allowed to fluctuate freely or within wide ranges. If, however, the exchange rates are stabilized or set arbitrarily (as by the Bretton Woods Conference of 1944) or are set within a narrow range, the par rates can be maintained by intervention of national governments or international agencies (e.g., the International Monetary Fund). Britannica.com - Topic:parity-economics How can it affect the development of a country or region? Purchasing power measures the value of goods that can be bought with a specific amount of a currency. Purchasing power is a relative measure that is most relevant when analyzed for changes over time. For example, if a dollar is valuable enough to buy five apples for one dollar at a point in time, and one dollar can only buy four apples a year later, then the dollar's purchasing power will have decreased over the year. Prices Inflation is the number-one enemy of economy-wide purchasing power. Inflation is the process whereby prices slowly rise throughout all sectors in an economy, effectively reducing the purchasing power of fixed assets and current income levels. According to Investopedia, inflation is neither inherently good nor bad. It is an ever-present reality that must be counterbalanced by increases in wages, interest rates and other factors over time. In periods of deflation, in which prices drop throughout an economy, relative purchasing power theoretically increases. Deflation, however, can be caused by negative economic issues which may themselves reduce purchasing power. Economics use the Consumer Price Index (CPI) to measure purchasing power by tracking price changes for commonly purchased goods. Wages and Employment Employment levels and average salaries can have a tremendous effect on economy-wide purchasing power. Taken in aggregate, the more people who are employed, and the more money they earn, the more discretionary funds they will have to spend throughout the economy. Employment factors affect total purchasing power rather than causing a relative shift. Employment does not necessarily cause a currency to become stronger, yet it puts more currency in the hands of consumers, boosting commercial and tax revenues. Per capita Gross Domestic Product (GDP), calculated by dividing GDP by population, is a popular measure of economy-wide income levels for consumers and businesses. Currency Considerations Fluctuating exchange rates affect purchasing power in relation to other currencies. As one nation's currency devalues against another, goods in the second country will be higher in the first country's currency. This fact in itself does not necessarily affect purchasing power for domestic purchases, but businesses that rely on suppliers in the second country can experience dramatic price increases for imported goods. These businesses may pass their higher costs on to consumers, contributing to inflation and diminished domestic purchasing power. Availability of Credit The willingness of banks to lend money to consumers and businesses affects total purchasing power in much the same way as higher salaries and employment levels. With a line of credit, consumers and companies can spend more than they actually have, giving a static, ever-present boost to their personal purchasing power. Lenders reap the benefits of credit agreements by earning interest revenue, which gives them more money to spend in the economy, boosting per capita GDP. Factors Influencing Purchasing Power in an Economy: by David Ingram Monetary and Exchange Regimes A monetary regime is a system of expectations governing the behavior of the public and a consistent pattern of behavior on the part of monetary authorities to sustain these expectations (Leijonhufvud, 2000). Although sound fiscal policy is a necessary condition for a stable monetary regime, the institutional arrangement of the regime also matters (see the matrix below). Depending on the monetary regime adopted, there is a wide variety of exchange rate options: a free float, with the exchange rate determined solely by the market; a managed float, with no announced exchange rate target but with central bank intervention in the market as needed to change official reserves; a band, basket, or crawl, with an announced peg that can be adjusted using different mechanisms and/or rules; a target zone, with a fixed central parity and no intervention within the pre-specified bands; a fixed but adjustable peg (hard peg); a currency board; dollarization or euro-ization; and membership in a monetary union. The choice of monetary and exchange rate arrangements depends on a variety of economic, political, and geographic considerations. Relevant economic characteristics include the structure of the economy and trade patterns; the degree of openness, including openness to international capital mobility; vulnerability to external shocks; the extent and speed of exchange rate pass-through; how well business cycles are synchronized with those of major trade partners; and the capacity of the government and monetary authorities to implement policy. Because there are important tradeoffs, an appropriate monetary and exchange rate institutional framework has to be chosen based on careful assessment of the costs and benefits of alternative regimes for a country at a given point in time. Matrix of Monetary and Fiscal Regimes Weak Monetary Regime Poor institutional framework to control money issuance and unbound inflationary expectations Strong Monetary Regime Strong institutional framework to effectively control money issuance and bound inflationary expectations Weak Fiscal Regime High deficits and debt; lack of control of public spending Not sustainable, leading to high inflation or hyperinflation Not sustainable: lax fiscal discipline dominating over the long run, leading to a breakdown of the monetary regime and high inflation Strong Fiscal Regime Low deficits and debt; firm control of public spending Unstable: weak monetary control, possibly leading to pro-cyclical money growth, causing higher inflation and unstable growth Stable fiscal and monetary regimes, leading to low and stable inflation Is the CFA still optimal today and a stabilizer for the sub region? Now more than ever before, it is important to assess the ways in which membership of a monetary union might help or hinder social and economic development. One key source of evidence is the CFA Franc Zone, the world’s oldest and most robust multinational single currency area. Macroeconomic Policy in the Franc Zone presents evidence on recent economic performance in this area. Policy Brief “What can the European CentralBank learn from Africa?” written by David Fielding © United Nations University 2005. What is the Franc Zone? The Franc Zone is a monetary system based on the institutions of the French empire, and encompasses most of France’s former colonies. The cornerstone of the Franc Zone has been the use of currencies that the French Treasury has guaranteed to exchange for French Francs – and now Euros – at a fixed rate. In continental Africa, member states are grouped into two regions, each with a single currency issued by a single central bank: the Banque des Etats de l’Afrique Centrale (BEAC), operating in the Communauté Économique et Monétaire de l’Afrique Centrale (CEMAC), and the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), operating in the Union Economique et Monétaire Ouest Africaine (UEMOA). Both of these currencies bear the name ‘CFA Franc’, and both are convertible with the Euro at a fixed rate. (CFA originally stood for Colonies Françaises d’Afrique, but after the African countries gained independence this interpretation was changed to Communauté Financière Africaine in the UEMOA and Cooperation Financière en Afrique Centrale in the CEMAC.) Policy Brief “What can the European CentralBank learn from Africa?” written by David Fielding © United Nations University 2005. The CFA franc arrangement enjoys strong political and popular support. But the requirements for continued successful operation of the regime are stringent, given member countries’ vulnerabilities to shocks. Requirements include both considerable macroeconomic discipline and a high degree of market flexibility. At present not all the prerequisites are in place; thereare some shortcomings in the design of common institutions and policies, and—more important—common policies are often not implemented with sufficient vigor and consistency. Overview: ANNE-MARIE GULDE In Central Africa regional integration has also been affected by the colonial legacy. Already in 1964 the five French ex-colonies in the region had formed the Union Douanière et Economique de l’Afrique Centrale (UDEAC). Equatorial Guinea joined the CFA zone and UDEAC in 1989. Notwithstanding its ambitious name and the advantages of the common CFA currency, UDEAC has never been a well-functioning Customs Union. Intra-regional trade has always been very low, only slightly above 2% of total trade. In UEMOA and ECOWAS the share of intra-regional trade has been around or above 10%. Central African integration is much hampered by the limited cross-border infrastructure networks and the lack of complementarity between the countries. Parallel to the creation of UEMOA, there has been a similar merger of monetary and economic functions by transforming UDEAC into the Communauté Economique et Monétaire de l’Afrique Centrale (CEMAC). The countries in the Central African region have also formed a wider body—comprising all the CEMAC members as well as DRC, Rwanda, Burundi, Angola, and Sao Tomé and Principé--known as the Economic Community of Central African States (ECCAS). While ECCAS has been somewhat active in the political and security field, it has not made much progress towards economic integration. Although the resource base of several member countries would indicate considerable potential, persistent conflict and instability in some of the member countries and the underdevelopment of cross-border infrastructural links would continue to severely constrain progress. Africa’s Regional Integration Arrangements History and Challenges: Tesfaye Dinka and Walter Kennes Consequences of an independent currency Moving to a Simple Peg. Both a simple peg and a currency board are types of fixed exchange regimes, but a currency board is a hard form of a fixed exchange regime. In general, a simple peg holds two advantages over a currency board. First, by imposing only partial reserve coverage of domestic monetary liabilities, a simple peg lowers the opportunity cost of holding reserves, which might translate into higher investment and growth. Second, because the central bank is not strictly limited by foreign reserves in money creation, a simple peg offers room, at least in the short run, for the use of monetary policy tools in smoothing excessive swings in domestic interest rates. Along the same lines, in the event of a systemic banking crisis, a simple peg allows for a limited role of the central bank’s lender of last resort function. Thus, from a CEMAC zone perspective, a simple peg would undermine the need for higher reserve coverage in the future while also creating more space for the conduct of monetary policy. Notwithstanding, the move from a CBA to a simple peg implies a substantial loss in monetary policy credibility. This loss occurs because moving to a simple peg implies abandoning the formal link between domestic money creation and reserves. So far, the French convertibility guarantees has achieved two things: enforced credibility in the fixed regime and reduced the need for full reserve coverage of domestic monetary liabilities that is mandated in a traditional CBA. Hence, in terms of coverage of domestic monetary liabilities, CEMAC countries may witness little or no change in switching to a simple peg, but will experience substantial loss in policy credibility as the probability of a successful attack on the currency is now higher. Under the current CFA franc arrangement, the abuse of discretion is contained by the 20 percent rule requiring that CEMAC’s central bank, the BEAC, extend credit to member states’ governments only to a maximum of 20 percent of fiscal revenues of the previous year. Moving to a simple peg would imply loosening this tight constraint on policymakers. Finally, moving to a simple peg implies replacing the foreign nominal anchor of monetary policy with a domestic nominal anchor in the sense that convertibility of the currency which was previously guaranteed by a foreign monetary authority (the French treasury in this case) will now be guaranteed by domestic monetary authorities. The Future of the CEMAC CFA Franc. Julius Agbor Agbor: Africa Research Fellow, Africa Growth Initiative Global Economy and Development - Brookings Institution. Comparative analysis with other countries with individual currency (Ghana, Nigeria, etc.) Given the widespread experience of debt monetization by developing countries, especially those in sub-Saharan Africa, a move to a simple peg constitutes a move towards a less credible monetary policy framework. It’s a small wonder why many of the countries in sub-Saharan Africa (mostly former colonial empires of Portugal and England) that abandoned the CBA in favor of a simple peg at the eve of independence ended up worse-off than their peers that remained in the CBA.8 To the extent that CEMAC’s public domestic financing will continue to be dominated by debt monetization, one can expect a similar fate for CEMAC economies should they adopt simple pegs as an alternative to the present regime. The Future of the CEMAC CFA Franc. Julius Agbor Agbor: Africa Research Fellow, Africa Growth Initiative Global Economy and Development - Brookings Institution. What is optimal for the CEMAC member countries going forward? Context and risks. CEMAC is buffeted by the oil-price shock. The outlook has deteriorated, as members continue to suffer from the shock. Regional and national authorities have yet to take appropriate measures to address the economic downturn, whilst continuing to face substantial capacity constraints. Although the banking sector has weathered the downturn so far, government payment delays could undermine its soundness. Risks are significant: a weaker-than-expected oil price recovery or deteriorating security conditions could jeopardize macroeconomic stability. IMF Country Report No. 16/277 CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) COMMON POLICIES OF MEMBER COUNTRIES—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR Policy mix. The policy response to the oil revenue loss and increased security spending has been insufficient. It has led to a contraction in reserves—now below recommended levels. Fiscal adjustment and real-economy reforms, focusing on improving the business climate and boosting private investment, are needed to preserve macroeconomic stability. An incomplete policy response could jeopardize external sustainability. Monetary policy and safeguards reform. The BEAC’s accommodative monetary policy has contributed to the decline in reserves and delayed fiscal consolidation. Meanwhile, the authorities still need to strengthen weak monetary transmission channels. The BEAC’s Board of Directors has mandated to precede with two important safeguards recommendations. Chapter 2 Adoption of measures to reverse the negative trends in the economy of the Sub-Region. The most important impact of the ongoing crisis on the CEMAC region stems from the decline in world oil prices. By spring 2009, crude oil prices had declined by around US$100 since their peak in 2008. While the expected worsening of the 2009 fiscal balance is common to all oil producers, some countries are relatively more exposed to fluctuations in oil prices. Republic of Congo and Equatorial Guinea have the highest level of government revenues from oil, in percent of GDP, followed by Gabon and Chad. Cameroon’s exposure is comparatively limited, while the Central African Republic (CAR) is the only oil importer in the region (Table 3). Equatorial Guinea, Gabon and Chad will see the largest reversal in their fiscal position, while Cameroon and Republic of Congo will see only a relatively modest deterioration in their overall fiscal balance and CAR expects an unchanged deficit (Table 4). At April’s WEO price forecast, all CEMAC countries except Equatorial Guinea would have fiscal deficits in 2009, with the region seeing a swing of almost 14 percent of non-oil GDP in its overall fiscal balance. IMF STAFF POSITION NOTE: John Wakeman-Linn, Rafael Portillo, Plamen Iossifov, and Dimitre Milkov. The International Financial Crisis and Global Recession: Impact on the CEMAC Region and Policy Considerations. SPN/09/20-July 22, 2009 Weak fiscal policy mix .downward spiral in oil prices The fiscal policy response must be guided by both medium-term and short-term considerations. When considering the medium term, policymakers need to take into account the implications of fiscal policy actions on both fiscal and external sustainability. In oil producing countries, fiscal sustainability depends on how oil price forecasts affect the sustainable non-oil fiscal deficit, that is, the medium- to long-term fiscal position that can be financed with oil revenues and savings: To the extent the decline in commodity prices is temporary, the sustainable non-oil deficit would not change significantly and fiscal sustainability would be less of a concern. If the decline in oil prices is permanent or very persistent, then the sustainable non-oil fiscal deficit is permanently lower and fiscal policy must eventually adjust spending toward the new sustainable level. In a context of great uncertainty regarding medium term projections, the recent WEO projections indicate that, while some of the recent decline is expected to be temporary, prices are not projected to return to their previous trend in the medium term (Figure 2). Moreover, the gap between the previous trend and the new one is large. Fiscal sustainability is therefore a key concern for oil producing CEMAC countries, and adjusting to lower oil prices will require reducing non-oil fiscal deficits in the medium term. IMF STAFF POSITION NOTE: John Wakeman-Linn, Rafael Portillo, Plamen Iossifov, and Dimitre Milkov. The International Financial Crisis and Global Recession: Impact on the CEMAC Region and Policy Considerations. SPN/09/20-July 22, 2009 The assessment of sustainable fiscal positions is complicated by the relatively short oil production horizon for most CEMAC countries. With a shorter production horizon, even temporary declines in oil prices can have a considerable impact on sustainable non-oil deficits. This factor tilts the fiscal policy recommendation toward greater adjustment of the fiscal stance in the medium term. IMF STAFF POSITION NOTE: John Wakeman-Linn, Rafael Portillo, Plamen Iossifov, and Dimitre Milkov. The International Financial Crisis and Global Recession: Impact on the CEMAC Region and Policy Considerations. SPN/09/20-July 22, 2009 The need for a medium-term fiscal adjustment should also depend on current fiscal conditions. In all oil-exporting CEMAC countries, the fiscal deficit was already above its sustainable level before the fall in oil prices, in most cases far above the sustainable level. The global shock has led to rising non-oil deficits in the majority of the CEMAC countries and declining sustainable non-oil deficits, pushing those countries further from fiscal sustainability. Thus, the authorities will need to adjust regardless of whether the revenue decline is permanent or temporary. The required medium term adjustment is also likely to be stronger in countries that have higher oil revenues (in percent of GDP)—such as Equatorial Guinea—as the sustainable long run fiscal position is more sensitive to oil-price fluctuations in those countries. IMF STAFF POSITION NOTE: John Wakeman-Linn, Rafael Portillo, Plamen Iossifov, and Dimitre Milkov. The International Financial Crisis and Global Recession: Impact on the CEMAC Region and Policy Considerations. SPN/09/20-July 22, 2009 Reforms show oil volatility curb but are not sustainable in the long run Despite significant growth in financial sector assets in 2012, the financial sector in CEMAC remains small in relation to the economy, and progress in financial deepening is slow. Strong growth in domestic deposits, reflecting rising inflows from oil revenues, allowed for expansion of banks’ balance sheets. However, as the number of creditworthy customers and sound projects is relatively limited, credit growth was considerably slower than growth in deposits. Banks have been hurt by poor performance of past loans, large portion of which are provided to connected parties, as well as a lack of adequate financial infrastructure which would support their lending activities and contain credit risk.6 The activities of microfinance institutions, which contribute to improved access to finance for low-income households and SMEs, have started to gain systemic importance in some countries, but on average, access to finance in the region is lagging behind the median for SSA and LICs. IMF Country Report No. 13/322. November, 2013. CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) STAFF REPORT ON COMMON POLICIES FOR MEMBER COUNTRIES Monetary policy framework is impaired The banking sector appears to be vulnerable to a range of risks, particularly to credit and operational risks. The banks’ exposures stemming from lending to connected parties were found to be especially high in three countries (Cameroon, Gabon, and Equatorial Guinea), with a number of banks exceeding the prudential limit. In Cameroon, non-performing loans (NPLs) stemming from loans granted to connected parties caused significant impairment of the banks’ net equity. Similarly, the banks’ total exposures through lending to a single largest borrower remain excessive, even though the relevant prudential limit in the region is relatively lax (at 45 percent of net equity). Weaknesses in reporting and controlling operational risk make banks transactions vulnerable to disruptions. IMF Country Report No. 13/322. November, 2013. CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) STAFF REPORT ON COMMON POLICIES FOR MEMBER COUNTRIES Overall soundness of the financial sector in the CEMAC region is a source of concern, but the situation varies considerably across countries and banks. While the system-wide indicators on asset quality and the solvency ratio deteriorated in 2012, there is significant disparity in the NPLs and solvency ratios across the countries, as well as among the individual banks. The number of unviable and undercapitalized banks increased in 2012 from 5 to 8 institutions and their total assets slightly exceeded 10 percent of aggregated regional GDP.7 The potential spillovers to other banks and non-bank financial institutions seem to be rather limited, as the lack of active interbank market and still relatively small cross-sectoral linkages reduce risks of contagion. IMF Country Report No. 13/322. November, 2013. CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) STAFF REPORT ON COMMON POLICIES FOR MEMBER COUNTRIES CHAPTER 3 Implementation of infrastructure to promote sustainable development for the benefit of the population. We are at a critical juncture in our implementation of the UN development agenda. Despite demonstrable progress, we confront delays in reaching the goals, coupled with new challenges, many of which require our urgent attention and collective action. Today is an occasion to focus on four of the most pressing challenges we face. First, the fragile state of the major developed market economies, persistent global imbalances and soaring oil and non-oil commodity prices are slowing growth of the global economy. The financial turmoil of the past year is not incidental, but a reflection of systemic weaknesses in global financial markets. These conditions threaten to undermine efforts towards the development goals. Second, rising food and energy prices are hitting hard on the livelihoods of poor and vulnerable people. Progress so far towards our developmental goals could easily be reversed if we do not find workable solutions to the twin crises in the food and energy markets. Third, we are facing the profound threat of climate change and the deterioration of our natural environment. I believe that, if not addressed timely and adequately, this threat can bring all our development efforts to naught. It will bear down on the lives of our children and grandchildren. The pernicious impacts will be deep and pervasive. Finally, skepticism about globalization continues. There has been concern for some time that globalization is leaving behind the vulnerable and poorest communities, and the added worry now is that the middle classes are beginning to feel the effects of a much more insecure world. No social or economic order is secure if it fails to benefit the majority of those who live under it. From this perspective, we all should have serious concerns about a system whose wealthiest 400 citizens command, as a group, more resources than its bottom billion. Yet we also need to beware of the risks of a severe backlash against globalization, which could significantly curtail the opportunities and benefits of a more closely integrated world. Achieving Sustainable Development and Promoting Development Cooperation– Dialogues at the ECOSOC. Overcoming Global Obstacles to Achieve Development Goals By Mr. Ban Ki-moon Secretary-General United Nations Delivered by Mr. Sha Zukang Under-Secretary-General for Economic and Social Affairs United Nations. 2008 Infrastructural development vision Investment in infrastructural development can boost the economic growth of any country; a priority requirement for the CEMAC region to achieve its development vision. Infrastructures do not directly produce goods and services but facilitates production in primary, secondary and tertiary economic activities by creating external economies. It is an admitted fact that the level of economic development in any country directly depends on the development of infrastructure. The developed countries have made a lot of progress due to tremendous growth of social and economic infrastructure. There has been revolutionary progress in transport and communication in these countries. Large financial facilities are available due to the existence of well-organized banking and insurance. There is revolutionary progress in science and technology. These countries follow advanced technique of production. But in a less developed countries like in the CEMAC region, there is lack of qualitative infrastructure. Due to this, the level of economic development is low. These basic facilities and services which facilitate different economic activities and thereby help in economic development of the country such as, Education, Health, Transport and Communication, banking and insurance, irrigation and power and science and technology etc. are the examples of infrastructure, which are also called social overhead capital. These do not directly produce goods and services but induce production in agriculture, industry and trade by generating external economies. In this regard, we cannot debate to set our development objectives without prioritizing these fundamental structures that are required for the functioning of a community, society or a region. Assessment needs of infrastructure development in the region Infrastructural development is usually referred to structures like Transport, Roads, Ports, Rails, Air transport, Water resources, Irrigation, Water supply and sanitation, Power, Information and communication technologies, renewable energy, and so on. Financing gap for infrastructure projects Access to development finance is one of the most important issues that RECs around the world, including those in Africa, face today. The effectiveness of financial markets is one of the biggest differentiating factors between developed and developing countries. As has been noted in development economics literature, “the financing gap for infrastructure and industrial projects is not so pronounced in developed countries compared to developing countries”. This study finds that in all three sub-regional groupings reviewed, the financing gap for infrastructure projects is huge. For instance, it is estimated that the sub-Saharan Africa, Latin America and the Caribbean, and Asia sub-regions will require a total of US$700 billion to bridge the infrastructure financing gap. Assessment of African Sub-Regional Development Banks’ contribution to infrastructure development: Study Report on the Assessment of African sub-Regional Development Banks’ Contribution to Infrastructure Development | December 2015 - Author(s): Dr Lufeyo Banda. There is thus the need for sensitization of development stakeholders in CEMAC region on innovative investment tools in sectors such as in the; Transport, Roads, Ports, Rails, Air transport, Water resources, Irrigation, Water supply and sanitation, Power, Information and communication technologies. On the eve of Independence, Indian economy is totally backward. Economic planners gave top priority to infrastructure development. In the first plan 50% of the total plan expenditure was devoted to infrastructure. In the First Plan 27% of the Plan outlay was given to transport and communication. 13% of outlay was spent in power and 10% in irrigation and flood control. All five year plans have generally spent around 50% of the total plan outlay on economic infrastructure. Due to heavy investment in infrastructure, Indian economy has become the most promising developing economies of the world. Meaning, Types and Development of Economic Infrastructure in India Shared by Pooja Mehta Our short and long terms development goals needs to fully come to the understanding that; the bigger the infrastructure facilities in a country, the greater the opportunities for public and private investments which of course would skyrocket. The shortage of these facilities in CEMAC countries is the main cause of less economic development. Resources There is no gainsaying that the economic atmosphere in the Central Africa Sub region is unstable and calls for member states to make important fiscal and economic policy readjustments. Coupled with the economic and fiscal challenges, member states such as Cameroon and Chad are faced with terrorist’s attacks from the terrorists group Boko Haram. The Central African Republic is still faced with serious security concerns. A major mistake that member states of the Central African Sub region especially countries like Cameroon and Equatorial Guinea made as far back as 2014 was to depend a lot on oil and neglect other sectors like the agriculture and the tourism industries. According to analysts, though the oil sector is a very lucrative one, it remains a very unpredictable sector. Despite recent stabilization, oil prices were expected to remain well below pre shock levels in the medium term as production was feared to start falling in the long run. CEMAC countries have been therefore forced to rethink through their developmental priorities with respect to the new economic context overshadowed by falling oil prices. Countries like Gabon, Equatorial Guinea and Cameroon have decided to scale back their spending plans by reducing public investment and limiting current expenditure. All of the countries in the sub region have also sought advances from the regional central bank. The consequences of these and other debt related developments is that regional public debt is instead on the rise. Reducing public investment and limiting current expenditure is definitely not the way to go for CEMAC member states. Depending equally on loans from the regional central bank will only make CEMAC member states highly indebted. One of the ways CEMAC member states may overcome such a financial quagmire is by boosting the private sector and focusing more on other sources of revenue. The agricultural sector in most CEMAC countries remains grossly unexploited. There is need for CEMAC member states to improve and mechanize their agricultural sector. Reflecting on the precarious economic and security atmosphere plaguing the Central African Economic Monetary Community by Chofor Che, 30 December 2016. Historical Evolution of Public Procurement The below extract from the; MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A REGIONAL INTEGRATION ASSISTANCE STRATEGY FOR CENTRAL AFRICA. Washington, D.C. January 10, 2003 gives us an introductory perspective on the historical evolution of the public procurement in the sub-region. ‘’The elements of regional legal framework most relevant for the private sector include the OHADA Business Law, the Regional Investment Charter, national investment codes, the rules of Competition and the public procurement regulations. At several points in the past, the Bank has advised on these legal matters. The Bank plans to engage the national governments in a dialogue on the disparities between regional and national rules and try to help eliminate unilateral decisions by governments in contravention of regional norms, especially when these could undermine the customs union (e.g., through import duty exemptions); coordinate policy advice with the EU on the implementation of regional legislation affecting competition and government procurement with a view to preventing some provisions from becoming disguised "behind the border" impediments to trade (the Bank is already advising Chad and Cameroon regarding their proposed legislation for public procurement).’’ Memorandum of the president of the international development association to the executive directors on a regional integration assistance strategy for central africa. washington, d.c. january 10, 2003 The urgency for the promotion of good government in the region lead to the creation of the ‘’ARMP’’ an organization whose role is to promote good governance in the public procurement sector and promote the effective realization of investments. Its creation in 2001 was within the framework of the reform by the State after joining the Highly Indebted Poor Countries initiative (HIPC). This reform underpinned, among others, a renewed approach to public institutions through the establishment in the Cameroon government new rules and practices to promote economic and administrative efficiency. The fight against corruption, good governance and decentralization, etc. all occupies a special place in that orientation. Therefore, the positioning of the Agency is based on its strategic Vision adopted upon proposal of the General Manager, by the Board of Directors at its session of 28 January 2012. It targets performance objectives aimed at: "To make ARMP an efficient institution for the socio-economic development of Cameroon." Concretely, the said Vision is the compass of the Agency's 2013-2015 plan of action. It rests on three (03) measures whose ambition is to give an institutional response to problems related to the regulation of public procurement and to ensure the credibility and authority of the structure. These measures are organized around the following three areas: 1. Performance The actions envisaged within the quest for performance are the following: · Adaptation of the organizational structure; · Consolidation of financial autonomy; · Modernization of the work environment; · Promotion of institutional coherence. 2. Public service To position itself as a public service institution, the Agency proposes to undertake actions along the lines of: · Simplification of public procurement procedures; · improving access to information for stakeholders; · building the capacity of actors; · promoting an alternative mechanism for resolving disputes arising from public procurement. 3. Socio-economic development It is based on the implementation of the following actions: strengthening measures against corruption in public procurement; contribution in the improvement of the monitoring and evaluation of the implementation of public procurement; strengthening the surveillance and control system; promoting a favorable environment for the creation of viable businesses to contribute in the creation of decent jobs; contribution to promoting the effective use of budgetary appropriations. A set of instruments and tools have been developed in-house to ensure the effective implementation of the Agency's performance project. Public Contracts Regulatory Agency: "To make ARMP an efficient institution for the socio-economic development of Cameroon." Limits and challenges of public procurement Cameroon: Decree No. 2004/275 of 24 September 2004 to institute the public contracts code. The Public Procurement Authority is the Prime Minister in the case of Cameroon. As such, it has all the powers and duties conferred upon it by this Code, including visa, authorization exceptional procedures and arbitration in case of dispute or appeal bidders. Circumstances that might constitute grounds for challenges in public procurement include:   Failure to advertise a relevant contract   Wrongly determining that a candidate does not meet the pre-qualification criteria   Giving one bidder important information that is not provided to other bidders   Bias in favor of one party (or against another)   Incorrect application of the award criteria; or   Changing the award criteria or their relative weightings after receipt of bids.   The burden of proof usually lies on the disappointed bidder. However, this burden might switch to the public body in certain circumstances. For example, if the challenger can show that another bidder had access to additional information that it did not receive, the contracting authority will have to explain why the apparent inequality in treatment did not breach the procurement rules. PPP as a bail out for transformational development The Government of the Republic of Cameroon (GRC) actively seeks to attract foreign investment in order to create much-needed economic growth and employment. It is less effective, however, at following through with interested investors in order to ensure that investments move forward in a timely and transparent manner. FDI plays an important role in the Cameroonian economy. In President Biya’s Vision 2035, a road-map to become an emerging economy by 2035, officials stress that investment from foreign countries, especially in large infrastructure projects, is an important part of Cameroon’s development strategy. Despite a lack of reliable statistics, figures from the World Bank show the flow of FDI to Cameroon is relatively low but steadily increasing. The construction of the$4 billion 1070 km Chad-Cameroon crude oil pipeline completed in October 2003 is Cameroon’s largest foreign investment deal to date. Numerous other major infrastructure projects financed by foreign direct investment are underway today. Cameroon has no deliberate and direct economic or industrial strategies that have discriminatory effects on foreign investors or foreign-owned investments. However, the complex regulatory environment and existence of venality throughout every segment of government create numerous obstacles to potential investors. US Department of State: 2014 Investment Climate Statement June 2014. The things that are holding back the development of the CEMAC sub region cannot be farfetched. Member States are characterized by institutional bad governance and resistant to putting up a harmonized attractive business climate. For a sub region like CEMAC with its rich natural resources to develop, there must be concerted action to boost trans-national infrastructure and structures that militate in favor of competiveness. the American Chamber of Commerce in Cameroon: CEMAC: What is Holding Sub-region Development Back: “Natural Resources: Stakes and Challenges.” Infrastructure development plan (who builds, maintains, operate, service debts, cash traffic, rate of return on investments, high return on investments vs high net social value The Central Africa Economic and Monetary Community (CEMAC) have pondered on several occasions on some of the issues that need to be addressed in order to enhance its development. Traditionally, the intervention of private capital in infrastructure financing has been based on project finance techniques. The public sector can be involved in this financial package in a number of roles and with different functions, but the principles of risk analysis and risk management from the point of view of the private sector remain unchanged. Understanding how private investors approach infrastructure investing requires a preliminary analysis of contractual structures used in private project finance and public-private partnerships (PPPs). Investing in infrastructure is essentially a problem of risk analysis and risk mitigation. The analysis of how these techniques work in standard market practice is essential to present, later in the report, how financial markets have evolved in response to an increased demand for infrastructure investment by institutional investors. OECD 2014: Private financing and government support to promote long-term investments in infrastructure. Building wealth through infrastructure development Nevertheless, Cameroon remains attractive to investors because of its strategic location: Cameroon is a founding member of the African Union, the Economic Community of Central African States and the Economic and Monetary Community of Central Africa (CEMAC); it shares a long and porous border with Nigeria, Africa’s most populous country; and it is the gateway to the land-locked countries of Chad and the Central African Republic. With its strategic placement, investments in Cameroon have a potential market of some 250 million consumers. US Department of State: 2014 Investment Climate Statement June 2014. Build Operate and Transfer as what has worked in other countries (how can Africa build from the S Korean, Chinese, Singapore and advanced African countries models? Foreign Direct Investment (FDI) has been one of the main vectors of globalization in the past and has possibly grown in importance over the past decade (Jones, 2005; OECD, 2005). The multinational corporations (MNCs) from industrialized countries, where most FDI originates, have provided a massive infusion of capital, technology, marketing connections, and managerial expertise that, under certain conditions, have played a major role in the economic transformation and growth that many less developed and newly industrialized countries from around the world have experienced over the past two decades. In the process, some enterprises from emerging economies, including both transition, and developing economies, have amassed sufficient capital, knowledge and know-how to invest abroad on their own and claim the status of emerging multinationals (EMNCs). The number of Fortune 500 companies headquartered outside the Triad (the North Atlantic and Japan) and Oceania has risen from 26 in 1988 to 61 in 2005, and Samsung (Republic of Korea) has become one of the top 20 most valuable brand names in the world. Developing country MNCs first appeared as a focus of interest about 25 years ago, with the advent of some overseas expansion by companies from a few countries (Lecraw, 1977; Lall, 1983; Wells, 1983). The earliest major developing-world sources of FDI in this period were a small group of economies, including Argentina, Brazil, Hong Kong (China), India, Republic of Korea, Singapore, and Taiwan (Province of China). It is only since the late 1980s that an increasing number of developing countries and transition economies, including Chile, China, Egypt, Malaysia, Mexico, Russian Federation, South Africa, Thailand, and Turkey, have become significant sources of FDI. Since 2003, the growth rate of outward FDI (OFDI). from emerging markets has outpaced the growth from industrialized countries (UNCTAD, 2005). While OFDI from the BRIC countries – Brazil, Russian Federation, India and China – has received more attention (Sauvant, 2005), other developing countries are also home to new important global businesses. Cemex, a Mexican cement giant, has used acquisitions to become the largest cement producer in the United States; Argentina’s Tenaris (although it is owned by an Italian family and is also listed in New York) is the world’s largest producer of seamless tubes thanks to its technological edge. CP Group in Thailand is said to be the largest single investor in China. Recent mega-deals that have received considerable attention include the purchase of Wind of Italy by Orascom of Egypt – Europe’s largest ever leveraged buyout – and of P&O (United Kingdom) by DP World of Dubai. MNCs from new FDI source countries as “exotic” as Lebanon, Peru, or Uganda are now emerging. Sri Lankan firms, for example, are now very important players in the export-oriented clothing industry in many countries (in particular Bangladesh, India, and Madagascar). Developing country multinationals: South-South investment comes of age: Dilek Aykut* and Andrea Goldstein What can African countries learn from China? China's success with SEZs is based on gradual learning from, and reflecting on, SEZ experiences from other countries. According to China's experience, SEZ models should not simply be replicated, but should always be adjusted to fully fit into and benefit from local circumstances. For example, while Suzhou Industrial Park follows the development model of Singapore's Industrial Park, its model has been adjusted to fully make use of local circumstances, such as the concentration of high-end manufacturing and its proximity to the metropolitan area of Shanghai, among others. Other lessons learned by China include the importance of long-term planning based on objective data. Furthermore, continuous government involvement on policy formulation and monitoring and on the provision of infrastructure is indispensable for successful SEZ development. Another key aspect of China's SEZ achievement has been the continuous focus on human resource development both in terms of SEZ expertise as well as possessing a skilled labour force. When looking at lessons that can be drawn from China's SEZ experience, it is important to recall that while SEZs continue to play an important role in China's development, they are only one of many components of China's unprecedented development. As we have seen in chapter 4 China has continuously pursued SEZ development over the last three decades and created various SEZ types and management models. Reviewing these SEZ types and management models, while considering them as a source of reference rather than a blue print, may be of benefit for African governments when creating a national SEZ programme or developing SEZs within specific local contexts. China has proven that SEZs can be a way to attract capital and create a large number of labour intensive jobs within a short time. However, it is also important to note that China's success in attracting FDI was not only due to its SEZs and cheap labour, but also to the promising potential of its huge domestic market. African countries can only achieve a comparable effect if regional integration is actively pursued. China's model of cross-boarder SEZs demonstrates that SEZs can be used as a valuable tool in this regard. As we have seen in chapter 3, China has also started making use of SEZs as a way to move its labour intensive industries to more profitable markets and to support its domestic companies with venturing into foreign markets. African governments and companies may also use this approach for their internationalization efforts, whether they occur on the continent or in other parts of the world. Furthermore, China has successfully utilized SEZs as a testing ground for economic and legal reforms. While the main focus of this was to ensure the smooth and gradual transition to a market economy, SEZs – Shenzhen in particular – continue serving as a way to test new laws and regulations not just limited to economic matters, but which later regularly become national laws. This aspect of SEZs may be useful for African countries that are aiming to further liberalize their market economies as well as for African countries experimenting with legal reforms. However, this SEZ feature only applies to large SEZs that include whole cities or administrative areas. UNDP: Comparative Study on Special Economic Zones in Africa and China: Working Paper series NO.06.2015 4: Attachment to community solidarity in the face of current and future economic and security shocks. Identification of economic and security shocks Building resilience involves making investments that strengthen the absorptive, adaptive and transformative capacities of vulnerable populations to cope with and recover from specific shocks and stressors. Understanding how different types of shocks affect household and community well-being is therefore fundamental to designing resilience-building programmes. Resilience is a compelling idea for development assistance and humanitarian aid because it highlights the positive capacity to prepare for and respond to shocks and stressors that prevents individuals, households and communities from suffering long-term adverse consequences. From an analytical perspective, resilience focuses attention on the relationship between well-being (e.g. food security, basic health and livelihood status), shocks and stressors, and the capacity to preserve and improve well-being in the face of shocks and stressors. Therefore, reliable measures of shocks and stressors are needed to determine the effectiveness of a given resilience approach. Resilience measurement also demands robust ways to relate shocks and stressors to development outcomes, livelihoods, ecosystems and other systems. This paper reviews a number of principles for measuring shocks, how people perceive shocks and how they respond to them. Principles for Shock Measurement Conduct a comprehensive analysis of the larger risk landscape including potential risks over time – as part of any resilience-building initiative. In the field of development, shocks have been defined as “external short-term deviations from long-term trends, deviations that have substantial negative effects on people’s current state of well-being, level of assets, livelihoods, or safety, or their ability to withstand future shocks” (Zseleczky and Yosef, 2014). In contrast, stressors are long-term pressures (e.g. degradation of natural resources, urbanization, political instability or diminishing social capital) that undermine the stability of a system (i.e. political, security, economic, social or environmental) and increase vulnerability within it (Bujones et al., 2013). A resilience approach acknowledges the need to measure shocks and stressors within complex systems and over extended periods of time (Mock et al., 2015). Shocks can be man-made (such as market, conflict or technological shocks) or naturally occurring (such as droughts, floods, cyclones or epidemics). Different types of shocks affect households, communities and higher-level systems in different ways. Economic shocks can affect labor demand, asset holdings, food consumption patterns, market functions, food and commodity prices, or public transfers that in turn affect individual or household well-being (Constas et al., 2014b; Skoufias, 2003). Natural hazards can affect crops, infrastructure and markets, and they can destroy personal property and assets. Health and agro-ecological shocks affect the productivity and income generating ability, level of assets, and food consumption patterns of individuals and households. FSIN: Measuring Shocks and Stressors as Part of Resilience Measurement What are the causes of these shocks What is an 'Economic Shock' An economic shock is an event that produces a significant change within an economy, despite occurring outside of it. Economic shocks are unpredictable and typically impact supply or demand throughout the markets. BREAKING DOWN 'Economic Shock' An economic shock may come in a variety of forms. A shock in the supply of staple commodities, such as oil, can cause prices to skyrocket, making it expensive to use for business purposes. The rapid devaluation of a currency would produce a shock for the import/export industry because a nation would have difficulty bringing in foreign products. Investopedia Since 2014, the Central African Economic and Monetary Community (CEMAC) faces at the same time several types of shocks: securities (terrorist threats), politics (political crisis) and falling prices of natural resources. Concerning the persistent fall in the cost of natural resources, principally oil, started since June 2014, the cost of barrel passed from more than 100 US $, to less than 50 US $. Consequently, the economic growth curve in the zone follows a fall starting from 4. 8% in 2014 to 2.4% in 2015, and in 2016, it is forecast at 1%. The relation between oil price variables and the principal macroeconomic indicators was already the subject of numerous theoretical and empirical studies (Hamilton,(1983, 1988, 1996, 2003), Rasche and Tatom (1981), Mork (1989), Hooker (1996). This dynamic interest at the same time academicians, policy decision-makers, the actors of finance and of the civil society since the first crisis of oil triggered in 1970. So, a series of dramatic events in the 1970s sent the price of crude oil over $40 a barrel by the end of that decade, which would be over $100 a barrel at current prices. The price remained very volatile after the collapse in the 1980s but was still as low as $20 a barrel at the end of 2001(Hamilton, 2009). After 2005, the barrel price remained above $60 despite the strong volatility. But since the fall in August 2014, the barrel price dropped below $60 in March 2015 and is maintained until now. The consequences of this strong decrease are dynamic for the exporting countries, in particular those of the CEMAC zone. This real decrease in barrel price influence the decisions of budgetary and monetary policies in function of the weight of the oil returns in the gross domestic product and the budgetary returns. It is in this light that Copinschi (2015) brings out the weight of the oil rent in the Gross domestic product and the budgetary returns of CEMAC countries. Thus, in Cameroon, it is observed that the returns from oil represents 10% of Gross Domestic Product, 20% of the budget and represent 50% of export returns for a production of 75 000 barrel/d. In Congo, oil returns represents 50% of Gross Domestic Product, 75% of budgetary returns and 80% of export returns for a production of 281000 barrel/d. In Gabon, oil returns represent 45% of Gross Domestic Product, 50% of budgetary returns and 70% of export returns for a Production of 236 000 barrel/d. In Equatorial Guinea, oil returns represent 85% of Gross National Product, 85% of budgetary returns and 90% of export returns for a production of 281000 barrel/d. Thus, in the IMF Country Report N° 16//277, it is shown that CEMAC growth was subdued in 2015. It slowed to 1.6 percent, from 4.9 percent in 2014, because of reduced public investment and lower oil production. Growth is projected to be 1.9 percent in 2016, as oil production and investment remain sluggish. From 2017 onward, growth is expected to reach 3½ percent a year, as oil prices gradually recover, some one percentage point below the average growth level of the past decade of high oil prices. Growth of money and credit to the economy turned negative in 2015 for the first time in a decade, contributing to keeping inflation low. The regional fiscal and current account deficits grew to 6 and 9 percent of GDP in 2015, respectively, as oil export proceeds fell by 32 percent. Continued low oil prices and high public expenditure will contribute to maintaining both deficits at about 6 and 8 percent of GDP in 2016, respectively. Impact of these shocks Faced with the fall in oil returns, all countries of the region have, in the course of the year 2015, strongly reduce their public expenditures on investment, what aggravates the slowing effect of the economy by impacting the non-oil activity sectors but of which the financing greatly depends on oil returns (construction, etc.). Gabon and Congo has announced the important adjustments in the public expenditures and Cameroon has to follow. But it is in Equatorial Guinea that the recadrage is most severe: the amount of public investments for the year 2015 will experience a fall of close to 60% with respect to the previous year. Besides, the fall in foreign investments in the oil sector of these countries will equally have a negative impact on the growth of this year. Comparative analysis on economic and security shocks The short-term risk of a financial crisis appears low, but the assessment identified pockets of vulnerabilities. The financial sector is not well positioned to contribute effectively to the financing of the CEMAC economies, and it faces an intensification of risk factors related to geopolitical tensions and the fall in commodity prices. Reform progress has been slow in addressing longstanding weaknesses, despite extensive technical assistance (TA), and the urgency for progress is heightened by recent macroeconomic developments. Firm action is required to foster the development of the financial sector while ensuring adequate oversight of risk factors. The reform agenda calls for granting greater operational autonomy to the regional financial agencies, and boosting their capacity to carry out the reform projects successfully. Prudential regulations need to be upgraded, and regulatory forbearance should be avoided through effective enforcement. There is also considerable scope for enhancing the business climate, one of the weakest worldwide and financial inclusions, which has been lagging behind. IMF: Central African Economic and Monetary Community (CEMAC): Financial System Stability Assessment. Macroeconomic Risks in the Financial Sector Over the past decade, primarily as a result of high oil prices, the CEMAC achieved robust economic growth, although lower than the SSA average, but insufficient to significantly reduce poverty. Countries launched wide-ranging public infrastructure programs needed to support regional economic activity, but large fiscal expansion reduced the fiscal buffers for coping with the negative oil price shocks. The economies are poorly diversified, and non-oil GDP growth is largely sustained by public expenditure and the services sector. Poverty and unemployment remain high, in particular among young people. A poor business climate and weak governance are hampering financial sector development and its contribution to financing investments. Corrective actions in this regard are needed to improve the growth potential and competitiveness of the CEMAC economies. The weakness of regional integration also limits the growth potential. Although the CEMAC has a common legal system (OHADA), a common external tariff, and a common currency, numerous tariff and non-tariff barriers hinder the flow of goods, services and persons. Intra-regional trade accounts for only 2 percent of all trade. Intra-regional financial transactions are also limited, compared with the volume of international transactions. By contrast, a certain increase is noted in intra-regional payments, along with an expansion in government securities issued at the regional level. The drop in oil prices by about 60 percent between June 2014 and January 2015 has had a large impact on the CEMAC countries’ macroeconomic performance (Box 1). Oil revenue represents over 50 percent of the Union’s fiscal outlays and more than 80 percent of exports. The sharp decline in oil revenue is expected to force some countries to reduce budgetary spending, including public investment programs. Pressures on their treasuries could also lead states to use a portion of their deposits at the BEAC and in the banking sector, which could in turn weaken the liquidity position of some financial institutions. Such pressures could also lead to problems in paying suppliers and thus to an increase in the nonperforming loans (NPLs) of financial institutions. IMF: Central African Economic and Monetary Community (CEMAC): Financial System Stability Assessment. BEAC Assessment of the Oil Shock Impact According to the baseline scenario prepared by the BEAC, the oil shock impact would be as follows: Real sector: The CEMAC is expected to record a 1.8 percent growth decline in 2015 owing to falling oil sector activity and the consequent retrenchment in capital expenditures. For 2016-17, growth is projected to recover to average about 7 percent. Inflation is expected to remain subdued at around 2.3 percent for the period 2015-17. External sector: Over the period 2015-17, the current account deficit would deteriorate to 14.1 percent of GDP on average, and the international reserves coverage is projected to fall to an average of 3½ months of imports of goods and services. Public sector and debt: The fiscal balance would decline to - 6.7 percent of GDP in 2015, -4.9 percent in 2016, and - 3.4 percent in 2017; financing needs should lead to a significant increase in debt. Monetary aggregates and banking sector: The external coverage ratio would fall to 87.4 percent for the period 2015-17. However, it would plummet to 52 percent if the states’ financing requirements were only met on the domestic market. The banks’ liquidity levels should remain at comfortable levels. BEAC Geo-strategy and geopolitics The worsening of the security situation related to the crisis in Central African Republic (CAR) and Boko Haram’s activities in the northern part of Cameroon could also affect economic activity. The expectation of higher risks could affect investment in new projects and commercial activity, with ensuing adverse effects on financial sector stability and profitability. How can the current or future shocks be turned around for a greater benefit to Africa The first consideration if the WBG is to help countries reduce poverty while seeking to develop extractive industries is that programs should be tailored to the specific requirements and needs of the country and to the existing adequacy of governance. Taking into account the nature of the resources the area is endowed with, the relative importance of current and expected resource revenues in the government budget, and the anticipated social and environmental impacts. The criteria of governance adequacy should be developed transparently and with the involvement of all stakeholders. It should include minimum core and sectoral governance criteria, such as the quality of the rule of law; the absence of armed conflict or of a high risk of such conflict; respect for labor standards and human rights; recognition of and willingness to protect the rights of indigenous peoples; and government capacity to promote sustainable development through economic diversification. The more specific building blocks of governance required for extractive industries include the following: • promote transparency in revenue flows, • promote disclosure of project documents, • develop the capacity to manage fluctuating revenues, • develop the capacity to manage revenues responsibly, • help governments develop modern policy and regulatory frameworks, and • integrate the public in decision-making processes at local and national levels. Governance should be strengthened until it is able to withstand the risks of developing major extractions. Once that has happened, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) can add support for the promotion of a well-governed extractive sector. Similarly, when the International Finance Corporation and the Multilateral Investment Guarantee Agency (MIGA) consider investing in an oil, gas, or mining project, they need to specifically assess the governance adequacy of the country as well as the anticipated impacts of the project and then only support projects when a country.s government is prepared and able to withstand the inherent social, environmental, and governance challenges. It is important for the WBG to promote partnerships to develop incentives for and advance the international application of best practice, such as through corporate responsibility, reputation risk, and the adoption of international norms and codes of conduct, as well as the creation of financial instruments such as performance bonds, mandatory insurance, and fines. IMF: Central African Economic and Monetary Community (CEMAC): Financial System Stability Assessment. Conclusions, projection solution to avoid such happenings These challenges emphasize the urgent need to bring to completion the reform of the monetary policy framework. The following key actions are recommended: Strengthen the internal functioning of the BEAC. The strengthening of the BEAC’s internal controls and its accounting system, when completed to the satisfaction of the oversight bodies, will make it possible to return the chairmanship of the BEAC board of directors to the governor, together with the adoption of a governance structure for the BEAC which combines the three pillars of modern central banking, namely independence, transparency, and accountability. It is also critical to revisit the rules and practices for the selection and appointment of the BEAC’s top officials (national and head office directors and other senior staff), in order to ensure that appointments by the BEAC authorities are based on candidates’ professional qualifications and experience, while at the same time maintaining a balanced national representation. Strengthen the systemic liquidity forecasting and management framework. The work already started at the BEAC should be completed as a matter of priority. This will involve a close coordination with the national authorities in charge of government cash flow management. Initiate the reform of the monetary policy operating framework. The multiplicity of monetary policy instruments blurs the readability and transparency of the BEAC’s actions. It is therefore urgent to streamline the framework, along the lines of past recommendations made in the context of Fund technical assistance. This effort should also include actions to develop the government securities market; a regional committee under the aegis of the BEAC should be established to this effect. Put in place a lender of last resort framework distinct from the monetary policy operating framework. IMF: Central African Economic and Monetary Community (CEMAC): Financial System Stability Assessment. The current pressures on the external position of the CEMAC also reinforce the need to strengthen the BEAC’s reserve management framework, and to have its key components validated by the Ministerial Committee, including: (i) the methodology for assessing the optimal level of international reserves; (ii) the structure of the reserves portfolio; and (iii) the methodology for determining the remuneration of the deposits by CEMAC member states. Current arrangements could be amended towards an assets-liabilities approach, whereby the remuneration of the deposits would reflect the return on the assets in which they are invested. The implementation of the above principles governing the framework for foreign exchange reserves management should remain under the responsibility of the Monetary Policy Committee-MPC (e.g., actual calculation of the optimal level of reserves, of the structure of the reserves, and of the remuneration of deposits, and setting the strategic allocation of reserves). IMF: Central African Economic and Monetary Community (CEMAC): Financial System Stability Assessment. Financial Stability Framework The recently established financial stability framework needs to be made fully operational. While overtime a fully developed institutional framework for macro prudential policies will be useful, at this juncture the priority should be given to strengthening the micro prudential supervision framework; clarifying the BEAC’s role (including establishing a lender of last resort function); adopting a mechanism for identifying banks and MFIs of systemic importance; strengthening of the framework for monitoring financial stability through the conduct of stress tests in coordination with the SG-COBAC; and undertaking analysis of the channels of contagion between the macroeconomic and financial sectors. IMF: Central African Economic and Monetary Community (CEMAC): Financial System Stability Assessment. CRISIS MANAGEMENT AND SAFETY NETS Crisis Management and Resolution The recently adopted regulation for crisis management and resolution is a significant progress, but needs supporting measures. After a lengthy process, drawing on the lessons of recent banking crises (Box 2), a new regulation was adopted in 2014 by the MC. Two main points deserve the authorities’ attention: IMF: Central African Economic and Monetary Community (CEMAC): Financial System Stability Assessment. The special restructuring provisions create for the resolution authorities, under CEMAC, COBAC, UMAC, and MC Regulations, far-reaching powers that have not yet been tested, and that could be challenged in court. The actual implementation of the new arrangements requires supporting measures to: (i) specify the criteria for initiating special restructuring operations, and especially regarding the assessment of whether or not a bank is of systemic importance; (ii) specify the provisions aimed at safeguarding the interests of parties that believe they have incurred losses greater than those they would have suffered in the context of liquidation under ordinary law; (iii) protect the interests of the funding entities (the deposit insurance fund - FOGADAC and the states) by recognizing their preferential rights over those of other creditors; and (iv) clearly establish the obligation for the FOGADAC and the COBAC to take legal action against shareholders and executives responsible for bank failures caused by anomalous or fraudulent management actions. IMF: Central African Economic and Monetary Community (CEMAC): Financial System Stability Assessment. Chapter 5 Freeze limits on the statutory advances of the BEAC to the level set in 2014. Executive Board Assessment Executive Directors agreed with the thrust of the staff appraisal. They expressed concern about the region’s deteriorating economic prospects stemming from multiple shocks, in particular the oil price decline, the challenging security environment, and the insufficient policy response. With the medium-term outlook facing considerable risks, Directors strongly encouraged the authorities to take timely and decisive actions to pursue fiscal adjustment and ensure debt and external sustainability, rebuild foreign reserves buffers, and implement region-wide structural reforms to diversify the economy and improve investment prospects. Stronger regional institutions are also essential to improving regional integration and policy coherence and compliance. Directors also called for enhanced support from the Fund and other international partners to help the authorities address the current economic difficulties. Directors stressed the critical importance of continued fiscal consolidation to address the widening fiscal and current account deficits and to maintain macroeconomic stability. While welcoming the recent progress, they encouraged further efforts to expand the non-oil tax base and rationalize and improve the quality of spending to maximize economic returns and social protection. Directors welcomed the authorities’ intention to pursue prudent borrowing and debt management policies, and encouraged borrowing on concessional terms to the extent possible. Directors also welcomed the new regional convergence framework, although a lower debt ceiling and stronger monitoring mechanisms should be considered. While acknowledging the supportive role played by the accommodative monetary stance in weathering shocks, Directors noted the limited scope for further monetary policy easing and called for greater prudence in this regard. They urged the authorities to freeze the statutory advances to national governments, avoid indirect monetary financing, and accelerate reforms to the monetary policy framework to improve its effectiveness, including greater central bank independence. Directors underscored that rebuilding the low level of reserves is an urgent priority, and that better pooling of reserves across the members remains important. They encouraged the implementation of the remaining safeguards assessment recommendations. Directors noted the resilience of the financial sector, and encouraged the development of a sound macroprudential framework to safeguard financial stability in the region. Directors also welcomed the progress made following the 2015 FSAP recommendations, and urged the implementation of the remaining recommendations, as well as measures to broaden financial inclusion and strengthen the AML/CFT framework. Directors stressed the need for ambitious structural reforms to boost competitiveness and diversification, create private-sector investment opportunities, and improve the business environment. They encouraged the strengthening of regional institutions to enhance collaboration and macroeconomic management. The views expressed by Directors today will form part of the Article IV consultation discussions on individual members of the CEMAC that take place until the next Board discussion of CEMAC common policies. It is expected that the next discussion of CEMAC common policies will be held on the standard 12-month cycle. IMF Executive Board Concludes Annual Discussions on CEMAC Countries’ Common Policies On July 13, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the annual discussions on Common Policies and Challenges of Member Countries with the Central African Economic and Monetary Community (CEMAC) What are statutory advances? CRISIS MANAGEMENT AND SAFETY NETS: Crisis Management and Resolution The recently adopted regulation for crisis management and resolution is a significant progress, but needs supporting measures. After a lengthy process, drawing on the lessons of recent banking crises, a new regulation was adopted in 2014 by the MC. Two main points deserve the authorities’ attention: The special restructuring provisions create for the resolution authorities, under CEMAC, COBAC, UMAC, and MC Regulations, far-reaching powers that have not yet been tested, and that could be challenged in court. The actual implementation of the new arrangements requires supporting measures to: (i) specify the criteria for initiating special restructuring operations, and especially regarding the assessment of whether or not a bank is of systemic importance; (ii) specify the provisions aimed at safeguarding the interests of parties that believe they have incurred losses greater than those they would have suffered in the context of liquidation under ordinary law; (iii) protect the interests of the funding entities (the deposit insurance fund - FOGADAC and the states) by recognizing their preferential rights over those of other creditors; and (iv) clearly establish the obligation for the FOGADAC and the COBAC to take legal action against shareholders and executives responsible for bank failures caused by anomalous or fraudulent management actions. TRALAC: Central African Economic and Monetary Community (CEMAC): Financial System Stability Assessment. How does it limit the development of the sub region? CEMAC’s economic outlook has changed dramatically since the last discussions because of the significant decline in international oil prices. The financial sector is shallow, and financial intermediation and inclusion are limited. The regional institutions face considerable challenges, including from political interference and capacity constraints. Downside risks are important, as CEMAC is vulnerable to protracted low oil prices and a possible relapse in regional security crises. Key policy recommendations Policy mix. CEMAC countries should embark on fiscal consolidation to confront a possible lasting fall in oil revenues focusing, on increasing non-oil revenues. At present, reserve coverage remains adequate and the real effective exchange rate is broadly aligned with the current account norm. However, renewed external shocks or lack of appropriate policy responses could deplete reserves below appropriate levels. Surveillance framework. Although the authorities’ surveillance framework reform proposal may help to manage oil revenue volatility, the envisaged reform does not ensure long-term sustainability and does not provide a good anchor against fiscal pro-cyclicality. Monetary policy. The monetary policy framework is impaired. The authorities need to address the management of excessive systemic liquidity and mend weak monetary transmission channels. Financial sector. The oil price shock brought macro-financial linkages to the forefront and revealed pockets of vulnerabilities. The authorities should implement 2015 FSAP recommendations on a stricter enforcement of prudential norms and provide better support to the deepening of financial intermediation. Regional integration and growth. Greater integration and stronger regional institutions are necessary to improve the competitiveness of the non-oil economy and support growth. This requires a concerted effort from regional and national authorities. What are alternative measures to these statutory advances? The following actions should be undertaken as a matter of priority: Complete, as soon as possible, the process of recognizing the GABAC as a FSRB, providing it with procedures for transparent financial management; Put the FIUs in Congo and Equatorial Guinea into operation; Set up, within each state, an effective inter-ministerial committee responsible for drafting a national AML/CFT policy defining priorities for action by each player, short and medium-term quantitative objectives, and means of action; Draft, in each member state, a comprehensive and structured criminal justice policy for AML/CFT and the principal offenses, including corruption and the embezzlement of public funds, that would include the combating of money laundering in criminal proceedings. Make funds transfer companies subject to a mechanism for licensing/registration and for supervision; and Increase the appropriate financial, technical, and human resources of regional and national supervisors of the financial and non-financial sectors, for gradual and effective implementation of AML/CFT risk-based supervision and ensure supervisors have and use a broad range of powers to enforce AML/CFT requirements. IMF: Central African Economic and Monetary Community (CEMAC): Financial System Stability Assessment Chapter 6: Strengthening the supervision of the banking system and optimal use of monetary instruments. Preconditions for effective banking supervision An effective system of banking supervision needs to be able to effectively develop, implement, monitor and enforce supervisory policies under normal and stressed economic and financial conditions. Supervisors need to be able to respond to external conditions that can negatively affect banks or the banking system. There are a number of elements or preconditions that have a direct impact on the effectiveness of supervision in practice. These preconditions are mostly outside the direct or sole jurisdiction of banking supervisors. Where supervisors have concerns that the preconditions could impact the efficiency or effectiveness of regulation and supervision of banks, supervisors should make the government and relevant authorities aware of them and their actual or potential negative repercussions for supervisory objectives. Supervisors should work with the government and relevant authorities to address concerns that are outside the direct or sole jurisdiction of the supervisors. Supervisors should also, as part of their normal business, adopt measures to address the effects of such concerns on the efficiency or effectiveness of regulation and supervision of banks. BIS: Basel Committee on Banking Supervision The preconditions include: • Sound and sustainable macroeconomic policies; • A well established framework for financial stability policy formulation; • A well developed public infrastructure; • A clear framework for crisis management, recovery and resolution; • An appropriate level of systemic protection (or public safety net); and • Effective market discipline. The power of a credible banking system Since the mid 1980s, many African countries have implemented financial sector reforms. To a large extent, these reforms were aimed at restructuring and privatizing state controlled banks as part of the IMF and World Bank structural adjustment policies (SAP), but were accompanied by auxiliary policies that eased entry and exit restrictions, interest and capital controls, as well as the overhaul of supervisory and regulatory frameworks in the banking sector. While the overall economic benefits of SAP continue to be debated among experts, the consensus is that at least in the financial sector, such policies have led to the emergence of more efficient private deposit-taking institutions that are directly channeling financial resources to more productive sectors, facilitating risk sharing and supporting private sector development. In this paper, we provide a review of the banking system and financial regulations at work across the continent. The first part is geared towards four key features of the banking system in Africa, namely (i) the depth and penetration of banking and banking services, (ii) innovation and technology in the banking industry, (iii) banking efficiency and (iv) competition and ownership in the banking sector. The second part provides an overview of the banking sector regulations and supervision, focusing on the rationale for regulatory processes. We then examine how regulatory authorities can effectively supervise and regulate banks across the continent. The last part discusses the Basel principals and how they are relevant for Africa. In doing so, we compare financial ratios and regulatory indicators, and search for commonalities and disparities in the banking industry and the supporting supervisory policies in Africa with those in other developing regions as well as the OECD group. For regional comparability, we also divide the African continent into various sub-regions --North Africa, Southern Africa, West and East Africa-- and report results for these sub-regions. We use the AfDB’s country groupings to classify countries into sub-regions. For results on West and Southern Africa, we report tables for those regions including Nigeria and South Africa and other excluding those countries. We do so to see if the effects of the relatively more matured banking sector in South Africa, and Nigeria are driving averages in those sub-regions. In the case of Southern Africa, we also experiment by excluding Mauritius, but the averages reported do not qualitatively change our conclusions. In spite of recent developments in capital and insurance market across the continent, we limit our attention to deposit-taking financial institutions that, in our opinion, are less opaque and more structured. Also banks in Africa are well supervised as well as those in other developing countries with competition and entry regulations on par with those in other regions. In addition, Africa’s banking system seems to be resilient, the number of systemic banking crises decreased since the late-nineties. However, this seems to be paradoxical. Most regulatory and supervisory authorities in Africa are still using Basel I framework while other countries are implementing Basel III. Africa’s limited integration in international financial markets and improved governance may explain this resiliency. AFDB: The Banking System in Africa: Main Facts and Challenges Eugene Bempong Nyantakyi 1 and Mouhamadou Sy 2 Banking system of the sub-region The depth of financial development, an indicator of the extent to which agents are able to use financial markets for savings and investment decisions has a strong link with long-term economic growth as it enhances firms and businesses’ ability to invest in long-term and risky initiatives. A common indicator of financial deepening is domestic credit to the private sector as a percentage of GDP. It captures claims on the private sector by deposit taking financial institutions relative to economic activity and hence, reflects the role played by financial intermediaries in channeling savings to private sector investors. Higher domestic credit to the private sector is therefore indicative of the provision of productivity enhancing financial services (King and Levine, 1993). Using this measure, sub-Saharan Africa has the shallowest financial depth among the various regions as shown in Table 1. At 24%, domestic credit to the private sector is about half the average ratio for North Africa and Latin America & Caribbean and less than a quarter of that of OECD countries. Within the sub-regions, West and East Africa record the lowest ratios of 20% and 21% respectively, while Southern Africa records a relatively high ratio of 43%, driven mainly by the high financial depth of South Africa. The ratio of liquid liabilities to GDP, a measure of monetary resources, serves as a comprehensive indicator of the level of financial intermediation by key financial players (central bank, deposit taking and other financial intermediaries) and bank deposits as a percentage of GDP show a similar pattern of low financial depth for West and East Africa. Deepening the financial sector in the long run partly depends on financial institution’s ability to track repayment history that requires credit registry and information sharing among financial intermediaries. Difficulties in establishing borrowers’ ability and willingness to repay, and lack of legal support for creditor rights limit banks’ lending schemes, which contributes to shallow financial development. In weak legal and institutional environment, financial institutions run the risk of lending to agents with little to no prospects of repayment. Africa and North Africa are sub-regions that have made substantial progress on record keeping on credit history. The percentage of registered adults increased from less than 1% in 2005 to around 7% in 2013 in the case of Southern Africa and from 3% to 9% in North Africa. However in East and West Africa, the percentage of adults in public credit registry remains low on average, accounting for less than 1% and 3% of adult population respectively. Financial penetration also remains low in Africa. Less than a quarter of sub-Saharan Africa’s population has access to a formal bank account. This indicates that (i) there is less financial inclusion particularly in low income communities and (ii) the degree to which private individuals can access financial services is limited. AFDB: The Banking System in Africa: Main Facts and Challenges Eugene Bempong Nyantakyi and Mouhamadou Sy Banks as instruments for economic transformation “Africa is the world’s second-most-unequal continent after Latin America. Six of the ten most-unequal countries are in Africa,” the African Development Bank Group (AfDB) said in its 2014 Annual Report released on Wednesday, May 27 at its Annual Meetings in Abidjan, Côte d’Ivoire. The report provides evidence suggesting that rich Africans, who account for less than five percent of the population, hold about 20 percent of total income while the poor who account for 60.8 percent of the population own 36.5 percent of the continent’s total income. According to the GNI, the 10 most unequal countries in the world are: South Africa (65), Namibia (61.3), Botswana (60.5), Zambia (57.5), Honduras (57.4), Central African Republic (56.3), Lesotho (54.2), Colombia (53.2), Brazil (52.7) and Guatemala (52.4). The AfDB acknowledges that while Africa has grown at an unprecedented pace in the past decade, the benefits of the economic resurgence have not been broadly shared. Instead, growth has been concentrated in particular sectors or geographical areas within countries, excluding large sections of people. It argues that growth must be more inclusive in order to lift the majority of Africans out of poverty by creating employment opportunities through a better business and investment climate that enables the private sector to thrive; and connecting remote areas to growth poles through better infrastructure and deeper regional integration within countries and across national borders. In addition, effective transformation of Africa’s natural wealth into created wealth, including building human capital and skills and addressing climate change to ensure a smooth transition towards an environmentally sustainable growth path, would further promote inclusive growth. The AfDB defines inclusive growth as economic growth that results in a wider access to sustainable livelihood opportunities for a broader number of people, regions, or countries, while protecting the vulnerable, all in an environment of fairness, equity, and political plurality. These concerns were addressed in the Bank’s 2013-2022 Ten Year Strategy which focuses on infrastructure development, regional economic integration, private sector development, governance and accountability, skills and technology as the main channels through which the ban will deliver its work and improve the quality of growth in Africa. It will also seek new and creative ways of mobilizing resources to support Africa’s transformation, especially by leveraging its own resources. Wider use of public-private partnerships, co-financing arrangements and risk-mitigation instruments will also attract investors.  President Donald Kaberuka put the inclusive growth orientation of the strategy in perspective, saying, “In a decade of seismic shifts in the global economy, Africa has defied the pessimists and experienced significant growth. That economic growth must now translate into real economic transformation, which will bring jobs and opportunities to its citizens. That is what makes the next decade so decisive, and the African Development Bank’s Strategy for 2013 to 2022 so vital”. AfDB: A focus on Africa’s economic transformation to inclusive sustainable growth Gaps of banking in the sub region Many banks across the continent have moved from manual banking systems in the 1980s and 1990s to front office digital services. They have spent the last decade investing in banking infrastructure including online banking and electronic transactions systems. Such use of digital infrastructures has not only allowed domestic banks to efficiently reach higher number of clients and compete with large foreign competitors, but also improved banks’ margins by reducing operations cost. AfDB: A focus on Africa’s economic transformation to inclusive sustainable growth In East Africa in particular, expanding mobile communication networks and access to mobile phones in rural areas have created path to banking innovation technology that challenge conventional ATM machines and electronic payments. Rather than installing ATMs that require regular maintenance, liquidity balancing and security, in rural underserved communities, banks are now coordinating with telecommunication companies to pioneer mobile banking systems that bring financial services to the door steps of clients. This has lowered the “shoe-leather” cost of paying regular visits to ATM machines by clients, and allowed real time money transfer through agents that clients are familiar with. AfDB: A focus on Africa’s economic transformation to inclusive sustainable growth Mobile banking however has been more successful in East Africa than elsewhere, notably in Kenya where the M-PESA money transfer and payment system developed by Safaricom in 2007 now serves over 17 million clients with more than 40 000 agents across the country. As shown in Table 3, East Africa has the highest percentage of adults (22%) using mobile banking. In West, Southern and North Africa, that number is 2%, 6% and 7% respectively. In OECD countries, only 3% of the population relies on mobile banking. However, East Africa has the lowest ATM per 100 000 adults (3.45) among the sub regions. A related issue is to understand whether mobile banking and ATM are complement or substitute. AfDB: A focus on Africa’s economic transformation to inclusive sustainable growth Other innovations in the banking sector are less widespread in Africa relative to other regions. The use of electronic payments such as wire transfers is particularly low in Africa. While usual in OECD countries (where close to 58% of adults reported using it), only 4% of the adult population uses electronic payments in sub-Saharan Africa (3% in North Africa), relative to 6% in Latin America & Caribbean. In the sub-regions of Africa, Southern Africa reports the highest percentage of adults (8%) using electronic payments, relative to 1% in West Africa and 2% in East Africa. Due to the fact that both the sender and the receiver in a wire transfer transaction must have bank accounts and given the low level of bank penetration in Africa, the low number of wire transfers in the continent is not surprising. AfDB: A focus on Africa’s economic transformation to inclusive sustainable growth Access to loans Less than a quarter of adults in Sub-Saharan Africa have access to formal financial services. Lacking a financial infrastructure that includes a place to save money securely, safe and efficient means of transferring money, and access to credit and insurance, the majority of people on the continent are often barred from making productive investments in their families and businesses. Lack of access to finance is a key constraint on the growth of small and medium enterprises in Sub-Saharan Africa, and thus also an important limitation on employment, economic growth and shared prosperity. African financial systems have improved in the past two decades but still lag behind other developing economies, hampering the positive effects of current record financial inflows. IFC: Access to finance is key to inclusive economic growth in Sub -Saharan Africa. Absence of interbank data base At the onset of the global financial crisis in late 2007, the banking systems of SSA countries were still underdeveloped relative to the Western market and this market immaturity had the effect of limiting African banks’ exposure to the toxic debt that threatened financial market meltdown in developed countries. Sub-Saharan Africa’s lack of financial linkages to global capital markets, combined with the regulatory reforms of the 1990s and 2000s, ensured that SSA countries were relatively insulated from the global crisis, though there were exceptions. Banks Regulations in Africa: The Role of Bank Activity Restrictions A first way of regulating the banking system is to limit their activities. Even if banks are not the same across countries, their activities are usually shared between lending, investment securities, and insurance and real estate activities. We use four indexes to gauge the restrictions on banking activities and the degree to which ban-king activities are separated from other financial service industries. All index values for banking activities range from 1 to 4. Higher value indicates greater restriction on the specific bank activity. If the index is equal to 1, the activity is completely allowed while when the value is 4, the activity is fully prohibited. Regulations pertaining to securities activities indicate the degree to which banks are allowed to engage in underwriting, brokering and dealings in securities, and all aspects of the mutual fund industry. The scores of sub-Saharan Africa and North Africa, respectively 2.29 and 2, indicate that securities activities are permitted but with some restrictions. Within sub-Saharan Africa, securities activities are least constrained by authorities in West Africa. However, in Africa as a whole, the level of restrictions on securities activities is not higher than other developing countries. On the other hand, there are few restrictions on securities activities in developed countries. Delinquent customers Loan portfolio is the largest asset and the biggest source of income for banks; consequently, most banks advance huge portions of financial resources as loans to clients. Despite the stringent evaluation and monitoring strategies put in place by banks to ensure repayment of loans by borrowers, a considerable proportion of loans become delinquent. Securities etc Recent country studies on sub-Saharan African economies underscore a number of emerging macro-financial risks. The previous sections highlighted that further financial sector development in sub-Saharan Africa could yield significant macroeconomic gains. However, such development promotes a sector that, if excessive risks are taken, could pose a risk of substantial spillovers to the economy, highlighting the need to be vigilant about macro-financial risks. Recent country studies on sub-Saharan African economies underscore a number of emerging macro-financial risks. In the WAEMU, a combination of widening fiscal imbalances and accommodative monetary policy by the regional central bank (BCEAO) has allowed banks to significantly increase holdings of government securities to take advantage of the interest rate margin of government bonds over the low BCEAO refinancing rate, raising the sovereign financial risk (IMF 2015g). In Malawi, insufficient fiscal adjustment led to the accumulation of domestic payment arrears and more recourse to domestic financing, resulting in increased nonperforming loans and elevated financial sector exposure to government risks and thus heightened economic uncertainty (IMF 2015d). IMF: Financial Development in Sub-saharan Africa promoting Inclusive and Sustainable Growth In Namibia, a booming housing market has been posing a great risk to banks and could potentially lead to a fiscal risk. In the CEMAC, Namibia, and Uganda, banks’ credit growth has been accompanied by significant concentration risks (IMF 2015c, 2015e, 2015f). Moreover, in Uganda, high dollarization in loans and deposits poses potential credit risks due to possible currency mismatches in borrowers’ balance sheets. These developments could initiate bank and sovereign risk feedback loops. When such a risk materializes, it could be easily exacerbated, given the lack of enforcement of prudential rules, the weak judiciary system, and weak crisis resolution frameworks in the region. IMF: Financial Development in Sub-saharan Africa promoting Inclusive and Sustainable Growth Sound macroeconomic fundamentals have been driving financial development in sub-Saharan African countries, while weak institutional quality has been hindering it in many countries of the region. Improvements in legal frameworks and corporate governance seem to be the most promising avenues to boost financial development in the region. IMF: Financial Development in Sub-saharan Africa promoting Inclusive and Sustainable Growth Chapter 7: Engage BEAC in the adoption of measures to promote migration to finance by capital markets. Central bank of the central African region and financial markets Central banks in Africa are changing as the continent becomes increasingly integrated with the global financial system. Central banks have a key role in developing local debt markets. The development of local currency bond markets is critical to Africa’s financial development and resilience to shocks. Government fiscal and debt management policies should not undermine effective monetary policy. Good macroeconomic policy requires mechanisms that ensure appropriate coordination but avoid potential conflicts of interest. BIS Papers No 76: The role of central banks in macroeconomic and financial stability Edited by M S Mohanty Financial stability frameworks need to be strengthened. Central banks must have a major voice in financial stability policy which is closely linked with monetary policy. Central banks are naturally the official institution closest to financial markets. Nevertheless, responsibility for financial stability will almost always be shared with other bodies. How this is done will differ from country to country. But, however done, supervisors need the independence and the powers to act quickly and impartially... BIS Papers No 76: The role of central banks in macroeconomic and financial stability Edited by M S Mohanty The prolonged period of higher-than-average commodity prices, often attracting heavy capital inflows, has boosted growth but may also have created its own financial stability risks. In this context, a macro prudential perspective to policymaking – one that attempts to “look through” these long swings of commodity prices – can help to address systemic threats. To fully reap the benefit of the pan-African presence in the region, the legal and institutional frameworks must be reformed. While market forces have played a part in enlarging the banking systems in these countries, the legal and institutional environment needs to be reformed to enable them to perform their functions better. The legal and regulatory environment plays a pivotal role in the smooth operation of the financial sector and in the efficient management and integration of capital flows and domestic savings. The value of the claims of financial institutions on borrowers is dependent upon the certainty of legal rights, coupled with the predictability and speed of their fair and impartial enforcement. Legal and regulatory frameworks that empower the regulator and govern the conduct of market participants form the cornerstone of the orderly operation and development of the financial sector. A system that will ensure enforcement of rules and investors’ and borrowers’ protection will go a long way towards improving access to finance in the countries. BIS Papers No 76: The role of central banks in macroeconomic and financial stability Edited by M S Mohanty Further strengthening and reforming of the regulatory and supervision framework should be a priority for the countries in the zone to safeguard the financial system. Effective cooperation between host and parent country authorities is a central prerequisite for the supervision of banks’ international operations. In relation to the supervision of banks’ foreign establishments, two basic principles are fundamental: first, that no foreign banking establishment should escape supervision; and secondly, that the supervision should be adequate (Basel Concordat (1983)). The need for reform is imperative, especially in countries where a major part of the financial system is controlled by a parent company outside the home authorities’ jurisdiction. Strengthening the system in the presence of cross-border banking will require country-level and regional initiatives. Adoption of consolidated supervision should be a priority. Effective supervision of cross-border operations has to start with effective and efficient home supervision. All supervisory authorities responsible for safeguarding the soundness of their respective financial systems should adopt a set of well established principles of effective supervision, which should include consolidated supervision. Supervisors must ensure adequate monitoring and application of appropriate prudential norms to all aspects of the business conducted by banking organizations. The current MMoUs between the countries should be enhanced to ensure that they conform with the Basel Concordat document on the supervision of foreign banks. Building the finance market The effectiveness of monetary policy in Africa has long been constrained by the lack of financial depth. Africa is a diverse continent with a broad range of experiences. These range from emerging market countries such as Morocco and South Africa, through frontier countries (eg Ghana, Kenya, and Uganda) to financially developing countries, such as Chad or the Democratic Republic of Congo, at the other end of the spectrum. Indicators of financial depth – private sector credit relative to GDP and the intermediation of deposits to lending – suggest low financial depth relative to other regions in the world. In addition, the banking systems in Africa are characterised by a relatively large interest margin that reflects the lack of financial infrastructure (eg credit rating agencies), low competition in domestic banking, and riskiness of lending combined with weak property rights. Conditions for effective monetary policy include the use of interest rates to allocate savings and credit, and smoothly functioning secondary markets to influence the value of key financial indicators such as the interbank interest rate. Integration with international markets influences the arbitrage between domestic and foreign financial assets. Capital market at the sub-region During recent years, cross-border capital flows in Africa have reflected several factors. First, the continent’s macroeconomic performance has strengthened and its economies have proven more resilient during the recent global financial downturn than in the past. There is greater optimism among foreign investors about private sector activity and the economic potential of Africa. Second, financial flows have reflected the change in composition of flows from North-South to South-South relations, in particular the growing role of major emerging markets such as Brazil, China and India. Third, there has been increasing integration of financial markets in Africa. This has been promoted by regional initiatives such as the East African Community and by the spread of pan-African banking groups. These groups have been motivated by opportunities to expand their markets across borders, the scope for spreading financial services and know-how, the wish to support their home customers in foreign markets, major increases in capital requirements in home countries, and liberalisation of entry rules in host countries. Financial markets and economic development The 2008–09 global financial crisis highlighted the extent of externalities and interconnectedness in financial markets. This underlined the importance of going beyond supervision and regulation of individual financial institutions to implement measures designed to limit risks to the overall financial system. A proper understanding of systemic risks cannot be obtained merely by adding up the risks to individual financial institutions, since problems at one institution can have domino effects. An important source of shocks for African economies is changes in the value of exports of primary commodities, and associated inflows of capital. African economies are typically more dependent on one or a few commodity exports than are countries on other continents. An increase in the world price for the commodity or a large increase in a country’s supply can have a pervasive impact on the domestic economy. For example, the expansion of bank balance sheets and credit could lead to overheating of the economy and higher inflation. The procyclicality of bank lending can amplify the cycle, aggravating the eventual downturn if the shock proves temporary, with potential consequences for financial system stability. To some extent, traditional monetary and fiscal policy tools can be used to dampen the amplitude of the cycle. For instance, tightening monetary policy can choke off some of the demand for credit and lead to exchange rate appreciation, limiting inflationary effects. However, if the shock is temporary this may produce undesirable exchange rate appreciation, and induce “Dutch disease” problems in other sectors. It may be desirable instead to consider other, macroprudential policy tools that limit credit growth in a more targeted way. BIS Papers No 76: The role of central banks in macroeconomic and financial stability Edited by M S Mohanty While there is a widespread consensus on the need to consider such macroprudential policies, there is much less agreement on what tools should be used, how they should be designed, and how they would interact with other policies, including micro supervision, monetary and fiscal policies, and capital country, as the extent of economic and financial development, the economy’s degree of openness to outside influences, and the existing institutional division of responsibilities for regulatory and macroeconomic policies – among other factors – should come into play Best practices and how they should be contextualize Nigerian banks expanded into other African countries following the 2004 consolidation that increased minimum capital requirements more than tenfold. Most banks expanded their operations domestically and internationally by increasing branch networks in the domestic market and opening subsidiaries abroad. United Bank for Africa (UBA) and Access Bank combined are operating in more than 20 countries on the continent. Cross-border expansion has taken place through the setup of subsidiaries, thus adding to the number of banks in host countries. Most countries have welcomed the expansion of Nigerian banks in their jurisdictions, as they are helping to deepen the banking sector on the continent through branch network expansion, the introduction of new financial products and the strengthening of the regulatory and supervision framework through the introduction of consolidated supervision and joint supervision of bank branches, which have helped to affect knowledge- and information-sharing among supervisors. BIS Papers No 76: The role of central banks in macroeconomic and financial stability Edited by M S Mohanty There is ample evidence in the economic literature that cross-border expansion can also impose a cost on domestic banks in host countries, whose market share is threatened by the new entrants and who could take more risks with adverse consequences for the stability of the banking sector. This could include behaviours such as potential adverse selection of clients for domestic banks due to the migration of less risky clients to the foreign banks who offer new and innovative products and services. While the expansion has helped host countries expand their banking sectors and increase intermediation in their respective home countries, the poor risk framework at the beginning of the expansion and the effect of the financial crisis put a strain on some Nigerian banks, resulting in the failure of some, including Oceanic Bank, which had expanded to seven countries before the crisis. This necessitated broad-based reform in the Nigerian banking sector that has benefited countries with Nigerian bank presence. BIS Papers No 76: The role of central banks in macroeconomic and financial stability Edited by M S Mohanty . The central bank implemented consolidated supervision and developed a framework for cross-border supervision implemented in 2010. The framework sets as a precondition for the presence of Nigerian banks in other countries the execution of Memoranda of Understanding (MMoU) with the host country. InNigeria, all banks, whether local or foreign, are treated equally and are subjected to the same prudential and supervisory regulation. In case of liquidity crisis, the Central Bank of Nigeria is the lender of last resort to all banks. While the function of supervision of banks rests with the central bank, other agencies supervise nonfinancial institutions; therefore the need for coordination between the central bank and other regulatory bodies is essential. This paper will examine the effect of the cross-border expansion of Nigerian banks in the West African Monetary Zone (WAMZ), which includes: The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone. These countries were selected because 10 Nigerian banks operate in these countries and they have the most collaborative relationship in the area of supervision and regulation with the Nigerian authority. This close collaboration is helping to strengthen information-sharing through formal arrangements such as, MMoU, joint supervision and development of common regulatory and supervisory framework for the zone. The paper will cover the period 2005–12 to capture the period before and after the cross-border expansion of Nigerian banks and explore the notion that the presence of foreign banks helps build a domestic banking supervisory and legal framework, and enhance overall transparency in both home and host countries. BIS Papers No 76 The role of central banks in macroeconomic and financial stability Edited by M S Mohanty. Chapter 8: Strictly pursue budget adjustments needed to balance public finances. What is budgeting A government budget is an annual financial statement presenting the government's proposed revenues and spending for a financial year that is often passed by the legislature, approved by the chief executive or president and presented by the Finance Minister to the nation. Whether the executive or legislative branch dominates the budget process, there is generally cooperation between the branches. It is expected that a state will enact a balanced budget before the beginning of its fiscal year. Project responsive budgeting Budget Execution For fiscal economists, the key issues on budget execution are always whether deficit targets are likely to be met, and whether any budget adjustments (both on the revenue and expenditure sides) agreed at the preparation stage (or in-year) are being implemented as planned. On the expenditure side of the budget, the key issues are whether the outturn is likely to be within the budget figure; whether any changes in expenditure priorities (as against past patterns) are being implemented in specific areas as planned; and whether any problems are being encountered in budget execution, such as the buildup of payment arrears. Fiscal economists therefore need to fully understand any weaknesses in the country's budget execution process. Is it transparent? Are there clear lines of accountability? Is information on execution of the budget available on a timely, reliable, and accurate basis? Is it thus consistent with the principles of good governance? Based on this understanding, where are problems likely to arise, and how might they be avoided or overcome? In some instances, action may be needed through budget execution procedures to bring expenditures back on track to the budget provision; hold expenditures below budget, in response to below-target revenue developments; or bring irregularities to the attention of the decision makers. Thus, for fiscal economists and general budget advisors, the key questions are: What are the different stages of the budget execution process? Who is responsible for budget execution? How can budget appropriations be revised during the year? How good is the information on outturn expenditure? What are the problems encountered in budget execution procedures and how can these be overcome? How can expenditures be adjusted in-year? How should "good governance" be pursued? This section answers these questions in turn. What are the different stages of the budget execution process? After the legislative appropriation of expenditures, there are usually six main stages in the spending process. 1.  The authorization stage Once a budget is approved by the parliament, ministries are authorized to spend money, consistent with the legal appropriations for each line item. Where parliament has not yet approved the budget before the budget year starts, it is normal to allow governments to start spending on a "Vote on Account" basis--a temporary authorization, often restricted to one-twelfth per month of the previous year's expenditure. In the francophone, Latin American, transition, and many Commonwealth countries, once approved, parliamentary authorization is for one year. In some Commonwealth countries, however, the authorization period may be set monthly or quarterly by warrant. In the majority of countries, unspent funds in one year cannot be carried forward (carryover) to be spent in the next. In some OECD countries, however, unspent operating funds can be carried forward, usually up to a specified small percentage of the total funds (e.g., Australia, Canada, most Scandinavian countries, and the United Kingdom); and in some countries cash to pay for obligations incurred in one fiscal year but falling due in the next can be carried over (e.g., Italy, Japan, New Zealand, and the United States). However, it is more common to allow the carry-forward of some element of capital appropriations (or in some cases program expenditures), to allow for changes in the phasing of projects compared with the original budget plans, while still maintaining the same total cost. In some OECD countries where the emphasis is on giving agencies more freedom to manage their resources within an overall agency-specific budget to improve efficiency, and where multiyear expenditure planning is well established, the trend has been toward a greater use of such carryovers. However in these countries, aggregate expenditure control is much less of a problem and the prime objective is ensuring the most efficient and effective use of government resources. These circumstances do not typically apply in non-OECD countries, where the use of carryovers should generally be discouraged in the interest of financial discipline. 2.  The commitment stage This is the stage where a future obligation (liability) to pay is incurred. The precise definition of commitment varies not only from one system to another but even among those well-versed in public sector accounting. Broadly, a commitment arises when a purchase order is made or a contract is signed, which implies that goods will be delivered or services rendered, and that a bill will have to be paid later on. But, as noted below, there are shades of interpretation. Good budget systems maintain data on commitments that can be monitored, because these will (for the most part) ultimately be reflected in actual expenditure and because their profile, in terms of cash payments to be made, may have important financial programming implications. But there are complications to be aware of. The existence of a commitment does not ensure that the goods will actually be delivered or the service rendered because the relevant ministry or spending agency may change its mind or disagree with the supplier later. This is especially true in countries with poorly organized public expenditure management systems, not least because suppliers are not guaranteed payment. The nature of commitments varies by economic category of expenditure. A critical dimension is the lag between entering into a commitment and the associated cash payments: this is especially important for the purchase of capital goods and current nonwage goods or services. But a debt interest payment or the wage bill, both due monthly, are also types of commitment. A commitment does not mean that a payment will be made within the same fiscal year--the payment may be made the following year. This is especially true for investment expenditure. In many countries, exceptional procedures allow expenditure to be made without a previous commitment. In some countries, what is interpreted as a "commitment" is at best a reservation; that is, the request from a spending unit to the budget authority to put aside an allotment for a future expenditure. This cannot be considered a commitment in accounting terms, because no contract is signed at this stage. Some officials in transition economies tend, erroneously, to equate commitments with budget appropriations. In francophone and some other countries, there is a dual control over commitments: administrative control via the line ministry or spending agency and financial control by the ministry of finance. The ministry of finance's financial control represents a kind of "preaudit" confirmation that a commitment can be entered into, consistent with the appropriation. In many systems, commitments are either not recorded at all or the accounting for commitments is not consolidated (e.g., the line ministries and spending agencies record these only internally). When there is no centralized accounting of commitments, there is a potential danger of accumulation of payment arrears because no one ensures, when commitments are incurred, that they are consistent with planned future cash availability. 3.  The verification stage This signifies that goods have been delivered fully or partially according to the contract, or the service has been rendered and the bill has been received. Physical delivery can precede verification by some period of time. The line ministry or spending agency making the purchase usually has the financial and the administrative responsibility to check the bill; that is, to verify that the supply has been received in full compliance with any terms or conditions. The bill at this stage is recognized as a liability of the public sector, in an accrual accounting sense, and is therefore an important stage of the expenditure process. Even though it represents an accrued liability, it may not yet represent a cash liability, however--for example, when a grace period of 30 or 60 days was included under the terms of the purchase order. Information on verifications within the central government sector, however, is not usually available on a centralized basis. 4.  Payment authorization or payment order stage This stage may have a different significance in different systems.22 In the francophone system a guiding principle is that the person who orders the supply (engagement) has to be different from the one who authorizes the payment (ordonnancement). The payment officer is normally a public accountant who belongs to the Comptabilité Publique and has specific responsibilities in terms of the expenditure process for authorizing the payment of verified bills. After verification of the bill, the spending unit must then hand it on to this public accountant, and request that the bills be paid; payment orders are normally centralized at the ministry of finance. For expenditure management purposes, this procedural distinction is not of major significance, although it does imply a different institutional source of data on payment orders than under many commonwealth systems (see below). In contrast, in some Latin American countries the function of postaudit and payment is undertaken by the same institution, a Contraloría General, which also exerts a preaudit function on commitments. In this case the source of data on different stages of spending is the same institution. In Commonwealth systems the issue of payment orders is typically the responsibility of the financial officer with delegated responsibility for this function. Systems vary: the issue of payment orders and checks may be decentralized--with spending ministries carrying out these tasks and reporting back to the center--or centralized in a treasury department, typically called the accountant general's department within the ministry of finance, which acts both as paymaster and prepares the final accounts of the government. In transition economies, the situation also varies, but most countries now have treasuries that are increasingly responsible for the issue of payment orders. Some so-called "power" ministries, like defense and internal security, often have (so far) retained separate systems. Other inherited elements of the previous system can also be very misleading: where there are different tiers of spending units (first, second, third, etc.), some ministries of finance regard expenditure as having taken place when money is transferred from ministry of finance bank accounts to the first-tier units. But, in unreformed systems, that money may take some time to be further transferred to subsidiary units and then constitute "final" expenditure on goods and services. It is therefore necessary to distinguish between such final payment orders and transfers that really represent payment authorization. 5.  Payment stage At this stage, the bill is paid--by cash, check, or electronic transfer. In some systems, the payment is made through a single ministry of finance account in the central bank or in a designated bank. In others, the payment is undertaken through the commercial banking system via bank accounts held in the names of individual line ministries. (This latter approach can make it more difficult for the ministry of finance to reconcile its accounts with those of the banking sector.) Chapter 6 Accounting stage The cash transactions are recorded as complete in the books, which allows a reconciliation from the cash based "above-the-line" fiscal accounts with the financing of any deficit "below the line." Imf.org Current budget practices and their limitations The adoption in Cameroon of a new organic budget law in December 2007, based mainly on France’s 2001 organic budget law that introduced the programme-based annual budget, needs to be viewed circumspectly. The intention of implementing the new law in Cameroon for the 2009 annual budget discussion in 2008 is excessively optimistic. In France, it took five years of careful preparation by well-trained civil servants. Not only was a special budget reform directorate created in the finance ministry, but new programme managers in spending ministries were trained to take on new budget management responsibilities. Any country must adapt another country’s law to its own circumstances. In this regard, Cameroon’s 2007 law does not appear to take into account its provincial structures. More fundamentally, the MTBF/MTEF approach is usually based on a clear distinction between the medium-term impact of existing (or ongoing) policies and new policies. In advanced countries, it is normal practice to prepare a set of ‘baseline’ forward spending estimates (MTEFs) based on a continuation of existing policies for the three- to five-year projection period. Given the baseline scenario for the MTBF (revenues, fiscal balance targets, and so on), the forward spending estimates indicate the ‘fiscal space’ for new spending policies. 4th AnnuAl CAbri SEMinAr 13–15 December 2007, Accra, Ghana; Edited by Alta Fölscher The ability to calculate the full cost of policies and ensure that they are affordable and feasible in the medium term, is important for managing risk and ensuring that policies are sustainable. By implication it also results in higher macroeconomic, fiscal and policy stability. This in turn has benefits for a country’s credit rating or its ability to access external development assistance, and helps build investor confidence and trust in government. When these types of factors take a turn for the better, they ease a country’s fiscal circumstances and its ability to deliver on its development objectives. Within a medium-term approach to budgeting fiscal stability is also made more possible in that government has a medium-term horizon over which to absorb macroeconomic shocks or plan for the gradual improvement of fiscal outcomes. 4th AnnuAl CAbri SEMinAr 13–15 December 2007, Accra, Ghana; Edited by Alta Fölscher Adjustment measures to for budget to respond on development needs Accordingly, the Chadian Government undertakes to implement the following reforms: Streamline the existing expenditure processes and reduce the use of emergency expenditure procedures. By 2017, DAOs will be reduced to less than 12 percent of domestically financed expenditures (excluding debt and salaries) at a pace to be specified by the Government in the structural benchmarks of the ECF-supported program. In any case, DAOs will be systematically regularized in the course of the fiscal year; Consolidate the revenue chain, with the Integrated System for Tax Management (SIGI) expected to be developed by end-2014, thus helping to enhance tax revenue; Computerize the government accounting system and integrate it within the expenditure chain, with effective implementation from January 1, 2015 at the latest, to be able to monitor the entire expenditure chain from commitment to final payment. Chad is in negotiations for the choice of the Integrated Accounting System of Burkina Faso, for the transfer of which an agreement in principle has been reached; Prepare quarterly budget implementation reports on the basis of existing data; however, concerning public enterprises, the Government will encourage them to comply with the provisions of OHADA law on the publication of financial statements; Abide by public procurement procedures, in accordance with the Public Contract Code. The government wants to reduce the proportion of mutual agreement or negotiated contracts and to give priority to competitive bidding. The activity report of the public procurement authority published in March 2014 shows the progress already made in 2013, when the proportion of mutual agreement or negotiated contracts dropped to less than 10 percent (44 percent of the total value of contracts awarded), compared with 54 percent (and 82 percent by value) in 2012. Moreover, the Government has embarked on a reform to separate the control and regulation functions of public procurement (currently devolved to the Public Procurement Authority-OCMP) to be in line with international standards by 2016, including the principles set out in the Paris Declaration of 2006. The Public Contract Information and Management System (SIGMP), developed with the support of the African Development Bank, will be operational. Similarly, the Comprehensive Training Plan (PGF), drawn up with the assistance of the European Union, will be implemented. The quarterly newsletter on public procurement, whose publication was interrupted in 2010 for lack of funding, saw the publication of a first issue at end-March 2014 by OCMP. It will henceforth be published on a regular basis on State resources; Establish a rolling cash-flow management plan with a quarterly horizon; Reinforce the national legal framework by transposing CEMAC guidelines into the newly harmonized framework for public finance management. Chad and the IMF: Chad: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding. Why should the state cut down its standard of living While GDP is very useful for measuring market production and providing an indicative snapshot of an economy at a given time, it does not provide a comprehensive picture of how well-off the citizens of a society are. Citizens’ material living standards are better monitored by using measures of household income and consumption. In many cases, household incomes may develop differently from real GDP and therefore provide a different picture of this aspect of citizens’ well-being. Social, environmental and economic progress does not always go hand in hand with an increase in GDP. For example, if a country decides to cut down all its forests, it will dramatically increase its timber exports, thus increasing its GDP. If GDP were the only indicator of quality of life, this would mean that the population of this country would have greatly improved its well-being. However, the deforestation would have a significant impact on the population’s quality of life in the mid and long term: loss of natural habitat, soil erosion and more. GDP definitely measures quantity, but not necessarily other aspects of production (such as distribution and potential impacts for the future). Eurostat online publication Quality of life indicators What are alternative sources of state funding Local government is the most important tier of government among the three tiers being the closest to the people if well harness, funded and sustained. Local government councils in Sub-Saharan Africa today often relies heavily on central government allocation as their main source of revenue. According to the United Nations, over the past seven years Africa’s growth rate has been consistently above the global rate. That growth story appears set to continue; by 2023, eight of the fastest growing economies are projected to be in Africa. For such rapid growth to be sustainable, the continent inevitably requires greater industrialization, which itself requires significant infrastructural development including both commercial (for example, power plants and distribution networks, roads, airports, rail and sea ports), and social (for example, hospitals, schools and agricultural projects) infrastructure. The continent’s sizeable infrastructure gap requires a significant amount of investment – $93 billion according to the World Bank – in order to sustain its aggressive growth trajectory, and close the gap with the rest of the world. At this stage in Africa’s development, the principal economic players in the infrastructure sector remain governments, parastatals, multilateral agencies, development financial institutions and a limited number of private sector companies. LW: Africa’s funding alternative According to the United Nations, over the past seven years Africa’s growth rate has been consistently above the global rate. That growth story appears set to continue; by 2023, eight of the fastest growing economies are projected to be in Africa. For such rapid growth to be sustainable, the continent inevitably requires greater industrialization, which itself requires significant infrastructural development including both commercial (for example, power plants and distribution networks, roads, airports, rail and sea ports), and social (for example, hospitals, schools and agricultural projects) infrastructure. The continent’s sizeable infrastructure gap requires a significant amount of investment – $93 billion according to the World Bank – in order to sustain its aggressive growth trajectory, and close the gap with the rest of the world. At this stage in Africa’s development, the principal economic players in the infrastructure sector remain governments, parastatals, multilateral agencies, development financial institutions and a limited number of private sector companies. Governments all over the world generally finance their development and infrastructure budgets through tax and other revenues (including by borrowing from the capital markets through the issuance of various different types of financial paper). Owing to the continuing commodity price slump affecting the extractive industries, African governments are now receiving significantly less income from their traditional base of natural resources. As a result, alternative sources of finance are required to fund capital projects necessary to spur economic growth and diversify their economies. The uncertainty surrounding resource-based income is unlikely to abate in the near future, particularly given the slowing down of the Chinese economy: China’s steady growth had previously helped to push demand for African resources to unprecedented levels. In addition, it is unclear whether and for how long the short-term downward pressure on oil prices due to the development of shale gas in the US and elsewhere, as well as the imminent arrival of Iranian oil into the global markets, will continue. In the past, African governments have relied on traditional financiers such as export credit agencies, multilateral agencies, development financial institutions, commercial banks and private sector participants to cover their infrastructure costs. However, traditional sources of finance are finite and must fund other sectors, beyond infrastructure. Given the continent’s massive infrastructure gap, the need to actively seek out alternative funding sources has become all the more urgent. As a result, several African countries have looked to the eurobond market, both for infrastructure development and otherwise. According to Standard Bank, sub-Saharan Africa saw a record $15 billion in bond issuances last year (of which $10.6 billion were sovereign issuances). Similarly, in recognition of the continent’s significant Muslim population, and the considerable financial strength of Asia and the Middle East, there are a growing number of countries preparing legal frameworks for issuing sukuk and other shariah-compliant instruments to attract investment from those jurisdictions. We have already seen debut sukuk issuances from Senegal (100billion CFA francs ($208 million) in June2014) and South Africa ($500 million issue in September 2014). In addition, and in spite of the effects of the recent downturn in oil prices, many of the Gulf Cooperation Council states have sovereign wealth funds that, over the years, have amassed significant wealth, which may also be deployed either through conventional financial products or shariah-compliant instruments. Africa’s sovereign sukuk Rather than functioning as bonds which provide a fixed and pre-agreed return to the investor, sukuk are financial certificates that allow an investor to share in the profits deriving from the asset or activity that has been financed. The growth of sukuk as a financial instrument has predominantly been driven by Muslim countries, such as Malaysia and those that make up the Gulf Cooperation Council. The combination of a large Muslim population and a well-structured shariah banking system based on principles that are generally agreed within the Muslim community has enabled these countries to issue almost all of the sukuk to-date in a global market that is now in excess of $100 billion a year. LW: Africa’s funding alternative In comparison, sukuk issuances in Africa remain very low, at less than one percent of the global market. Although Gambia has been issuing short-term Islamic paper in its own currency for years, the debut issuances by Senegal and South Africa established sukuk as a credible additional market for African governments, many of which have now begun to adopt legal and regulatory modifications to create a framework for Islamic finance or shariah-compliant instruments. The success of the South African issuance (which was oversubscribed by over four times) and the recent Senegalese issuance, raised specifically to fund developmental projects, give a strong indication of the depth of the investor pool. Other African countries are preparing to follow suit; Ivory Coast, Tunisia, Morocco, Nigeria and Kenya have all announced plans to issue sukuk in the near future. LW: Africa’s funding alternative Chapter 9 Conduct targeted budgetary policies while preserving social gains. If budget policies accounts for low development and growth, what kind of policies should be considered The CEMAC countries (Cameroon, Congo, Gabon, Equatorial Guinea, Central African Republic and Chad) currently in crisis, pointed out during the 23 December 2016 summit, that strengthening the macro-economic stability, does not require an adjustment of the current exchange rate but rather, adjustment efforts on the internal and external plans coupled with adequate structural reforms. In this view, these States will follow economic programmes dictated by the IMF over a minimum period of three years to be back onto the road to recovery. Business in Cameroon The great depression of the 1930s has had a profound influence on both economic and political thinking. The consequences of this event turned out to be of such a dimension that broad consensus emerged on governments doing their best to prevent such disasters from happening again. But even beyond this extreme case, there is general agreement that a stable and predictable economic environment contributes substantially to social and economic welfare. In the short-run, households prefer to have economic stability with continuous employment and stable incomes, allowing them to maintain stable consumption over time. In the long-run, unnecessary economic fluctuations can reduce growth, for example by increasing the riskiness of investments. A highly volatile economic environment might also have a negative impact on the choice of education profiles and career paths. In short, by maintaining a stable macroeconomic environment, economic policy can thus contribute to economic growth and welfare. ecb.europa.eu : The role of fiscal and monetary policies in the stabilization of the economic cycle Fiscal policy can promote macroeconomic stability by sustaining aggregate demand and private sector incomes during an economic downturn and by moderating economic activity during periods of strong growth. An important stabilizing function of fiscal policy operates through the so-called “automatic fiscal stabilizers”. These work through the impact of economic fluctuations on the government budget and do not require any short-term decisions by policy makers. The size of tax collections and transfer payments, for example, are directly linked to the cyclical position of the economy and adjust in a way that helps stabilizing aggregate demand and private sector incomes. Automatic stabilizers have a number of desirable features. First, they respond in a timely and foreseeable manner. This helps economic agents to form correct expectations and enhances their confidence. Second, they react with an intensity that is adapted to the size of the deviation of economic conditions from what was expected when budget plans were approved. Third, automatic stabilizers operate symmetrically over the economic cycle, moderating overheating in periods of booms and supporting economic activity during economic downturns without affecting the underlying soundness of budgetary positions, as long as fluctuations remain balanced. In principle, stabilization can also result from discretionary fiscal policy-making, whereby governments actively decide to adjust spending or taxes in response to changes in economic activity. I shall argue, however, that discretionary fiscal policies are not normally suitable for demand management, as past attempts to manage aggregate demand through discretionary fiscal measures have often demonstrated. First, discretionary policies can undermine the healthiness of budgetary positions, as governments find it easier to decrease taxes and to increase spending in times of low growth than doing the opposite during economic upturns. This induces a tendency for continuous increases in public debt and the tax burden. In turn, this may have adverse effects on the economy’s long-run growth prospects as high taxes reduce the incentives to work, invest and innovate. Second, many of the desirable features of automatic stabilizers are almost impossible to replicate by discretionary reactions of policy makers. For instance, tax changes must usually be adopted by Parliament and their implementation typically follows the timing of budget-setting processes with a lag. Not surprisingly, therefore, discretionary fiscal policies aiming at aggregate demand management have tended to be pro-cyclical in the past, often becoming effective after cyclical conditions have already reversed, and thereby exacerbating macroeconomic fluctuations. Clearly, the short-term stabilizing function of fiscal policy can become especially important for countries that are part of a monetary union, as nominal interest rates and exchange rates do not adapt to the situation of an individual country but rather to that of the union as a whole. Fiscal policy can then become a crucial instrument for stabilizing domestic demand and output, which remains in the domain of individual governments. At the same time, however, the limitations of active fiscal policy may be greater when there is increased uncertainty about future income developments. This is the case today in many European countries where there is a growing concern about the difficulties faced by public pension and health care systems in view of demographic trends. Under such circumstances, cyclically-oriented tax cuts and expenditure increases today may simply translate into higher taxes or lower expenditure tomorrow. Aware of this, the public may increasingly react to fiscal expansions by raising precautionary savings rather than consumption. ecb.europa.eu The role of fiscal and monetary policies in the stabilisation of the economic cycle Cut government spending The government can cut its public spending to reduce its fiscal deficit. For example, in the 1990s, Canada reduced its public spending quite significantly. They evaluated many different departments and cut spending by up to 20% within four years across the board. This proved a successful policy in reducing the budget deficit. During this period of spending cuts, the Canadian economy continued to grow which also helped reduce the budget deficit. However, during the spending cuts, the Canadian economy benefited from lower interest rates to boost spending, higher exports to the US, and a weaker exchange rate. The strong economy made it much easier to cut spending. In the 1920s, the UK cut spending drastically, (known as the Gedde’s Axe) but, combined with the gold standard, this contributed to deflation and lower growth. Therefore, in this period, the government was relatively unsuccessful in reducing debt to GDP ratio. In the Eurozone crisis, many European countries have cut government spending to try and reduce their budget deficits. For example, Greece, Ireland and Spain have all reduced spending. However, these spending cuts have contributed to a decline in economic growth, leading to lower tax revenues and rising debt to GDP. These spending cuts have been much less effective in reducing the budget deficit because they can’t devalue (Euro is fixed exchange rate), they can’t pursue a loosening of monetary policy and the Eurozone is in recession.  Therefore, spending cuts have been less effective in reducing the deficit, but also caused further economic problems. See also: Eurozone austerity. Other Evaluation of Cutting Government spending It depends on the type of government spending you cut. If you cut pension spending (e.g. make people work longer) then there may be an actual increase in productive capacity. If you cut public sector investment, it will have a bigger adverse effect on aggregate demand and the supply side of the economy. Therefore, the temptation is for the government to cut benefits and pensions as this can reduce spending with less impact on economic growth – but it will be at the cost of increased inequality in society. Tax increases Higher taxes increase revenue and help to reduce the budget deficit. Like spending cuts, they could cause lower spending and lead to a fall in economic growth. Again it depends on the timing of tax increases. In a recession, tax increases could cause a big drop in spending. During high growth, tax increases won’t harm spending as much. It also depends on the type of tax you increase. Recently, France increased taxes on the rich to over 70% – however, some have complained this is too high and creates disincentives to work in France. If high marginal tax rates do reduce incentives to work, the tax revenue raised may be less than planned. Economic Growth One of the best ways to reduce the budget deficit as  a % of GDP, is to promote economic growth. If the economy grows, then the government will increase tax revenue, without raising taxes. With economic growth, people pay more VAT, companies pay more corporation tax (tax on profits), and workers’ pay more income tax. High economic growth, is the least painful way to reduce the budget deficit because you don’t need to raise tax rates or cut spending. However, many countries with fiscal deficit crisis are often stuck in recession. Countries in the Eurozone currently find it difficult to grow because of the nature of European monetary policy and the constraints of the Euro. Also, economic growth may not solve the underlying structural deficit (which occurs even during high growth) this may still require spending cuts or tax rises THE BAILOUT In some circumstances, countries can be eligible for a bailout from an international organisation, such as the IMF. This means they can draw on temporary funds to help with temporary liquidity shortages. The bailout may reassure investors and give the country more time for dealing with the deficit. For example, in the 1970s, the UK applied for bailout funds from the IMF. A bailout usually comes with strict instructions on reducing the deficit – this may be politically easier when it is enforced from the outside. However, in the case of severely indebted countries, a bailout may be insufficient to deal with the underlying level of debt. Also, bailout conditions can be highly controversial. Default Sometimes countries have got to the stage where they can’t manage their budget deficit. Arguably Greece is very close. The government has tried spending cuts and tax increases, but the budget deficit continues to be large. Also, the fiscal consolidation has caused an economic depression. Therefore, they may be better off defaulting, leaving the Euro and starting again. Should Greece leave the Euro? In the past countries, such as Argentina and Russia have defaulted. The problem with defaulting is that it destroys the savings of investors, and will make it difficult to borrow again from capital markets. Economicshelp: Policies to reduce a budget deficit Net social value is always obtained at the expenses of high net return on investments? First, what is 'Return on Investment - ROI' A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ROI measures the amount of return on an investment relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio. Developments in ROI Recently, certain investors and businesses have taken an interest in the development of a new form of the ROI metric, called "Social Return on Investment," or SROI. SROI was initially developed in the early 00's and takes into account social impacts of projects and strives to include those affected by these decisions in the planning of allocation of capital and other resources. Investopedia: Return On Investment – ROI How can the African continent strike a balance between increase in GDP and high net social gains? It is widely reported and celebrated that Africa has turned a corner, with rapid economic growth leading to higher standards of living and a reduction in the percentage of people living in absolute poverty. Although the rates and standards of progress differ around the continent, many African countries have seen annual GDP growth of between 4-6%. Africa has extraordinary natural capital of which few other continents can boast, yet this capital is vulnerable. The continent is undergoing a rapid, large-scale and, in some cases, irrevocable transformation. From infrastructure development to expanded trade, much of the change we are seeing promises to bring greater prosperity to the continent. However, when poorly designed and managed, rapid development can come at the expense of both people and wildlife, bypassing our most vulnerable communities, degrading our wild lands and pushing many species to the brink of extinction. Perhaps a more realistic tactic is for us to take a careful look at how growth is being mapped and planned, and, where necessary, rethink and redesign infrastructure plans so that negative impacts on the environment are mitigated and benefits to local communities enhanced. World Economic Forum: Can Africa strike a balance between conservation and economic growth? Chapter 10 Gradually restore the balance of the state budget to below 3% in less than 5 years. Is a 3% balance in state budget ideal for growth? Certain policy objectives in macroeconomic policy are almost universally accepted by economists: 1. A stable and strong rate of economic growth; 2. Low unemployment; and 3. Stable and low inflation. Perhaps less universally accepted are: 4. A manageable current account deficit in the balance of payments; and 5. Structural fiscal budget balance and a low (or zero) level of debt. A stable and strong rate of economic growth Economic growth refers to the expansion of society’s productive potential. It is usually measured by the annual percentage change in real gross domestic product (GDP). Real GDP is a measure of the value of production of all goods and services produced, after the effects of inflation have been removed. Therefore, if economic growth is 3% this year, then 3% more goods and services were produced this year than in the previous year. Real GDP and economic growth are not perfect measures of what’s happening to a society’s wellbeing. Nevertheless, more jobs, increased standards of living and providing for the most disadvantaged depend on having a strong rate of growth. How can this be achieved Low unemployment Unemployment is the greatest contributing factor to poverty. High unemployment also represents a waste of economic resources as less is produced (lower GDP) if workers are not being fully utilized. There are other costs associated with high unemployment including a loss of individual self-esteem, loss of skills, retraining costs and social problems. Governments also face consequences such as having to reallocate scarce taxation revenue from productive projects to social security payments, as well as the electoral unpopularity often associated with high unemployment. The widely quoted indicator of unemployment is the unemployment rate derived from the Australian Bureau of Statistics (ABS) Labor Force Survey. The unemployment rate is the percentage of the labor force that is unemployed. The labor force is the sum of the employed and the unemployed. You only have to work for one hour in paid employment per week to be classified as employed! To be classified as unemployed you have to be ready to start work and have actively looked for work in the past four weeks before the survey. Stable and low inflation The inflation rate is the percentage increase in the general price level in the economy from one year to the next. The most common measure of the general price level is the consumer price index (CPI). Although its measurement and interpretation is subject to many caveats it is still generally recognized as a good indicator of the cost of living of the average household. A structural fiscal budget balance and a low (or zero) level of debt If the central government’s expenditures are greater than its revenue a budget deficit results. Budget deficits add to government debt. It is generally accepted the actual government budget will (and should) fluctuate between deficit and surplus during, respectively, downswings and upswings in the economy. Unlike the actual budget balance, the structural balance is basically the budget deficit or surplus after accounting for cyclical movements in the economy – the balance when conditions are normal or average. The conversation: Budget explainer: What do key economic indicators tell us about the state of the economy? Other indicators The above areas may be traditional indicators of the health of the economy, yet they say little about the underlying processes which give rise to them. For instance, economic growth can only increase and unemployment can only be reduced by firms increasing output and jobs and investing in new projects. This is why business confidence is so important. The conversation: Budget explainer: What do key economic indicators tell us about the state of the economy? What are the current actions? POLICIES GENERALLY NEED TO ADJUST AT A FASTER PACE Rising fiscal deficits and more costly external and domestic financing conditions are increasing macroeconomic vulnerabilities and, in some cases, impeding central banks’ pursuit of their primary objectives, such as price stability. These conditions are adding to exchange rate pressures, and many central banks have responded by raising interest rates. This, in combination with large government borrowing, has increased private sector borrowing costs— thereby undermining growth. Countries, having already entered this episode of pressures with lower buffers than at the onset of the global financial crisis (see October 2015 Regional Economic Outlook: Sub-Saharan Africa), have drawn substantially on their available buffers to mitigate the shock, severely limiting room for additional countercyclical policy. Sovereign risks associated with large commercial bank exposures to government debt and related governments’ rollover risks have increased in some cases, posing risks to financial stability. In view of these trends, governments should consider a set of policy options tailoring the urgency of adjustment to the extent of domestic vulnerabilities. Commodity prices have fallen sharply and, for energy prices, at an unprecedented pace. Oil and other commodity exporters are adjusting, but given the extent of the shock they are facing, policies are currently “behind the curve.” Because the shock is likely to persist, and buffers have been depleted, adjustment is unavoidable. For countries that are not members of a currency union, exchange rates should adjust as needed to absorb the shock. Interventions by the central bank should be limited to mitigation of disorderly market movements, and more generally, administrative measures on foreign exchange should be avoided. Central banks may need to tighten their monetary policy stance when inflationary pressures are persisting as a result of exchange rate depreciation, when drought-related spikes in food-price inflation are having second-round inflationary effects, or if warranted on macro prudential grounds. Such policies are likely to be needed to preserve macroeconomic stability, notwithstanding the adverse effect of tighter monetary policies on private sector activity through higher borrowing costs. Fiscal adjustment is urgently needed to safeguard macroeconomic stability, especially in the region’s oil-exporting countries. In the CEMAC, the exchange rate tool is not available, and governments are reaching the limit on direct financial support by the central bank. For these countries, although it is appropriate to use international reserves to smooth the shock, the magnitude of the shock and the expectation that the reduction in resource income will persist, renders significant fiscal consolidation unavoidable (IMF 2015b), even at the cost of short-term output losses. More generally, the speed of fiscal consolidation across the region should be guided by countries’ available buffers, domestic vulnerabilities, and financing constraints. In their consolidation efforts, countries should aim at mobilizing revenues and preserving priority expenditures, such as social expenditures, also with a view to not setting back their longer-term development goals. IMF: REGIONAL ECONOMIC OUTLOOK: SUB-SAHARAN AFRIC Several countries that are not significant nonrenewable commodity exporters are more favorably placed to weather the shocks and have so far coped reasonably well. In some of these countries, however, efforts to meet urgent spending needs, in particular to close infrastructure gaps, have led to widening deficits and increasing debt levels. These countries should use their current strength to build buffers and reduce their vulnerability to a sudden worsening of the economic climate. Central banks should limit the use of advances to the government to the mitigation of short-term financing constraints and avoid easing commercial banks’ liquidity constraints with a view to facilitating lending to the government. Moreover, central banks should abstain in general from providing structural development financing. Governments must remain vigilant to any signs of increasing financial stress and, in this context, step up early warning systems and cross-border cooperation in supervision. Beyond immediate policy reactions, the current challenges are also a strong reminder of the need to advance the economic diversification agenda. IMF: REGIONAL ECONOMIC OUTLOOK: SUB-SAHARAN AFRIC What are the stakes? Private Sector Credit Growth Developments in Sub-Saharan Africa In the majority of sub-Saharan African countries, private credit growth has slowed the recent decline is examined against the background of rapid credit growth in 2010–13, when commodity prices were on the rise and financing conditions favorable. The period of favorable financing conditions and high commodity prices was associated with dynamic public and private credit growth, helping many countries to increase credit depth, often from low levels. Africa’s economic performance held firm in 2015, amid global headwinds and regional shocks. Growth in real GDP is estimated at 3.6%, higher than the 3.1% for the global economy and 1.5% for the euro area. Africa remained the world’s second fastest growing economy after East Asia. In 2015, sub-Saharan Africa (excluding South Africa) grew faster than the continental average, at 4.2%, with East Africa leading the way at 6.3%. Growth in Central, North and West Africa was above 3%, while Southern Africa grew by an average of 2.2%. Looking ahead, average growth in Africa is expected to remain moderate at 3.7% in 2016 but could accelerate to 4.5% in 2017. This forecast hinges on the strength of the world economy and a gradual recovery in commodity prices. AFDB: African Economic Outlook 2016 In 2015, total external flows to Africa were estimated at USD 208 billion, with remittances remaining the main contributor. Confirming the world’s positive outlook on the continent, African governments have been able to tap into international capital markets through sovereign bond issuances. However, due to global headwinds and some country-specific risks, interest rates inched higher. The global economic environment is affecting African countries differently. Revenues are dropping in resource-rich countries, while oil importers are benefiting from lower inflation as well as less pressure on current accounts. Amid tighter global financial conditions, some countries face large fiscal deficits. AFDB: African Economic Outlook 2016 The resilience in Africa’s growth is partly owed to domestic factors, including private consumption, public infrastructure development and private investment. In the medium term, continued improvement in the business environment and fast expanding regional markets may increasingly become new sources of growth for the continent. The rise of intra-regional trade, in particular, illustrates growing opportunities for African producers to diversify their trade. Africa also possesses significant potential for a demographic dividend, spurred by the continent’s young population. However, to benefit from this potential, governments must focus on putting in place and implementing the right policies. AFDB: African Economic Outlook 2016 Turning Africa’s steady resilience into better lives for Africans requires strong policy action to promote faster and more inclusive growth. Three out of every four Africans still live under poor human conditions, compared to one in five globally. To achieve the development objectives set by African institutions and the international community, African countries must deepen structural and regulatory reforms, foster macroeconomic stability, and tackle power supply bottlenecks in order to address the obstacles to the transformation of their economies. Coupled with investment in social sectors, this will open up more opportunities for youth and for women. Africa’s ongoing, multi-faceted urban transition and the densification it produces offer new opportunities for improving economic and social development while protecting the environment. These can be better harnessed to achieve the Sustainable Development Goals (SDGs) – especially SDG 11 on sustainable cities and communities – and the objectives of the African Union’s Agenda 2063. The benefits could accrue to both urban and rural dwellers, provided governments adopt an integrated approach. For instance, connecting urban markets to rural economies could increase productivity of agriculture and raise non-farm incomes. Accelerating investment in urban infrastructure is critical to turn African cities and towns into engines of structural transformation at the local, national and regional levels. In order to seize this “urbanisation dividend”, a number of bold policy reforms are necessary. For example, national urban strategies must be tailored to specific contexts, harness innovative financing instruments, and strengthen ongoing efforts to promote efficient multi-level governance systems. AFDB: African Economic Outlook 2016 Chapter 11: Privilege concessional financing and promote public-private partnerships. In 2005, implementation of the PRSP was marked by satisfactory performances under the staff-monitored programme (SMP), approval and implementation of the three-year economic and financial programme under the Poverty Reduction and Growth Facility (PRGF) for the 2005-2008 period. WorldBank: PROGRESS REPORT ON THE IMPLEMENTATION OF THE POVERTY REDUCTION STRATEGY PAPER AS OF 31 DECEMBER 2005 Major achievements in the implementation of the strategy. In order to promote a stable macro-economic framework, Cameroon’s government continued its efforts by: (i) improving the management of public finance, which led to the satisfactory implementation of the SMP initiated with the IMF, and the signing of a new three-year arrangement for Cameroon under the PRGF for the period stretching from July 2005 to June 2008; (ii) better use of debt-relief resources which was translated by an increase in the pace HIPC funds are used and the signing of a memorandum of understanding on the mechanism and procedure for the financing of civil society projects under HIPC funds between the government and representatives of civil society associations; (iii) continuing the public corporations’ privatisation process including the Water Corporation (SNEC), Telecommunications Corporation (CAMTEL), Cameroon Development Corporation (CDC), and Cameroon Airlines Company (CAMAIR); restructuring the Cameroon Postal Services (CAMPOST) and establishing ANAFOR; (iv) interim reception of the electronic single processing window for foreign trade (GUCE) as part of port reforms. WorldBank: PROGRESS REPORT ON THE IMPLEMENTATION OF THE POVERTY REDUCTION STRATEGY PAPER AS OF 31 DECEMBER 2005 BOT as the way out BOT (build–operate–transfer) BOT finds extensive application in infrastructure projects and in public–private partnership. In the BOT framework a third party, for example the public administration, delegates to a private sector entity to design and build infrastructure and to operate and maintain these facilities for a certain period. During this period the private party has the responsibility to raise the finance for the project and is entitled to retain all revenues generated by the project and is the owner of the regarded facility. The facility will be then transferred to the public administration at the end of the concession agreement,[4] without any remuneration of the private entity involved. Some or even all of the following different parties could be involved in any BOT project: The host government: Normally, the government is the initiator of the infrastructure project and decides if the BOT model is appropriate to meet its needs. In addition, the political and economic circumstances are main factors for this decision. The government provides normally support for the project in some form. (provision of the land/ changed laws) The concessionaire: The project sponsors who act as concessionaire create a special purpose entity which is capitalized through their financial contributions. Lending banks: Most BOT projects are funded to a big extent by commercial debt. The bank will be expected to finance the project on "non-recourse" basis meaning that it has recourse to the special purpose entity and all its assets for the repayment of the debt. Other lenders: The special purpose entity might have other lenders such as national or regional development banks Parties to the project contracts: Because the special purpose entity has only limited workforce, it will subcontract a third party to perform its obligations under the concession agreement. Additionally, it has to assure that it has adequate supply contracts in place for the supply of raw materials and other resources necessary for the project BOT model A BOT Project (build operate transfer project) is typically used to develop a discrete asset rather than a whole network and is generally entirely new or greenfield in nature (although refurbishment may be involved). In a BOT Project the project company or operator generally obtains its revenues through a fee charged to the utility/ government rather than tariffs charged to consumers. A number of projects are called concessions, such as toll road projects, which are new build and have a number of similarities to BOTs.[5] In general, a project is financially viable for the private entity if the revenues generated by the project cover its cost and provide sufficient return on investment. On the other hand, the viability of the project for the host government depends on its efficiency in comparison with the economics of financing the project with public funds. Even if the host government could borrow money on better conditions than a private company could, other factors could offset this particular advantage. For example, the expertise and efficiency that the private entity is expected to bring as well as the risk transfer. Therefore, the private entity bears a substantial part of the risk. These are some types of the most common risks involved: Political risk: especially in the developing countries because of the possibility of dramatic overnight political change. Technical risk: construction difficulties, for example unforeseen soil conditions, breakdown of equipment Financing risk: foreign exchange rate risk and interest rate fluctuation, market risk (change in the price of raw materials), income risk (over-optimistic cash-flow forecasts), cost overrun risk. Wikipedia What is BOT? Build–operate–transfer (BOT) or build–own–operate–transfer (BOOT) is a form of project financing, wherein a private entity receives a concession from the private or public sector to finance, design, construct, and operate a facility stated in the concession contract. This enables the project proponent to recover its investment, operating and maintenance expenses in the project. Due to the long-term nature of the arrangement, the fees are usually raised during the concession period. The rate of increase is often tied to a combination of internal and external variables, allowing the proponent to reach a satisfactory internal rate of return for its investment. Examples of countries using BOT are Pakistan, Thailand, Turkey, Taiwan, Bahrain, Saudi Arabia, Israel, India, Iran, Croatia, Japan, China, Vietnam, Malaysia, Philippines, Egypt, Myanmar and a few US states (California, Florida, Indiana, Texas, and Virginia). However, in some countries, such as Canada, Australia, New Zealand and Nepal, the term used is build–own–operate–transfer (BOOT). Traditionally, such projects provide for the infrastructure to be transferred to the government at the end of the concession period. In Australia, primarily for reasons related to the borrowing powers of states, the transfer obligation may be omitted. For the Alice Springs – Darwin section of the Adelaide–Darwin railway the lease period is 50 years, see AustralAsia Rail Corporation. The first BOT was for the China Hotel, built in 1979 by the Hong Kong listed conglomerate Hopewell Holdings Ltd (controlled by Sir Gordon Wu). Wikipedia What should it be used Benefits and Pitfalls BOT is an organic way of establishing an offshore subsidiary, by growing the team into the company culture gradually and with total focus, as the business grows and using a local service to manage local recruitment, HR policies, office space, logistics and culture. The benefits of using a BOT model typically outweigh ‘going it alone’ to set up a subsidiary. Teleparadigm: The BOT Advantage What are the disadvantages of BOT Advantages vs traditional service model Disadvantages vs traditional service model Clients can defer the investment & decision of owning & operating an offshore development center while getting all the benefits of it from day-one. Resources are fully dedicated to client. Greater transparency and control for managing resources during operational phase. With time, engineers and QA become domain experts giving increased productivity individually and bringing new hires up to speed. Excellent way to gain entry into rapid growth story of the Indian market. Establishment of subsidiary (upon transfer) makes a strong statement of market commitment. Teleparadigm offers free market research to existing customers, which can be invaluable for studying the Indian market. We can scale the BOT quickly given our vast educational infrastructure. Teleparadigm is confident in providing unbeatable terms for BOT, because we can tap into a large pool of engineering graduates to replenish resources transferred. We welcome customers to interview applicants for their incubated subsidiary. During the transfer phase, Teleparadigm through its parent company can provide outstanding consultation for putting together trusted legal, financial, accounting and logistical support, and access to well-located commercial real-estate. Client must ensure work in the pipeline to avoid idle time, or reduce headcount. Rarely applicable to early stage startups, because of short-term urgency. Typically BOT providers, charge more for this model since they stand to lose experienced engineers. Teleparadigm will beat these prices, drawing strength from its constant availability of reliable engineering graduates. Upon transfer, clients take on attrition risk. Teleparadigm has deep insight into each employee and can advise clients on competitive, retention packages. BOT vs PPT BOT vs Public procurement Concessions, Build-Operate-Transfer (BOT) and Design-Build-Operate (DBO) Projects Concessions, Build-Operate-Transfer (BOT) Projects, and Design-Build-Operate (DBO) Projects are types of public-private partnerships that are output focused. BOT and DBO projects typically involve significant design and construction as well as long term operations, for new build (greenfield) or projects involving significant refurbishment and extension (brownfield). See below for definitions of each type of agreement, as well as key features and examples of each. This page also includes links to checklists, toolkits, and sector-specific PPP information. Overview of Concessions, BOTs, DBO Projects A Concession gives a concessionaire the long term right to use all utility assets conferred on the concessionaire, including responsibility for operations and some investment. Asset ownership remains with the authority and the authority is typically responsible for replacement of larger assets. Assets revert to the authority at the end of the concession period, including assets purchased by the concessionaire. In a concession the concessionaire typically obtains most of its revenues directly from the consumer and so it has a direct relationship with the consumer. A concession covers an entire infrastructure system (so may include the concessionaire taking over existing assets as well as building and operating new assets). The concessionaire will pay a concession fee to the authority which will usually be ring-fenced and put towards asset replacement and expansion. A concession is a specific term in civil law countries. To make it confusing, in common law countries, projects that are more closely described as BOT projects are called concessions. A Build Operate Transfer (BOT) Project is typically used to develop a discrete asset rather than a whole network and is generally entirely new or greenfield in nature (although refurbishment may be involved). In a BOT Project the project company or operator generally obtains its revenues through a fee charged to the utility/ government rather than tariffs charged to consumers. In common law countries a number of projects are called concessions, such as toll road projects, which are new build and have a number of similarities to BOTs . In a Design-Build-Operate (DBO) Project the public sector owns and finances the construction of new assets. The private sector designs, builds and operates the assets to meet certain agreed outputs. The documentation for a DBO is typically simpler than a BOT or Concession as there are no financing documents and will typically consist of a turnkey construction contract plus an operating contract, or a section added to the turnkey contract covering operations. The Operator is taking no or minimal financing risk on the capital and will typically be paid a sum for the design-build of the plant, payable in instalments on completion of construction milestones, and then an operating fee for the operating period. The operator is responsible for the design and the construction as well as operations and so if parts need to be replaced during the operations period prior to its assumed life span the operator is likely to be responsible for replacement. This section looks in greater detail at Concessions and BOT Projects. It also looks at Off-Take/ Power Purchase Agreements, Input Supply/ Bulk Supply Agreements and Implementation Agreements which are used extensively in relation to BOT Projects involving power plants. This section does not address the complex array of finance documents typically found in a Concession or BOT Project. Key Features Concessions A concession gives a private concessionaire responsibility not only for operation and maintenance of the assets but also for financing and managing all required investment. The concessionaire takes risk for the condition of the assets and for investment. A concession may be granted in relation to existing assets, an existing utility, or for extensive rehabilitation and extension of an existing asset (although often new build projects are called concessions). A concession is typically for a period of 25 to 30 years (i.e., long enough at least to fully amortize major initial investments). Asset ownership typically rests with the awarding authority and all rights in respect to those assets revert to the awarding authority at the end of the concession. General public is usually the customer and main source of revenue for the concessionaire. Often the concessionaire will be operating the existing assets from the outset of the concession - and so there will be immediate cashflow available to pay concessionaire, set aside for investment, service debt, etc. Unlike many management contracts, concessions are focused on outputs - i.e., the delivery of a service in accordance with performance standards. There is less focus on inputs - i.e., the concessionaire is left to determine how to achieve agreed performance standards, although there may be some requirements regarding frequency of asset renewal and consultation with the awarding authority or regulator on such key features as maintenance and renewal of assets, increase in capacity and asset replacement towards the end of the concession term. Some infrastructure services are deemed to be essential, and some are monopolies. Limits will probably be placed on the concessionaire – by law, through the contract or through regulation – on tariff levels. The concessionaire will need assurances that it will be able to finance its obligations and still maintain a profitable rate of return and so appropriate safeguards will need to be included in the project or in legislation. It will also need to know that the tariffs will be affordable and so will need to do due diligence on customers. In many countries there are sectors where the total collection of tariffs does not cover the cost of operation of the assets let alone further investment. In these cases, a clear basis of alternative cost recovery will need be set out in the concession, whether from general subsidies, from taxation or from loans from government or other sources. The concept of a "concession" was first developed in France. As with affermages, the framework for the concession is set out in the law and the contract contains provisions specific to the project. Emphasis is placed in the law on the public nature of the arrangement (because the concessionaire has a direct relationship with the consumer) and safeguards are enshrined in the law to protect the consumer. Similar legal frameworks have been incorporated into civil law systems elsewhere. Under French law the concessionaire has the obligation to provide continuity of services (“la continuité du service public”), to treat all consumers equally (“l’égalité des usagers”) and to adapt the service according to changing needs ("l’adaptation du service"). In return, the concessionaire is protected against new concessions which would adversely affect the rights of the concessionaire. It is therefore important when considering concessions in civil law systems to understand what rights are already embodied in the law. Within the context of common law systems, the closest comparable legal structure is the BOT, which is typically for the purpose of constructing a facility or system. BOT Projects In a BOT project, the public sector grantor grants to a private company the right to develop and operate a facility or system for a certain period (the "Project Period"), in what would otherwise be a public sector project. Usually a discrete, Greenfield new build project. Operator finances, owns and constructs the facility or system and operates it commercially for the project period, after which the facility is transferred to the authority. BOT is the typical structure for project finance. As it relates to new build, there is no revenue stream from the outset. Lenders are therefore anxious to ensure that project assets are ring-fenced within the operating project company and that all risks associated with the project are assumed and passed on to the appropriate actor. The operator is also prohibited from carrying out other activities. The operator is therefore usually a special purpose vehicle. The revenues are often obtained from a single "offtake purchaser" such as a utility or government, who purchases project output from the project company (this is different from a pure concession where output is sold directly to consumers and end users). In the power sector, this will take the form of a Power Purchase Agreement. For more, see Power Purchase Agreements. There is likely to be a minimum payment that is required to be paid by the offtaker, provided that the operator can demonstrate that the facility can deliver the service (availability payment) as well as a volumetric payment for quantities delivered above that level. Project company obtains financing for the project, and procures the design and construction of the works and operates the facility during the concession period. Project company is a special purpose vehicle, its shareholders will often include companies with construction and/or operation experience, and with input supply and offtake purchase capabilities. It is also essential to include shareholders with experience in the management of the appropriate type of projects, such as working with diverse and multicultural partners, given the particular risks specific to these aspects of a BOT project. The offtake purchaser/ utility will be anxious to ensure that the key shareholders remain in the project company for a period of time as the project is likely to have been awarded to it on the basis of their expertise and financial stability. Project Company will coordinate the construction and operation of the project in accordance with the requirements of the concession agreement. The off-taker will want to know the identity of the construction sub-contractor and the operator. The project company (and the lenders) in a power project will be anxious to ensure it has a secure affordable source of fuel. It will often enter into a bulk supply agreement for fuel, and the supplier may be the same entity as the power purchaser under the Power Purchase Agreement, namely the state power company. For examples, click on Fuel Supply/Bulk Supply Agreements. Power is also the main operating cost for a water or wastewater treatment plant and so operators will need certainty as to cost and source of power. The revenues generated from the operation phase are intended to cover operating costs, maintenance, repayment of debt principal (which represents a significant portion of development and construction costs), financing costs (including interest and fees), and a return for the shareholders of the special purpose company. Lenders provide nonrecourse or limited recourse financing and will, therefore, bear any residual risk along with the project company and its shareholders. The project company is assuming a lot of risk. It is anxious to ensure that those risks that stay with the grantor are protected. It is common for a project company to require some form of guarantee from the government and/ or, particularly in the case of power projects, commitments from the government which are incorporated into an Implementation Agreements. In order to minimize such residual risk (as the lenders will only want, as far as possible, to bear a limited portion of the commercial risk of the project) the lenders will insist on passing the project company risk to the other project participants through contracts, such as a construction contract, an operation and maintenance contract Contractual Structure The chart below shows the contractual structure of a typical BOT Project or Concession, including the lending agreements, the shareholder's agreement between the Project company shareholders and the subcontracts of the operating contract and the construction contract, which will typically be between the Project company and a member of the project company consortium. Each project will involve some variation of this contractual structure depending on its particular requirements: not all BOT projects will require a guaranteed supply of input, therefore a fuel/ input supply agreement may not be necessary. The payment stream may be in part or completely through tariffs from the general public, rather than from an offtake purchaser. World Bank Group: Concessions, Build-Operate-Transfer (BOT) and Design-Build-Operate (DBO) Projects Examples of projects done by BOT in other parts of the world esp. developing countries Build operate and transfer (BOT) term in construction management has been gearing up popularity tremendously in recent times. In developing countries (i.e. Pakistan), where often the owner do not have enough finances to carry out the infrastructure development projects, the BOT can provide the unique opportunity to assist both the financer and the owner. The developing country like Pakistan require extensive infrastructure to meet the various development challenges of future. The governments in the developing countries mostly have the budgetary constraints to commence the development projects. The priorities always remained debatable for the commencement of any government funded infrastructure development project especially in Pakistan. BOT is an option for financing the infrastructure and boost the economical growth of the country without direct utilization of government finances. In private sector for the owners who have land resources but no finance to make the sufficient development on these lands BOT can be a precious alternate. The BOT projects have the potential to serve the government and private sector with equal effectiveness. BOT projects are also offering attractive opportunities to foreign investors, which in turn can generate substantial foreign exchange for economic growth. Today the Pakistan construction industry has lot of prospects of BOT projects in the fields of power, irrigation, transportation, real estate, highways, multistory buildings and urban development, which can gain the attention of foreign investors. This paper highlight the major BOT projects offered in Pakistan in recent years. In Pakistan, BOT is a relatively innovative approach to infrastructure development, which enables direct private sector investment in large-scale infrastructure projects. The BOT refer as follows: Build – A private company (or consortium) agrees with a government/private owner to invest in an infrastructure project. Operate – The private developer then owns, maintains and manages the facility for an agreed concession period and recoups their investment through charges or tolls. Transfer – After the concessionary period the company transfers ownership and operation of the facility to the government/private owner or relevant state authority. In a typical BOT infrastructure project, a private sector project company builds a project, operates it long enough to payback project debt and equity investment, than transfer it to the host government. But if the same BOT project can be implemented as a turnkey construction contract financed by sovereign borrowing, the time saved and the great certainty of the project going forward may warrant the more traditional approach (Augenblick and Custor, 1990). There are number of stakeholders in any BOT project and all of them have particular reasons to be involved in the project. The contractual agreements between these stakeholders and the allocation of risks can be complex. The major stakeholders of a BOT projects usually include: Government Owner (Government Client) a government department or statutory authority is a pivotal party. It will: • Grant the sponsor the “concession”, that is the right to build own and operate the facility. • Grant a long term lease of or sell the site to the sponsor • Often acquire most or all the service provided by the facility. The government’s cooperation is critical in large projects. It may be required to assist in obtaining the necessary approvals, authorizations and consents for the construction and operation of the project. It may also be required to provide comfort that the agency acquiring services from the facility will be in a position to honor its financial obligations. The government agency is normally the primary party. It will initiate the project, conduct the tendering process and evaluation of tenderers, and will grant the sponsor the concession, and where necessary, the off take agreement. First International Conference on Construction in Developing Countries (ICCIDC–I) “Advancing and Integrating Construction Education, Research & Practice” August 4-5, 2008, Karachi,, Pakistan The Trend of Build Operate and Transfer (BOT) Projects in Pakistan. Private Owner (Private Client) a private owner can be a substitute party for the government agency. The owner’s past reliability, faith and believe in the trade/market is compulsory. The track record and nature of the services offered by the owner are the important aspects. Sponsor The sponsor is the party, usually a consortium of interested groups (typically including a construction group, an operator, a financing institution and other various groups) that, in response to the invitation by the Government Department, prepares the proposal to construct, operate and finance the particular project. The sponsor may take the form of a company, a partnership, a limited partnership, a unit trust or an unincorporated joint venture. Construction Contractor The construction company may also be one of the sponsors. It will take construction and completion risks, that is, the risk of completing the project on time, within budget and to specifications. Operation and Maintenance Contractor The operator will be expected to sign a long-term contract with a sponsor for the operation and maintenance of the facility. Again the operator may also inject equity into the project. Financers In the large project there is likely to be a syndicate of banks providing the debt funds to the sponsor. The banks will require a first security over the infrastructure created. The same or different banks will often provide a stand-by loan facility for any cost overruns not covered by the construction contract. Other Parties Other parties such as insurers, equipment suppliers and engineering and design consultants will also be involved. Most of the parties too will involve their lawyers and financial and tax advisors. First International Conference on Construction in Developing Countries (ICCIDC–I) “Advancing and Integrating Construction Education, Research & Practice” August 4-5, 2008, Karachi,, Pakistan The Trend of Build Operate and Transfer (BOT) Projects in Pakistan Chapter 12 Welcomes the sound advice and technical assistance of development partners. Consolidation of gains vs continuous demand for assistance the estimated 208.3 billion USD of external finance – foreign investment, trade, aid, remittances and other sources that Africa attracted in 2015 – was 1.8% lower than the previous year. The total sum is projected to rise again to USD 226.5 billion in 2016. Falling commodity prices, particularly for oil and metals, were one of the key causes for the 2015 fall. Portfolio equity and commercial bank credit flows dried up, reflecting tightening global liquidity and a market sentiment wary of risks. Rising remittances and increased official development assistance largely kept the figure up. African governments have to stabilize financial inflows in the short term and use them for sustained economic diversification for the longer term. Falling resource revenues mean governments must also find ways to broaden the tax base away from oil and commodities. AFDB: African Economic Outlook 2016, SPECIAL THEME: Sustainable Cities and Structural Transformation Evolution of development partners presence in Africa Africa depends heavily on foreign private and public capital Flows of finance into Africa – foreign direct investment, portfolio equity and bonds, commercial bank, bilateral and multilateral bank credit, official development assistance and public domestic revenues – have remained broadly stable despite weak conditions in other parts of the world. Total external flows to Africa for 2015 were estimated at USD 208.3 billion, down from an estimated USD 212.2 billion in 2014. But the figure was predicted to pick up to USD 226.5 billion in 2016. AFDB: African Economic Outlook 2016, SPECIAL THEME: Sustainable Cities and Structural Transformation There are two starkly different numbers of crucial foreign direct investments (FDI). According to International Monetary Fund (IMF) (2015a) estimates released in October 2015, foreign investment into Africa increased by 16% over the year. In contrast, the United Nations Conference on Trade and Development (UNCTAD) (2016) estimated a 31.4% drop (Figure 2.1) from 2015. Such a decline would suggest that total external finance decreased to USD 188.8 billion, a sharp 11% fall from 2014. Portfolio inflows dropped by 42%. Commercial bank credit also declined considerably in 2015, though the overall effect was minimal as it is a minor source of external finance in Africa. Remittances and official development assistance (ODA) played a key role in the overall figure. Remittances increased by 1.2% and ODA by 4.0%. Gross inflows of multilateral and bilateral official credit flows increased, but because of a heavy amortization schedule in 2015, the net contribution to financial flows decreased 10%. AFDB: African Economic Outlook 2016, SPECIAL THEME: Sustainable Cities and Structural Transformation Falling portfolio investment sends private flows to Africa down in 2015 Private financial flows to Africa increased from an average of USD 87 billion in 2004-08 to USD 129 billion in 2011 despite the downturn after the 2008-09 global financial crisis. However, since 2012 the private finance decreased from USD 146 billion to USD 136 billion in 2015. It is projected to increase by 8% in 2016. Foreign direct investment into Africa grew steadily from 2007 to 2013. In 2014, however, FDI fell back to USD 49.4 billion, but increased to USD 57.5 billion in 2015, according to IMF (2015a) estimates. Africa has attracted investment from industrialised countries such as France, the United Kingdom and the United States and emerging economies such as China, India, South Africa, and United Arab Emirates. Investment is still mainly directed at resource-rich countries, but non-resource-rich countries are becoming more attractive. The extractive sector, infrastructure and consumer-oriented industries are the main draws for investment. The lower UNCTAD estimate for investment in Africa in 2015 reflects a sharp drop into Mozambique (21%), Nigeria (-27%), and South Africa (-74%). If UNCTAD rather than IMF data were used, private finance to Africa would have dropped by 19.5% to USD 116 billion in 2015. Total financial flows would have decreased 12.8% to USD 188.8 billion. Portfolio flows decreased from USD 23 billion in 2014 to USD 13 billion in 2015. There was a net portfolio equity exit in the second half of 2015. Bond flows remained relatively stable. Compared to other sources of foreign finance, net commercial bank credit is very small. Since 2014, net commercial bank credit flows fell from USD 3.8 billion in 2014 to USD 500 million in 2015 and are expected to further decrease in 2016. Remittances remain the most important single source of external finance with USD 64 billion in 2015. AFDB: African Economic Outlook 2016, SPECIAL THEME: Sustainable Cities and Structural Transformation Compared to volatile foreign investment and portfolio flows, remittances are considered more stable and may even be counter-cyclical in the face of external economic shocks (UNDP, 2011). While developed countries such as the United States, France and the United Kingdom dominate remittances to Africa, Arab states and money moving from Cameroon, Côte d’Ivoire and South Africa are also important. The World Bank predicts a slight increase in remittances for 2016 to USD 65.6 billion. But Europe’s weak growth and the slump in oil prices for Gulf producers may affect remittances to Africa. AFDB: African Economic Outlook 2016, SPECIAL THEME: Sustainable Cities and Structural Transformation Gains of development partners How China’s lower and more balanced growth will affect Africa The slowing of output growth in major emerging economies has been associated with lower commodity prices. Next to supply factors, the marked decline in investment and (rebalanced) growth in China is depressing commodity prices, particularly in metals and energy. Three key factors have underpinned Africa’s good economic performance since the turn of the century: high commodity prices, high external financial flows, and improved policies and institutions. Macroeconomic headwinds for Africa’s net commodity exporters may imply that Africa’s second pillar of past performance – external financial inflows – will suffer as well. While lower commodity prices are providing significant headwinds to Africa’s commodity exporters, the rebalancing of China may also provide backwinds, albeit gradually. The relocation of low-end manufacturing from China might reinforce positive income effects of lower commodity prices in oil-importing countries. The backwinds can be expected to stimulate FDI inflows into Africa. Benefits from reduced fiscal pressures in countries with high fuel shares in imports (Egypt, Ethiopia, Kenya, Mozambique and Tanzania) mirror significant challenges for energy exporters (Angola, Chad, Congo, Gabon and Nigeria) and other commodity exporters (Ghana, South Africa and Zambia) arising from depressed commodity prices. Lower commodity prices could shift Africa’s centre of economic gravity from west to east, towards less commodity-dependent economies (Schaffnit-Chatterjee and Burgess, 2015). Investment finance could follow, reinforced by the peripheral outreach of China’s One Belt One Road initiative (OBOR), which includes East Africa for infrastructure finance. China’s new Silk Road Fund is targeting the economies along Africa’s east coast. This suggests a shift away from a traditional focus on securing natural resources towards a more exploratory focus on opportunities for a manufacturing hub in the African region. AFDB: African Economic Outlook 2016, SPECIAL THEME: Sustainable Cities and Structural Transformation Why their support has yielded only limited results The context of African development has changed dramatically over the years. The global economic and financial crisis has dimmed Africa’s prospects for short-term growth by reducing investments, export earnings and government revenues. The demand for aid is at a peak as African countries seek to institute counter-cyclical fiscal stimuli, alleviate declining social welfare and maintain investment spending in support of a medium-term recovery. With donors struggling to maintain aid volumes, the imperative to improve aid effectiveness has never been greater. Established in 1964, the African Development Bank (ADB) is a regional multilateral development bank whose mission is to help reduce poverty, improve living conditions for Africans and mobilize resources for Africa’s economic and social development. Its shareholders comprise 53 African regional member countries (R MCs) and 24 non-African member countries. The ADB’s primary objective is to promote sustainable economic growth to reduce poverty in Africa. In 1973, the ADB and donors created the African Development Fund (ADF), the ADB Group’s concessional window. The ADF’s main objective is to reduce poverty by providing low-income RMCs (ADF countries1) with concessional loans and grants for projects and programs and with technical assistance for studies and capacity-building activities. The ADB Group has assumed a leadership role in defining Africa’s response to the global crisis, mobilizing resources and providing fast-disbursing relief. The ADB has also reaffirmed its commitment to making aid more effective and to improving its operational results. As summarized by President Donald Kaberuka in 2010: ADB: Achieving Development Results The contribution of the African Development Fund “Not in many years have the hard-fought results of the development process been more in jeopardy. As we face this crisis, our leadership on the continent will be tested. We at the African Development Bank must rise to the challenge and act with the urgency this crisis requires. We will adapt our instruments to cushion the most severe shocks while maintaining our financing for sustainable growth and development. Never has the need to use our resources wisely been greater. More than ever, we must improve the quality of our products and services, and stay focused on delivering results on the ground.” ADB: Achieving Development Results The contribution of the African Development Fund The ADF Results Measurement Framework The ADF first introduced its Results Measurement Framework in 2003. In 2005–07, the framework was refined so as to better focus on ADF-specific priorities and converge toward a common methodology for multilateral development banks. This methodology involves a two-tiered approach: it measures development effectiveness at an aggregated, country level and it measures aid effectiveness at the institutional level, both in terms of the ADF’s contribution to country results and in terms of its institutional performance When and how development partners should be called The New Partnership for Africa's Development (NEPAD) is an economic development program of the African Union. NEPAD was adopted at the 37th session of the Assembly of Heads of State and Government in July 2001 in Lusaka, Zambia. NEPAD aims to provide an overarching vision and policy framework for accelerating economic co-operation and integration among African countries. NEPAD is a merger of two plans for the economic regeneration of Africa: the Millennium Partnership for the African Recovery Programme (MAP), led by Former President Thabo Mbeki of South Africa in conjunction with Former President Olusegun Obasanjo of Nigeria and President Abdelaziz Bouteflika of Algeria, and the OMEGA Plan for Africa developed by President Abdoulaye Wade of Senegal. At a summit in Sirte, Libya, March 2001, the Organisation of African Unity (OAU) agreed that the MAP and OMEGA Plans should be merged.[1] The UN Economic Commission for Africa (UNECA) developed a "Compact for Africa’s Recovery" based on both these plans and on resolutions on Africa adopted by the United Nations Millennium Summit in September 2000, and submitted a merged document to the Conference of African Ministers of Finance and Ministers of Development and Planning in Algiers, May 2001.[2] In July 2001, the OAU Assembly of Heads of State and Government meeting in Lusaka, Zambia, adopted this document under the name of the New African Initiative (NAI). The leaders of G8 countries endorsed the plan on July 20, 2001; and other international development partners, including the European Union, China, and Japan also made public statements indicating their support for the program. The Heads of State and Government Implementation Committee (HSGIC) for the project finalized the policy framework and named it the New Partnership for Africa's Development on 23 October 2001. NEPAD is now a program of the African Union (AU) that has replaced the OAU in 2002, though it has its own secretariat based in South Africa to coordinate and implement its programmes. NEPAD’s four primary objectives are: to eradicate poverty, promote sustainable growth and development, integrate Africa in the world economy, and accelerate the empowerment of women. It is based on underlying principles of a commitment to good governance, democracy, human rights and conflict resolution; and the recognition that maintenance of these standards is fundamental to the creation of an environment conducive to investment and long-term economic growth. NEPAD seeks to attract increased investment, capital flows and funding, providing an African-owned framework for development as the foundation for partnership at regional and international levels. In July 2002, the Durban AU summit supplemented NEPAD with a Declaration on Democracy, Political, Economic and Corporate Governance. According to the Declaration, states participating in NEPAD ‘believe in just, honest, transparent, accountable and participatory government and probity in public life’. Accordingly, they ‘undertake to work with renewed determination to enforce’, among other things, the rule of law; the equality of all citizens before the law; individual and collective freedoms; the right to participate in free, credible and democratic political processes; and adherence to the separation of powers, including protection for the independence of the judiciary and the effectiveness of parliaments. The Declaration on Democracy, Political, Economic and Corporate Governance also committed participating states to establish an African Peer Review Mechanism (APRM) to promote adherence to and fulfilment of its commitments. The Durban summit adopted a document setting out the stages of peer review and the principles by which the APRM should operate; further core documents were adopted at a meeting in Abuja in March 2003, including a Memorandum of Understanding to be signed by governments wishing to undertake the peer review. Current status Ever since it was set up there has been some tension over the place of NEPAD within the AU programs, given its origins outside the framework of the AU, and the continuing dominant role of South Africa—symbolized by the location of the secretariat in South Africa. Successive AU summits and meetings of the HSGIC have proposed the greater integration of NEPAD into the AU's structures and processes. In March 2007 there was a 'brainstorming session' on NEPAD held in Algeria at which the future of NEPAD and its relationship with the AU was discussed by an ad hoc committee of heads of state. The committee again recommended the fuller integration of NEPAD with the AU. In April 2008, a review summit of five heads of state—Presidents Mbeki of South Africa, Wade of Senegal, Bouteflika of Algeria, Mubarak of Egypt and Yar'Adua of Nigeria—met in Senegal with a mandate to consider the progress in implementing NEPAD and report to the next AU summit to be held in Egypt in July 2008. Criticism NEPAD was initially met with a great deal of skepticism from much of civil society in Africa as playing into the 'Washington Consensus' model of economic development. In July 2002, members of some 40 African social movements, trade unions, youth and women's organizations, NGOs, religious organizations and others endorsed the African Civil Society Declaration on NEPAD rejecting NEPAD; a similar hostile view was taken by African scholars and activist intellectuals in the 2002 Accra Declaration on Africa's Development Challenges. Part of the problem in this rejection was the process by which NEPAD was adopted was insufficiently participatory—civil society was almost totally excluded from the discussions by which it came to be adopted. More recently, NEPAD has also been criticised by some of its initial backers, including notably Senegalese President Abdoulaye Wade, who accused NEPAD of wasting hundreds of millions of dollars and achieving nothing. Like many other intergovernmental bodies, NEPAD suffers from slow decision-making, and a relatively poorly resourced and often cumbersome implementing framework. There is a great lack of information about the day-to-day activities of the NEPAD secretariat—the website is notably uninformative—that does not help its case. However, the program has also received some acceptance from those initially very critical, and in general its status has become less controversial as it has become more established and its programs have become more concrete. The aim of promoting greater regional integration and trade among African states is welcomed by many, even as the fundamental macroeconomic principles NEPAD endorses remain contested. Wikipedia: New Partnership for Africa's Development Leveraging our expertise and gains African Development Bank Group Capacity Building Strategy Since the 1990s Africa has made significant and continuous progress in economic growth as evidenced by the average annual growth rate of 5.8 percent before the occurrence of the current financial and economic crisis. The growth has been attributed to various reforms undertaken by African governments to stabilize and liberalize their economies as well as stimulate growth. However, despite substantial progress in reforming the overall policy environment it would appear that many African countries may not achieve the Millennium Development Goals.  This is partly attributable to a lack of capacity.  Weak capacity in public and private sectors in Africa is acknowledged as a major impediment to the attainment of poverty reduction goals.  It is therefore evident that no matter the amount of financial resources mobilized for Africa’s development, such funds would yield only limited or modest results if countries do not have the human, organizational and institutional capacity to absorb and effectively utilize them. While capacity deficit prevails in all African countries, the African Development Bank Group Strategy recognizes the diversity in development needs in regional member countries (RMCs) which calls for different responses. Capacity in accessing advisory services and knowledge products is critical for African middle income countries. However, for low income countries and fragile states, the situation is quite different. These countries have made efforts at enhancing their capacities by establishing training institutions, yet few of these are still in existence and/or performing satisfactorily. Indeed most of them are financially weak, ill-equipped and poorly staffed. They therefore need to build their institutions so that some countries can transform their natural resources from a curse into a blessing. The objectives of the strategy are to improve the capacity of RMCs to respond to development challenges through increased capacity, and enhance the quality of the Bank’s portfolio of projects by strengthening internal Bank capacity as well as capacity in the countries. It therefore aims to: Enhance the development effectiveness of the Bank funded operations; Strengthen regional member countries’ capacity for policy dialogue on key development issues; and Build internal Bank capacity. Aligned to the Medium Term Strategy and the Knowledge Management and Development Strategy, it will assist the Bank in coordinating and reporting of all capacity development activities funded by the Bank. To increase the chances of successful implementation of the strategy, selectivity, focus on results and demand-driven approach will guide the support of the Bank. Moreover, the strategy takes advantage of the decentralization of Bank operations and proposes a progressive devolution of some capacity development activities to the field offices, keeping in mind the limited capacity of some of these offices. In line with the KMDS, the close collaboration with particular regional departments will assist in enhancing the capacity of the field offices to not only serve as provider of capacity, but also identify national and regional institutions with which the Bank can partner to increase impact and ensure sustainability of its programs. The expected deliverable of the strategy include: A framework for the design, delivery, monitoring, implementation and reporting of capacity development activities of the Bank; Enhancement of the Bank position as a key partner in capacity development through branded courses; strengthening of internal Bank capacity for assisting RMCs; And establishment of a “market place of ideas” to promote innovations in Bank operations AFDB: African Development Bank Group Capacity Building Strategy Conclusion, what kind of development partnership for Africa Africa needs a strategy for ‘emerging partners’ The global development landscape is changing rapidly with the growing role of China, Brazil and other "emerging" economies. In this new context, African countries have seen a significant increase in trade, foreign direct investment and official development assistance from the South. While China is the most significant partner, interactions are also increasing with India, Brazil, Malaysia, Turkey and several other countries, reducing Africa's dependence on its traditional partners and opening new policy space for African governments. The changes have been rapid. Africa's total trade with emerging economies grew from just $8.8 bn in 1990 to $148 bn in 2007. Between 2003 and 2009, China forgave $2.57 bn in debt owed by 31 African countries. However, "While some emerging economies have a strategy for Africa, Africa does not have a strategy towards the emerging economies," notes a new report of the UN Office of the Special Adviser on Africa (OSAA). So that both sides can gain from this relationship, African countries need to adopt a coordinated, coherent strategy and exercise greater ownership over their growing interactions with emerging economies, urges the report, Africa's Cooperation with New and Emerging Development Partners: Options for Africa's Development. So far, the impacts of this new interaction have been mixed. African consumers have benefited from the influx of low-priced consumer goods. The provision of generic medicines and insecticide-dipped mosquito nets has helped fight disease. New roads and conference centres are being built. However, manufacturers targeting their own domestic markets have been hurt by competitive imports from emerging economies. In large infrastructure projects, for example, Chinese competition has squeezed South African companies out of the market. Meanwhile, Africa's exports to emerging markets are still dominated by unprocessed primary products. In China's imports from Africa, the share of oil increased from 22 per cent in 1995 to 78 per cent by 2006. The main challenge for Africa is how to benefit from the new opportunities, while minimizing the negative impacts. The report urges African countries to take coordinated steps to ensure that cooperation with their new partners brings economic diversification and industrial development in Africa, while also supporting the continent's integration into the global economy. The report urges African countries to adopt a strategy whereby trade with emerging economies is tied to measures to promote Africa's development and infrastructure needs. When seeking foreign direct investment, African countries should direct such flows to sectors that can stimulate domestic investment, create jobs, spur regional economic integration and boost productive capacity. For their part, emerging economies must recognize that their long-term access to Africa's natural resources depends on developing a mutually beneficial relationship. Ultimately, South-South cooperation should not be pursued for its own sake, but rather "as a mechanism for ensuring a better quality of life for the world's poor," noted Cheick Sidi Diarra, the UN special adviser on Africa, at the 20 September launch of the report. UN: Africa needs a strategy for ‘emerging partners’ Chapter 13 Open and conclude bilateral negotiations with the IMF to structure an exit from the crisis. When the financial crisis broke out in the summer of 2007, there was a widespread perception that Sub-Saharan Africa was going to be affected only to a limited extent, with fragile countries making no exception in this respect. The limited depth and low integration of their financial systems with the U.S. and European capital markets appeared to be sheltering them – so the reasoning went – from a direct transmission of the crisis. According to the African Development Bank, “few banks and investment firms in Africa had derivatives backed by sub-prime mortgages. No difficulties have been reported on African sovereign wealth funds”. ScienceDirect: The effects of the financial crisis on Sub-Saharan Africa The Economist went even further suggesting that investors looking for alternative sources of returns should “buy Africa”. As the events continued to unfold, this perception changed; even though the wealth effects of the crisis were, indeed, less pronounced than in other developing countries, Sub-Saharan Africa, and especially fragile countries, proved to be vulnerable to trade linkages, and to the disruption of the trade finance accompanying the financial crisis. Furthermore, contrary to the standard views of remittances being counter-cyclical, and according to preliminary evidence, remittance flows contracted, unemployed migrants started going back to their countries of origin, foreign direct investment fell, and private sector financing was restricted. Moreover, as the funds devoted to official development assistance tend to follow donor countries’ economic cycle, a bad scenario could materialize with a fall in aid from OECD countries. Even if donor countries were to live up to their earlier commitments, keeping the share of aid over GDP constant could still lead to a reduction in actual flows, because of the recession and because of unfavorable exchange rate movements. ScienceDirect: The effects of the financial crisis on Sub-Saharan Africa Two years on, the consensus view is that Sub Saharan countries have fared much better than expected, with an average rate of GDP growth around 2.5% in 2009 (OECD, 2010) and an expected rate around 4.5% in 2010. In what follows, after a brief overview of the crisis, we explore the channels through which the current financial crisis was transmitted to SSA, emphasising the impact on fragile countries, and with an eye on the possible policy prescriptions. The crisis has, indeed, underscored Africa's vulnerability to external shocks and the low resilience of countries where the social protection mechanisms are not appropriate or not fully implemented. Countries in situations of fragility, despite their limited integration into the world economy, have also proved the least able to cope with the crisis, given a low fiscal capacity and lack of formal (and often informal) safety-nets. This entails that – unless they prove able to guarantee jobs, food security, life-saving programmes (AIDS/health) – fragile countries could be pushed back to much lower levels of development, rolling back their recent progress. Furthermore, a possible interruption in the investments for capacity for growth (both in terms of infrastructures and human capital/education) may produce even worse effects in the long run. As African countries have a limited formal and informal financial system (Allen et al., 2008), and, thus, a limited ability to borrow and smooth shocks (Naudé, 2009 ;  Oduro, 2009), the real effects of the crisis (on firms and individuals) can be not only disruptive but also very persistent. What caused the crisis? From August 2007 until September 2008, there was fairly wide agreement that poor incentives in the U.S. mortgage industry had caused the problem. According to this explanation what had happened was that the way the mortgage industry worked had changed significantly over the years. Traditionally, banks would raise funds, screen borrowers, and then lend out the money to those who had been approved. If the borrowers defaulted, the banks would bear the losses. This system provided good incentives for banks to assess the creditworthiness of borrowers carefully. Under the new system, brokers and banks screened borrowers. The mortgages were then securitised and sold off. The people originating the mortgages and securitising them do not bear any losses that might occur and so incentives were eroded. Another important incentive issue concerned the ratings agencies. Their incentives were eroded because the agencies began to receive a large proportion of their income from undertaking ratings of the securitised products. ScienceDirect: The effects of the financial crisis on Sub-Saharan Africa As the crisis continued and then after the default of Lehman Brothers in September of 2008, the dramatic collapse in the global real economy made this view that sub-prime mortgages were to blame less and less plausible. The economies in many countries in Asia and in Europe were drastically affected, even though their banks had very little exposure to U.S. securitisations and remained strong. As this happened, it became much more difficult to believe that what caused all of this was an incentive problem in the U.S. mortgage industry. Why did the collapse of the bubble create so many problems? The whole global economy went into a downward trend. It can be argued that what went wrong was that people had made the wrong decisions for about a decade, based upon the assumption that asset prices would keep on going up. In the U.S., the aggregate savings rate fell to zero. What was the point of saving? If you owned a house, its price was going to keep on going up. If you owned stocks, their value was going to keep on going up. So people stopped saving and many borrowed to finance consumption. The leverage ratios of households, of firms, and of institutions, all went up. When there was the big fall in asset values, people found they were over-leveraged and they had saved too little. This meant that they stopped doing what they were doing before and started saving to pay off debt and build up their assets. How the crisis hit Sub-Saharan Africa The economic and financial crisis came on top of a period of highly volatile commodity prices and exchange rates, which increased uncertainty and strengthened a vicious circle of falling trade flows and investments. Food and fuel price spikes through mid-2008 put food-importing and oil-importing Sub-Saharan African fragile countries under severe stress, pushing down their foreign exchange reserves and making it difficult for them to pay for imports and to sustain growth. Conversely, oil-exporting countries have benefited from increased revenues and several have been able to strengthen their foreign reserve position. However, the boom and slump contributed to output volatility, discouraging investments in long-term productive capacity. As emphasised by the IMF (2009a), most Sub-Saharan African countries have almost consecutively suffered fuel, food and financial (3F) shocks. The average rate of growth, low in the 1980s and 1990s, the so-called “lost decades”, has increased since 2000, inducing an improvement in Millennium Development Goals (MDGs) even in some fragile countries. Most recent estimates put real Sub-Saharan Africa GDP growth for 2009 at around 2.5%, down from an estimated 5.5% in October 2008. These figures would make 2009 the first year in a decade in which most fragile Sub-Saharan African countries recorded negative growth in real GDP per capita, threatening the progress towards the MDGs and undermining political stability. Slower growth does not always threaten to reverse human development, but it does produce setbacks, especially through cuts in education and health expenditure, which have serious long-term consequences. During the recent period of growth prior to the present crises, Sub-Saharan Africa had become more integrated with the rest of world, as reflected in its rising (albeit still low) share in global exports and in GDP. Fragile countries, on average less integrated than other Sub-Saharan African countries, followed the same trend. This increasing international integration has exposed Sub-Saharan African countries much more to disruptions in trade and to other shocks. It has also had a marked effect on tax revenues (and, in some countries, on tax policy), with reduced receipts from trade taxes. These challenges of globalization for resource mobilization are exacerbated by the recent financial crisis, which also lowers the tax base. Channels of transmission of the financial and economic crisis: is there a fragile countries specificity? The literature on the transmission of the crisis distinguishes between direct effects, i.e., the financial channels and indirect effects (real channels). As far as Sub-Saharan Africa is concerned, we maintain that, given the low level of formal financial development, the indirect real channels have prevailed. These include effects through trade (both reduction in export earnings and terms of trade effect), remittances, foreign direct investment and foreign aid. We briefly detail these first, and look at the (lower) direct transmission of the crisis later. ScienceDirect: The effects of the financial crisis on Sub-Saharan Africa Trade Many Sub-Saharan African countries, including fragile raw material exporters, have relied heavily on export markets to grow. The financial crisis has been transmitted to them mainly through declining demand for exports and declining export prices. It takes time to assess the effects of the crisis on trade flows, even though early signals were not reassuring: the demand from Europe, the United States and China for Sub-Saharan African products and even more for the products of fragile countries has fallen sharply up to mid 2009, more than for products from other developing areas. This is partly due to the fact that their exports are mainly raw materials. But even for manufacturers who concentrate on low-technology products, this group suffers more than other developing areas. Moreover, many Sub-Saharan African fragile countries have suffered from increased exchange-rate volatility, which has induced high uncertainty and high costs for international trade. The countries in the CFA zone have an exchange rate pegged to the Euro and have experienced a real exchange rate depreciation. This, to a certain extent, makes imports from these countries cheaper, but because fragile states have little capacity to increase exports, they cannot fully exploit this opportunity. ScienceDirect: The effects of the financial crisis on Sub-Saharan Africa Economic crisis in the central African sub region Risk analysis The present analysis is on the performances of West Africa, in terms of the indicators and rankings for the business environment, good governance and human development. Among the 10 economies, which have significantly improved their business climate after embarking on three reforms at least are Senegal (153rd) and Benin (158th). Significant improvements have been observed in Côte d’Ivoire (142nd), Togo (150th) and Niger (160th) (World Bank. 2016. Doing Business 2016: Measuring Regulatory Quality and Efficiency. Washington, DC: World Bank). Despite the clear improvements, the governments of West Africa should continue to reduce the chasm separating them from best practices in many major dimensions, such as the ease of doing business, by increasing reliable access to electricity and setting up an efficient trade dispute settlement system. UNECA: Socioeconomic Profile of West Africa in 2015 and Prospects for 2016 25-26 February 2016, Dakar, Senegal With regard to governance assessments in 2015, according to the Mo Ibrahim Foundation, West Africa ranked second, after Southern Africa, with a score of 52.4 on a scale of 100, and was the area, which progressed the most. Again in 2015, three countries, which performed well in the region featured among the top 10. They are Côte d’Ivoire, Senegal and Togo. UNECA: Socioeconomic Profile of West Africa in 2015 and Prospects for 2016 25-26 February 2016, Dakar, Senegal However, good governance remains a challenge in the area, where several countries are poorly ranked for overall governance. Impact of fall in commodity prices The dependence on natural resource exports has made nearly half of sub-Saharan African countries vulnerable, one way or another, to the ongoing decline in commodity prices. But how much and how deeply countries will be affected remains an open debate. To shed light on this issue, this chapter considers three sets of questions: • How important are extractive (energy and metal) commodities in the region? Which specific countries are affected? For these countries, how important are these commodities compared with commodity exporters elsewhere in the world? • How have previous episodes of booms and busts in commodity prices affected macroeconomic outcomes in sub-Saharan Africa, and what does it tell us about the impact of the current commodity price slump? • Which policies can help mitigate the macro-economic effects of adverse terms of trade shocks? The main findings are as follows: • About half of sub-Saharan African countries are net commodity exporters and, unlike other regions, the importance of extractive commodities exports has risen since the 1990s, putting the region among the world’s most commodity-dependent regions, broadly at par with the Middle East and North Africa region. As a consequence, though higher extractive commodity prices have in part supported the strong growth of the past decade or so, the region’s exposure to commodity price volatility has also increased––a trend that is coming to haunt these countries now. The most exposed countries by far are the oil exporters. For them, the commodity terms-of-trade shock, which captures the income loss from price fluctuations in terms of GDP, has been particularly marked since mid-2014. On average, the commodity terms-of-trade index fell by 20 percent of GDP in a matter of a few years, after fairly steady gains of about 45 percent during 2000–14. Unsurprisingly, the macroeconomic impact is found to be large. The analysis suggests that a negative terms of trade shock of this size typically triggers a slowdown in annual growth of 3 to 3½ percentage points for several years after the shock. This is indeed the order of magnitude observed among sub-Saharan African oil exporters, whose average growth has gone from 5.9 percent in 2014 to a projected 2.4 percent in 2015–16. • Comparatively, metal exporters in the region have tended to be less affected. This is because they are exposed to a wider range of commodity exports, and commodities play a less prominent role in their economies. Also, many of them are oil importers, so the impact of the commodity price slump has been partly offset for them by the decline in their energy import bill. That is not to say, though, that they will not be affected; there are thresholds for the price of their commodity exports, under which mines close, and jobs are lost, as has already been witnessed in some countries, with substantial detrimental impact on activity. • The remaining 25 of the 45 sub-Saharan African countries that are not major exporters of oil or metals have tended to be less affected by commodity price swings. Indeed, many of them sustained solid growth during the commodity supercycle of the 2000s despite worsened commodity terms of trade, owing in part to relatively high oil import bills. Macroeconomic policies have a critical role to play in supporting the resilience of sub-Saharan African economies to commodity price busts, particularly for the highly exposed oil exporters. Evidence from past downswings highlights the important role of exchange rate flexibility as a shock absorber for countries that are not part of a monetary union. Countercyclical fiscal policy can also be important to smooth the impact of the shock, but this only holds in so far as countries have space to implement that type of stimulus. • In the last few years, commodity exporters in the region have indeed allowed fiscal deficits to widen in response to declining fiscal revenues from the extractive sector and as they continued implementing public investment projects to meet infrastructure gaps. However, with rising public debt, increasing borrowing costs, and sharply reduced revenues, fiscal space is rapidly diminishing in many of these countries, calling for adjustment as commodity prices are foreseen to remain low for long. • For commodity exporters that are in a monetary union, the onus of adjustment is squarely on fiscal policy. Enhanced domestic revenue mobilization offers substantial potential to improve the fiscal balance, and expenditure rationalization should also take precedence. In particular, efforts will be required to better prioritize the numerous infrastructure investment projects that these countries were ready to embark on. Contingent on financing, choice should be given to the highest-return ones, in order to minimize the negative impact on medium term growth prospects. • Over the medium term, in addition to rebuilding policy space and buffers as commodity prices gradually recover, sub-Saharan African commodity-exporting countries should more actively increase the quality and efficiency of public investment, continue efforts to mobilize domestic revenues, and pursue economic diversification to enhance resilience to commodity price shocks, including by improving the business climate. IMF: World Economic and Financial Surveys Sub-Saharan Africa What should have been done to avoid the situation The AfDB had increased almost three-fold its support for regional programmes, mainly trade-related infrastructure, building the capacity of regional economic organizations and relevant regional public goods. Experience had shown that international aid allocation was essentially national and performance-based. There was a view, which Mr. Kaberuka thought was misleading, that regional programmes provided large free riding problems. This view constrained AfDB capacity to increase support for regional programmes. It created an unnecessary competition between national and regional resources. Mr. Kaberuka felt this issue needed to be tackled head-on. The African Development Bank committed about 20 per cent of its resources to regional programmes. This was not enough. Mr. Kaberuka noted he would like to be able to do more for regional programmes, not least because they reinforced national programmes. WTO: SECOND GLOBAL REVIEW OF AID FOR TRADE 6 AND 7 JULY 2009 summary REPORT Key financial stability indicators — while stronger than in the past —have come under pressure more recently, possible presaging a slower pace of financial development in the future. Progress in supervisory standards varies substantially across countries, and challenges to implementation remain. Pan-African banks bring new opportunities and are an important driver of financial development, but also pose oversight challenges and may increase systemic risk. The results of an empirical analysis of episodes of commodity price shocks show that declines in commodity prices are associated with higher financial sector fragility, such as increased nonperforming loans and bank costs, and lower bank profitability and liquidity, especially in sub-Saharan Africa, where the level of dependency on commodities is high. IMF: Financial Development in Sub-Saharan Africa Promoting Inclusive and Sustainable Growth Prepared by a team led by Montfort Mlachila and composed of Larry Cui, Ahmat Jidoud, Monique Newiak, Bozena Radzewi cz-Bak, Misa Takebe, Yanmin Ye, and Jiayi Zhang IMF should accompany the strategic plans and not impose a strategic plan ‘’I SEE THE THRUST OF THE IMF’S ROLE IN TWO MAJOR DIRECTIONS; FIRST TO ENSURE THE smooth functioning of the international financial system and avoid financial crises, and second, assist low-income countries in fighting poverty and in integrating into the world economy. In this regard, I welcome the many initiatives that are underway.’’ The IMF and Low-Income Countries: Policies for Development: From Structural Adjustment to Poverty Reduction and Growth Trevor A. Manuel1 Finance Minister of South Africa September 26, 1999 The IMF was not designed as a development agency, nor does its mandate include the provision of development assistance. The Fund does, however, have as one of its purposes to “facilitate the expansion and balanced growth of international trade, and contribute thereby . . . to the development of the productive resources of all members.”2 From the beginning of its work with its member countries in 1946, the Fund has had to find the right balance between limiting its focus to macroeconomics and international finance and ensuring that this focus contributes to economic growth and sustainable development. This balance is nowhere more delicately poised than in the Fund’s relations with low-income countries. They primarily need external financial support for development in the form of grants or heavily subsidized long-term loans. Such support typically comes from the development agencies of wealthy countries (“bilateral” aid) and from multilateral agencies such as the World Bank and regional development banks. The IMF’s role is to assist recipient countries to establish economic conditions that will optimize their ability to put development aid to good use and increase their ability to develop economically. In that context, a clean division between sound finance, a stable macro economy, and a sustainable international payments position on the one hand, and sustainable economic development and poverty reduction on the other, is neither logical nor possible. Poor countries cannot grow without stable economic foundations, and they cannot stabilize their economies for long without the means to develop. At the outset, the Fund took the view that countries should borrow from it only to satisfy an immediate and very short-term balance of payments need arising from a shortage of the currency being borrowed. When Ethiopia —one of the world’s least-developed countries—made the first request by any member to borrow from the Fund, in April 1947, the Executive Board reacted skeptically. Several Directors suspected that Ethiopia’s need for dollars was neither immediate nor so temporary as to qualify for an IMF loan. The Board tabled the request pending further justification, and the matter lapsed.3 In the 1960s and 1970s; the number of low-income member countries in the IMF grew rapidly as a consequence of the end of the era of colonial rule. In response, the Fund established a number of special facilities open to all members but designed primarily to assist low-income and other developing countries. These innovations included the Compensatory Financing Facility in 1963, the Buffer Stock Financing Facility in 1969, the Extended Fund Facility (EFF) in 1974, the Oil Facility Subsidy Account in 1975, and the Trust Fund in 1976. These facilities were tailored to the needs of the poor—in some cases, by providing longer-term, less expensive loans; in others, by helping to cover the costs of the kinds of temporary shocks that hit poor countries the hardest. Although they certainly helped within their own narrow confines, the total impact of these facilities on financial stabilization, not to mention economic development, was limited. In the 1980s, the IMF made a more concentrated and sustained effort to direct its work toward the needs of its low-income members, which by then totaled about 80 countries, or more than 40 percent of the membership. At first, this effort included softening the policy conditions on loans to countries that lacked the ability to carry out fully articulated reform programs. By the middle of the decade, this easing, which had been at least partly unintentional, was clearly only prolonging the structural adjustments these countries needed to undertake. More fundamentally, many low-income countries found themselves excessively burdened with external debt. Loans from the Fund were, in most cases, a very small part of the total, but lending to the poor on the same financial terms as to middle-income countries no longer seemed reasonable. Beginning in 1986, the Fund commenced lending through a new program, the Structural Adjustment Facility (SAF). In 1987, the SAF was supplemented by the Enhanced SAF, or ESAF. These new facilities not only made long-term, low-interest loans—they also were designed to support structural reform agendas suited to the needs of the poor. By 1990, the IMF’s commitment to deep and broad engagement with low-income countries and to reducing poverty throughout the world was well established. In a report to the Development Committee that year, the staff elevated this commitment to a central principle: The IMF and Low-Income Countries: Policies for Development: From Structural Adjustment to Poverty Reduction and Growth The primary role of the Fund is to promote, through its bilateral and multilateral surveillance, technical assistance, and financial support, sustainable growth of output and employment in its member countries and an open system of international trade and payments, thus helping create the conditions for lasting poverty reduction. To achieve that objective, the report pledged the institution to address the causes of poverty, including by efforts to . . . encourage member countries to . . . introduce targeted expenditures and social safety nets where necessary; . . . and, in consultation with the [World] Bank, catalyze external financial assistance for economic programs, in particular, for well-designed measures to mitigate any short-run adverse impact of such programs on the poor. For the next several years, the Fund devoted considerable effort to ensuring that Fund-supported programs included such mitigation measures wherever possible, although its ability to do so was circumscribed by its mandate and expertise in this area. If the authorities resisted targeting the poor in their expenditure choices, the Fund had little authority to force the issue. Moreover, the World Bank clearly had the lead role in advising countries on poverty-related structural policies. Within those limits, the Fund continued to press governments to take the issue seriously, and by mid-decade the staff believed it was making major progress. The IMF and Low-Income Countries: Policies for Development: From Structural Adjustment to Poverty Reduction and Growth Chapter 14 Solicitation each country for Strengthening more flexible international cooperation. What is International Corporation? BAN KI-MOON, United Nations Secretary-General, said the architects of the Charter were visionary in foreseeing a world where the United Nations and regional organizations worked together to prevent, manage and resolve crises.  But they likely did not anticipate the interconnected nature of today’s threats or range of cooperation that would exist between them. UN : Cooperation between United Nations, Regional, Subregional Organizations ‘Mainstay’ of International Relations, Security Council Hears throughout Day-long Debate How can African nations build from international cooperation? During the 2000s, economic growth in Africa has increased and democracy has been strengthened, with free elections held in several countries. Despite the significant natural resource assets, poverty is widespread. Prerequisites for poverty alleviation are best created at national level. However, management of regional resources involves several countries, which requires regional cooperation. Peace and stability in the region is a prerequisite for development and poverty reduction. Democratic governance is also crucial for a state to be well-functioning. Armed conflicts often involve serious regional implications with streams of refugees and increased migration. This in turn creates other social problems with depletion of natural resources such as arable land, water and minerals. A case study can be done as to what Africa can and has been benefitting from International Corporation with SIDA: Within the framework of their strategy, Sida is expected to contribute to: A better environment, sustainable use of natural resources, reduced climate impact and strengthened resilience to environmental impact, climate change and natural disasters • Strengthened capacity of regional actors to work towards sustainable management and use of common ecosystem services and natural resources • Strengthened capacity of regional actors to work towards increased resilience against climate change and natural disasters, including capacity for food security • Increased production of, and access to, renewable energy Strengthened democracy and gender equality and greater respect for human rights • Enhanced capacity of regional actors to work towards strengthened democracy and the rule of law, gender equality and increased respect for human rights, with a focus on the rights of women and children • Enhanced capacity of civil society and media to work towards accountability and respect for human rights at regional level Better opportunities and tools to enable poor and vulnerable people to improve their living conditions • Strengthened opportunities for increased economic integration and trade • Improved conditions, especially for women and young people, for productive employment with decent working conditions • Strengthened capacity of regional actors to work towards sustainable solutions concerning refugee situations and migration flows, and embrace the positive effects of migration Human security and freedom from violence • Strengthened capacity of regional actors for peace and reconciliation • Strengthened capacity of regional actors to combat violent extremism • Increased influence and participation by women and young people in processes for peace and reconciliation. SIDA : The EU Trust Fund for Africa was signed by the President of the European Commission Jean Claude Juncker, along with 25 EU Member States, as well as Norway and Switzerland, and was launched at the Valletta Summit on Migration on November 12th 2015 by European and African partners. What is a Trust Fund? A Trust Fund is a development tool that pools together resources from different donors in order to enable a quick, flexible, and collective EU response to the different dimensions of an emergency situation. Why do we need a Trust Fund? Due to ongoing unprecedented levels of irregular migration, the EU Trust Fund has been created to support the most fragile and affected African countries. The Trust Fund aims to help foster stability in the regions to respond to the challenges of irregular migration and displacement and to contribute to better migration management. More specifically, it will help address the root causes of destabilisation, displacement and irregular migration, by promoting economic and equal opportunities, security and development. EC.EUROPA: The EU Emergency Trust Fund for Africa WHICH COUNTRIES are covered by the Trust Fund? The Trust Fund will assist a band of countries across Africa that are among the most fragile and affected by migration and draw the greatest benefit from this form of EU financial assistance. The countries and regions are: The Sahel region and Lake Chad area: Burkina Faso, Cameroon, Chad, the Gambia, Mali, Mauritania, Niger, Nigeria and Senegal. The Horn of Africa: Djibouti, Eritrea, Ethiopia, Kenya, Somalia, South Sudan, Sudan, Tanzania and Uganda. The North of Africa:  Algeria, Egypt, Libya, Morocco and Tunisia. African neighboring countries of the eligible countries may benefit, on a case by case basis, from Trust Fund projects with a regional dimension in order to address regional migration flows and related cross- border challenges. THE TRUST FUND IN FIGURES Resources The Trust Fund pools together money from different European Commission financial instruments, resources from the EU Member States, Norway and Switzerland. In the course of the year 2016, the total amount of resources made available to the three regional windows of the EUTF for Africa has increased to more than EUR 2.5 billion including EU funding as well as donors' contributions: COMMITMENTS AND PAYMENTS As of 10 April 2017, a total of 106 projects worth approximately EUR 1,6 billion have been approved under the Sahel/Lake Chad, the Horn of Africa and the North of Africa regions. Of the total amount approved, more than EUR 755 million have been contracted to implementing partners. EC.EUROPA: The EU Emergency Trust Fund for Africa What do we bring on the table to get the biggest piece of the pie? Benefits and limitations of PPPs Benefits Compensate for deficiencies in the management of services Strengthen the government’s programming and contracting capacities Contribute to financial autonomy of local government and public enterprises Promote sectoral dialogue and private sector involvement Enhance regional l integration Promote innovative partnerships Limits and lessons No magic bullet for budget constraints Political risks and small size market may discourage some operators Contracts need to be country specific PPPs requires strong legal framework and a good governance of public entities Governments have a key role to play to ensure the balance between protecting consumers and making the project attractive enough for the private sector Chapter 15 Recourse to multilateral partners for the strengthening of the balance of payments and the continuation of projects. What is balance of payment? What is a 'Balance Of Payments (BOP)? A statement that summarizes an economy’s transactions with the rest of the world for a specified time period. The balance of payments, also known as balance of international payments, encompasses all transactions between a country’s residents and its nonresidents involving goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts. The balance of payments classifies these transactions in two accounts – the current account and the capital account. The current account includes transactions in goods, services, investment income and current transfers, while the capital account mainly includes transactions in financial instruments. An economy’s balance of payments transactions and international investment position (IIP) together constitute its set of international accounts. Current trends of events The integration vision for an African Economic Community through five geographic regions was recommended by the Abuja Treaty (1991)1. To streamline the existing multiple blocs in these regions, the African Union identified eight Regional Economic Communities (RECs) in its rationalization drive. The integration vision seeks to attain collective autonomy and contribute to raising the living standards of the population through the expansion of African markets and increased trade between Africa and the world. Cameroon’s macroeconomic and security environment shave deteriorated since the last consultation. In 2014–15, the economy has shown resilience in the face of the twin shocks of the oil price slump and heightened security threats, with still robust growth and low inflation. However, fiscal performance has weakened and the government continued to accumulate domestic arrears, as expenditure pressures have shifted from fuel subsidies to security expenditure. Cameroon’s economic outlook has worsened and proximate risks have become more dominant. As a result of projected financing gaps and a surge in public infrastructure investment, public debt is expected to increase rapidly. Growth is projected to stabilize at about 5percent in the medium-term, a rate lower than what would be needed to achieve emerging market status by 2035. Solutions and way forward. The overarching policy issue is how to weather the twin shocks and maintain sustainable high growth. The main exogenous risks are a protracted slump in the global economy and the spreading of regional security problems. Endogenous risks stem from an expansionary, debt-fueled public investment program, large contingent liabilities from state-owned enterprises, and increasing non-concessional debt. IMF Country Report No. 15/331: CAMEROON 2015 ARTICLE IV CONSULTATION — PRESS RELEASE; STAFF REPORT; AND ST ATEMENT BY THE EXECUTIVE DIRECTOR FOR CAMEROON. Key policy recommendations: Rationalize and scale back parallel public investment programs to cut the budget deficit. A dopt a path for the non-oil primary deficit to rebuild fiscal space, preserve medium-term fiscal stability, and support external adjustment. Eliminate the fuel - subsidy scheme to avoid possible future fuel subsidies. Improve expenditure control by strengthening public financial management and the oversight of contingent liabilities from state-owned enterprises. Promote higher and inclusive growth through a better business climate and measures to target vulnerable groups. Strengthen the supervision of the financial sector, especially that of the rapidly expanding micro-finance sector. Chapter 16 Finalization of the free movement of people and goods and implementation of security projects. The Peace and Security Council (PSC) of the African Union (AU), at its 661st meeting held on 23 February 2017, at the ministerial level, adopted the following decision on Free Movement of People and Goods and its Implications on Peace and Security in Africa: Council:  Takes note of the statements made by the Minister of Foreign Affairs and International Cooperation of the Republic of Rwanda, Honourable Louise Mushikiwabo, in her capacity as the Chairperson of the PSC for the month of February 2017 and by the Acting Director for Peace and Security, on behalf of the AU Commissioner for Peace and Security. Council also takes note of the presentations made by AU Commissioner for Political Affairs, Dr. Aisha Abdullahi and by Brigadier-General Joseph Nzabamwita, of the Republic of Rwanda, in his capacity as the Chairperson of the Committee of Intelligence and Security Services of Africa (CISSA). Council further takes note of the statements made by representatives of Member States, representatives of the African Members of the United Nations Security Council (A3), the Regional Economic Communities and Regional Mechanisms for Conflict Prevention, Management and Resolution (RECs/RMs), as well as by the representative of the United Nations;  Acknowledges that the AU Heads of State and Government have adopted important policy decisions on free movement of people and goods, including Agenda 2063. In this context, Council recalls decision [Assembly/AU/Dec.607 (XXVII))] on the Free Movement of Persons and the African Passport adopted by the AU Assembly of Heads of State and Government at its 27th ordinary session held in Kigali, Rwanda, in July 2016 in which the Assembly urged all Member States to adopt the African Passport and to work closely with the AU Commission to facilitate the process towards the issuance at national level based on international, continental and national policy provisions and continental design  and specifications;  Also Acknowledges that besides facilitating regional and continental integration, the benefits of free movement of people, goods and services, far outweigh the real and potential security and economic challenges that may be perceived or generated; Commends all Member States which have already signed and ratified all relevant AU instruments on free movement of people and goods, and encourages those Member States which have not yet done so, to also do the same. In the same context, Council urges Member States to address all institutional and regulatory capacity gaps, in order to have a common policy on free movement of people and goods;  Stresses the need for AU Member States to further enhance mutual trust, cooperation and collaboration in addressing security challenges that are related to free movement of people and goods, in order to prevent terrorist and criminal groups from taking advantages and exploiting such facilities;  Also commends the Economic Community of West African States (ECOWAS) and the East African Community (EAC) for the significant progress recorded to date in the promotion of free movement of people, goods and services and urges other RECs/RMs to emulate the ECOWAS example;  Further commends Member States that have already started to issue visas on arrival to fellow African citizens, namely: Benin, Ghana, Mauritius, Rwanda and Seychelles and urges other Member States to also put in place necessary measures to ensure the issuance of visas on arrival for African citizens while at the same time taking the necessary security precautions;  Appeals to Member States, within the spirit of promoting free movement of people and goods in the African continent, to refrain from imposing harsh penalties to fellow African citizens who would have over-stayed in their countries beyond the period stipulated in the visas and to facilitate their exit to destinations of their choice;  Underscores the importance of expediting the process of issuing an African Passport to all AU Heads of States and Government, Ministers of Foreign Affairs, Members of Permanent Representatives Committee, Heads of AU Organs, senior leadership of the Regional Economic Communities and Regional Mechanisms for Conflict Prevention, Management and Resolution (RECs/RMs) and their respective staff. In the same context, Council requests the AU Commission to provide necessary technical support to Member States, in order to enable them to produce and issue the African passport to their own citizens;  Also underscores the importance of further enhancing collaboration between and among Member States, particularly their immigration, defence, security and intelligence services, and working in close collaboration with the relevant African and international institutions, in order to ensure timely sharing of intelligence and build mutual confidence and trust, with a view to dispelling any fears that may be generated by the promotion of free movement of people, goods and services; Stresses the urgent need for all national intelligence and security services of the Member States to be innovative and adapt to the contemporary security threats, among others, by using advanced information and communication technologies (ICTs) and highly skilled personnel, in order to prevent terrorist and criminal groups from abusing the free movement of people, goods and services, which is also in line with the provisions of UN Security Council Resolution 2178 of 2014 which requires Member States to prevent the movement of terrorist groups by ensuring effective border management and control; Encourages Member States to sensitize their citizens on all AU decisions relating to free movement of people, goods and services, with a view to forestalling any resentment to foreigners from other African countries and preventing xenophobia; Underlines the need to ensure a phased approach in implementing AU policy decisions on free movement of people and goods, mindful of the variances in the legitimate security concerns of Member States. Council also underlines the need to ensure that effective measures are put in place in order to prevent situations whereby upholding the freedom of movement of people will not lead to situations whereby the arrival and settlement of migrants in a given country will create/ exacerbate inequalities or will constitute challenges to peace and security; Requests the AU Commission to expedite the finalization of the Protocol on Free Movement of Persons in Africa, pursuant to Assembly decision [Assembly/AU/Dec.607 (XXVII)]; Also requests CISSA to provide necessary support to the Member States and the RECs/RMs, with a view to expediting the implementation of all AU policy decisions relating to free movement of people and goods; Further stresses the need for the African Members of the UN Security Council to work closely with the PSC in ensuring that Africa’s determination to facilitate free movement of people and goods is not impeded by external influences, given the emerging trends in some parts of the world whereby some countries are moving in the direction of closing their borders and imposing restrictions on the free movement of people; 17. Decides to remain actively seized of the matter.  AU Regional integration In June 2013 Head of States of Cameroon, the Central African Republic, the Republic of Congo, Gabon, Equatorial Guinea and Chad met during their last summit and agreed amongst other issues that visa requirements would henceforth not be obligatory for citizens of member states circulating in these states.  This move was to take effect as from January 1, 2014. These six member states out of the eleven member states of the Economic Community for Central Africa (ECCAS) region share a common currency zone (the CFA Franc) and a monetary zone union called CEMAC (Communauté economique et monetaire d’Afrique centrale). I argued in an article published on the 22 July 2013 by Africanliberty.org that the huge population in these six member states makes it potentially a lucrative consumer market, yet regional cooperation arrangements amongst these countries have not succeeded in unleashing this full economic potential and move it towards economic integration. Chofor Che: Regional Integration in the CEMAC zone under the peril of implosion – Chofor Che With a view to overcoming structural handicaps to development and reaping advantages of regional integration, Central African countries committed themselves since independences to the process of integration. Indeed, regional integration in Central Africa has a long history, which dates from the colonial era when some Central African territories formed the federation of “Afrique Equatoriale Française”. In 1964, UDEAC, a structure designed to promote intra-regional trade among Central African countries was created in Brazzaville (Congo). Reflecting the inward-looking regionalisation that was a la mode in the 1960s, UDEAC subsequently erected a highly distorted, fragmented, and ad hoc, import-substitution trade policy under the guise of regional integration. In 1994, UDEAC was restructured to cope with the challenges emanating from excessive protection, low customs revenue, intra-regional distortions in production, and the low level of trade with the rest of the world. It was later renamed the UEAC. The “Union Monétaire de l’Afrique Centrale” and UEAC became CEMAC by a treaty signed in 1994. This paper essentially deals with CEMAC countries including: Cameroon, the Central African Republic, Chad, the Republic of Congo, Equatorial Guinea, and Gabon1, although our analysis will also grapple with general issues related to ECCAS2 which is a wider initiative in the process of regional integration in Central Africa. The six (6) countries of CEMAC are partially linked by economic ties and more by history. Despite its vast geographic area of roughly 3 million square kilometres, Central Africa is however the smallest sub-region of the current African regional arrangements, with a population of about 31 million inhabitants which is less than the population of a country like Tanzania (about 37 million inhabitants in 20043) and only a quarter of the population of the Federal Republic of Nigeria (about 127 million inhabitants in 2004). Is The Regional Integration in Central Africa in Question?: Jean-Marie Gankou and Marcellin Ndong Ntah About 40 years after independences and despite the countries’ obsessions and potentials for regional integration, the progress has been very modest, just for a few tariff reductions. In this context, the Heads of States launched an initiative to reforms and modernizing CEMAC, with a view to reviving regional integration in this subregion. This initiative is timely, especially following the observation during the June 2007 AU (African Union) Summit in Accra that considered the success of sub-regional integration as prerequisites for the Unite States of Africa. This initiative should lead to changes aimed at addressing the main impediments of regional integration in Central Africa. Is The Regional Integration in Central Africa in Question?: Jean-Marie Gankou and Marcellin Ndong Ntah BANGUI, January 21, 2010—The highly anticipated 10th summit of heads of State of the Central African Economic and Monetary Community (CEMAC), which took place January 15-17 in Bangui, Central African Republic (CAR), was marked by firm decisions on governance and enhanced regional integration within the seven-nation bloc. WorldBank: Regional Integration a Top Priority for Central Africa Bloc The revelation last year that US$25 million had been embezzled from the Bank of Central African States (BEAC) prompted member states to review CEMAC’s operations and impose sanctions where warranted. The most unexpected decision at the end of the Bangui summit was the departure from the so-called “Fort-Lamy consensus,” an informal agreement under which Gabon was granted the privilege of naming the central bank governor. CEMAC member countries will now take turns to pick the governor of BEAC. Thus Philibert Andzembe, the last Gabonese to hold the job, was replaced by Lucas Abaga Nchama of Equatorial Guinea. The summit also discussed at length the decision to prosecute officials suspected of involvement in the embezzlement scheme, which allegedly took place at the Paris, France office of the central bank. All have been removed from their positions while awaiting trial. Heads of state also requested an audit of all CEMAC institutions. Going forward, such audits will be mandatory and conducted annually by the union’s auditing branch based in Chad. Other issues related to regional integration were also discussed, particularly the upcoming inauguration in March 2010 of the regional parliament based in Equatorial Guinea, and the renewal of efforts to introduce a common CEMAC passport. The new, biometric passport is slated for circulation by the end of this quarter and will initially allow businesspeople, as well as members of government, to travel within CEMAC without a visa. The visa-free travel facility will be gradually extended to other groups of travelers within the union. Air CEMAC, another regional project, seems to be finally on its way to becoming a reality. The new airline is scheduled to take off later this year, thanks to a partnership with South African Airways. It will be based in Brazzaville, the capital of the Republic of Congo. Consensus on Need for Enhanced Regional Integration In many respects, the postponement of the CEMAC summit twice last year highlighted the teething pains of a regional organization for which integration has become essential.  During her recent visit to CAR and Cameroon, World Bank Vice President for the Africa Region Obiageli Ezekwesili made an impassioned plea for regional integration in Central Africa. Ms. Ezekwesili indicated that regional integration provides better opportunities to emerge from the crises and development challenges facing countries in the region. These include a decline in foreign investments as a result of the international financial crisis; the food crisis; the isolation of economies with markets too small to prosper in the current context; and the lack of large-scale infrastructure to position the private sector as the primary engine for job creation. WorldBank: Regional Integration a Top Priority for Central Africa Bloc  Central Africa presents a paradox: despite abundant natural and mineral resources, countries in the region have some of Africa’s worst social indicators, and characterized by their poor business environments (see the Doing Business 2010 report). Indeed despite an envious position at the heart of the Gulf of Guinea, CEMAC remains the least economically integrated region on the continent. Data compiled by the United Nations Economic Commission for Africa reveal that in 2006 trade within CEMAC represented only between 0.5% and 1% of the region’s total exchanges. In contrast, intra-community trade accounted for 5% of exchanges in the Common Market for Eastern and Southern Africa (COMESA), 10% in both the Southern African Development Community (SADC) and the Economic Community of West African States (ECOWAS), and 15% in the West African Economic and Monetary Union (WAEMU). WorldBank: Regional Integration a Top Priority for Central Africa Bloc World Bank Working Hand in Hand with CEMAC The World Bank is financing several integration-related projects within CEMAC, including the US$215 million Central Africa Backbone project, which will enable the region to access modern facilities provided by new communication technologies. Another large-scale Bank-funded regional project is the CEMAC Regional Transport and Transit Facilitation Project, which aims to create efficient transit corridors between Douala and Bangui on the one hand, and Douala and N’Djamena on the other. Estimated to cost US$680 million, this project, which is vital to the development of the CEMAC region, will receive a contribution of US$201 million from beneficiary states. This commitment is a fundamental step along the path to the development of true regional integration, which is essential for the economies of the zone. CEMAC member states are Cameroon, the Central African Republic, Chad, the Republic of Congo, Equatorial Guinea, Gabon, and São Tomé and Principe. WorldBank: Regional Integration a Top Priority for Central Africa Bloc Road map of regional integration The need for regional integration in African countries has been keenly felt since they gained independence, which was marked by the break-up of the old colonial federations. Their existing currency unit was broadly maintained in both West and Central Africa. The two monetary unions in the franc zone have been the bedrock of progress towards regional integration in other areas, with the creation of economic unions in 1994. During the 2000s, the economic performance of African countries in the franc zone ceased to be better than that of other countries on the continent and therefore needs to improve. At a time when sub-Saharan Africa seems to have found the key to economic growth, the advantage that regional integration would bring to countries in both unions needs to be exploited more effectively. FERDI :Regional integration: Why and how? Evaluate the potential gains from regional integration in African countries in the Franc Zone In November 2011, at the request of Ministers of Finance in the franc zone and the French Treasury, and in collaboration with the French Development Agency (AFD), Ferdi launched a study on “Evaluating expected gains from regional integration in African countries in the franc zone”. This is a priority area for Ferdi, which implemented the project by mobilising a large team of experts in areas as varied as trade integration, tax harmonisation and the institutional framework for integration, and monetary and financial integration. The report “Evaluating expected gains from regional integration in African countries in the Franc Zone”, prepared in cooperation with various African institutions responsible for regional integration, was presented at the meeting of Ministers of Finance in the Franc Zone in October 2012. Advantages of full regional integration The increase in growth from strengthening integration through the various channels considered in the study or on the basis of complete integration is estimated to be between 1.5 and 2 growth points per year. The study led to the publication of a book by Ferdi in 2013, Regional Integration for Development in the Franc Zone, followed by presentations to the WAEMU Commission in Ouagadougou (November 2013) and the CEMAC Commission in Yaoundé (February 2014). The research was also presented in Abidjan (November 2014) at the symposium Approfondissement de l’intégration régionale en Afrique de l’ouest et implications pour la Côte d’Ivoire [Extending regional integration in West Africa and implications for Côte d’Ivoire], organised in conjunction with the Ministry of the Economy and Finance of the Republic of Côte d’Ivoire. Partnership agreements were subsequently signed by Ferdi to strengthen cooperation with each of the two regional economic Commissions. FERDI :Regional integration: Why and how?     Options on the way forward Why support regional integration? A slowdown in economic activity in developed countries An urgent need to develop inter-African trade and for solidarity between African states. Strengthening regional integration is essential for: diversifying economies, integrating countries in the franc zone into global trade and responding to the risks of instability, food crisis, etc. increase governments’ capacity to implement policies in accordance with the public interest and improve governance.   How can regional integration be strengthened? A set of detailed recommendations in the following areas: monetary and financial integration commercial and tax integration extension of the common market and sectoral policies Success is conditional on: effective application of community legislation and strengthening of multilateral surveillance management of the risks of integration, by applying principles of subsidiarity and solidarity preservation of the unions’ achievements in the process of enlargement a strong political will and strengthening of the existing institutional framework Joint Initiatives on Regional Integration With the WAEMU and CEMAC Commissions Ferdi has signed a convention with WAEMU and CEMAC to provide support to the development of their research activities on regional integration and statistic collection.   With the Banque de France (BDF) (Paris, May 2014) What recommendations for the process of financial integration in Africa? Create a broad financial space offering more opportunities for funding and investment, enable economies of scale, increase competition, allocate capital to the most profitable projects and combine academic input on the topics with experience from practitioners in both the public and private sectors.   With the African Development Bank (AfDB) (Tunis, October 2013) Define a possible mechanism to support regional integration in Africa. The proposal is to allocate a regional budget based on an indicator of the need for regional integration developed for this purpose. The proposed index is the average of an index of the narrowness of the domestic market and of an index of the remoteness of external markets, the latter of which is adjusted for the quality of infrastructure. FERDI :Regional integration: Why and how? Chapter17 Promotion of wealth-generating activity, mobilization of internal tax revenues in the CEMAC zone. The Government was able to maintain a stable macroeconomic framework and sustain positive growth rates up to 2008 by implementing the PRSP adopted in April 2003. However, the overall growth rate was not up to the expected level necessary for drastic poverty reduction. Consequently, under the impetus of His Excellency PAUL BIYA, President of the Republic and in keeping with his policy of "Greater Achievements", which forms part of the long-term development vision, the Government has undertaken to revise the economic growth and poverty reduction strategy. This is proof of the will public authorities have to focus the strategy on the generation of wealth and on the creation of employment opportunities so as to guarantee a fair redistribution of the fruits of growth The growth and employment strategy paper (GESP) is also a testimony of the Government's will to continue efforts aimed at full achievement of the Millennium Development Goals (MDGs). It is one of the second-generation PRSPs, and so has been designed by the Government, following a dynamic and open process, involving full participation of the population at the grassroots, civil society organizations, and the private sector and development partners. The Cameroon Government expresses its deep gratitude to all of them for their support and diligence. To prepare the GESP it was necessary to realize some major projects, notably : formulation of an economic development vision by 2035, review of sector strategies, participatory consultations, review of statistical surveys and studies for the period running from 2001 to 2008, conduct with support from some partners of the third household survey (ECAM III), reporting on and costing MDGs, mapping out macroeconomic and budgetary guidelines through which a medium-term budgetary framework was designed in compliance with growth estimates by the time of full implementation of the strategy. The global economic crisis was considered in the preparation of the GESP. Strategies developed therein represent relevant solutions to the problems brought in by this crisis. Firmly considering the challenge of growth and creation of employment opportunities as being at the very centre of its actions in favour of poverty reduction, the GESP is henceforth, in accordance with the Paris Declaration, the reference framework of government policy and actions as well as the point of convergence for cooperation with development partners. It is hence a vector of the search for growth and redistribution of its fruits right down to the most vulnerable segments of the population with special emphasis on women and the youth. The GESP, which is the first phase of implementation of the long-term development vision, is an overall and integrated strategy paper, a springboard of all action that will be taken over the next ten years. Preparation of the GESP was, for all those who participated therein, a learning process aimed at continuous improvement. In this respect, the GESP has been designed to cover about ten years, but as a strategic planning paper, it is open to revision, as the need arises, so it can be tailored to the nation's socioeconomic trends and to international circumstances, through a repeated and participatory process. Now that the country has a reference document addressing the issue of growth, the challenge lies in its proper implementation. In this regard, the Government plans to speed up the reforms underway and take all the appropriate steps, so that improvement of economic performances should be translated into concrete results such as the creation of employment opportunities, poverty reduction, and visible improvement in the living conditions of the population. To overcome this challenge, the authorities plan to fully play their role while counting on the dynamism of the private sector, the involvement of civil society organizations, the mobilisation of the population and support from economic, technical and financial partners./- PRIME MINISTER, HEAD OF GOVERNMENT, PHILEMON YANG; August 2010 IMF Country Report No. 10/257 Cameroon: Poverty Reduction Strategy Paper Expanding the tax base Government revenues: a sustainable method of financing development Various components of fiscal space can be used to finance public goods (Heller, 2005): government revenues (tax and non-tax), internal and external finance (grants and loans, and money creation) are the prime source; improving the efficiency of public spending makes it possible to provide more public goods for the same expenditure and are a second major source in most African countries, albeit from a very low starting point; and lastly, in migrant-sending countries, remittances also contribute to financing public goods, generally at the local level. Tax revenues for financing public goods are characterised by stability and accountability. They are an underlying cause of high social costs in low-income countries (LICs) because they lead to a reduction in household income, particularly among the poorest. As opposed to Official Development Assistance (ODA) or non-tax revenues mobilised from natural resources (e.g. mining, various royalties), taxation provides governments with relatively stable and sustainable resources: tax revenues are not very contingent on external decisions and are not directly subject to fluctuations in commodity prices. This does not mean that they are insulated from the economic cycle or external shocks, even if, through VAT, excise duties or tariffs, they are largely based on final consumption, the smoothest macroeconomic aggregate. Unlike loans, tax revenues can be used to finance public goods without causing the public indebtedness that is likely to be affected by exogenous factors (e.g. exchange rates, interest rates). Due to the linkages between tax collection and the provision of public goods, taxation tends to enhance accountability, a factor in greater efficiency in public spending. The accountability linkage is, however, diminished by the use of collectors to mobilise most central tax revenues1 and thus by the indirect nature of the relationship between taxpayers and the state: local taxation offers more opportunities to establish such a relationship but this level of taxation is weak in most of SSA (Chambas, 2010; Brun et al., 2014). The optimal level of tax revenues corresponds to the point of equilibrium between the marginal advantage provided by public goods and services at the marginal costs of the various components of fiscal space. The specific function of tax revenues is to guarantee a regular and sustainable flow of public goods while establishing an accountability relationship that depends on the relevant taxation category. Tax reforms reduce the contribution of taxes that underlie the most significant distortions and thus lead to the lower collective cost of tax revenues. Accordingly, other things being equal, by increasing the optimal level of tax revenues, these reforms expand fiscal space. A similar effect is produced by improving the efficiency of public spending, another internal component of fiscal space. Cross boarder tax base Support from regional institutions for tax reforms Because of resistance both from pressure groups and within administrations, it is difficult to implement reforms at the national level, even those that from a technical perspective seem to be most important. For essential reforms, such as the radical broadening of the VAT base, regional authorities have a comparative advantage over national authorities. National tax administrations could be supported at the regional level in the areas in which they lack capacity – for instance, controlling specific activities (e.g. mines) and addressing profit-shifting through transfer prices, etc. Tax administration is undergoing profound changes, but recent reforms often stumble over poor management of tax information. Developing countries are devoting considerable resources to establishing integrated tax-information systems, but in most cases the full tax procedures elude any form of integrated information management. Moreover, the information obtained via central systems is often far removed from reality, and communication systems between customs and budget departments tend to be poor. As previously noted, these failures in the processing of information pose a considerable obstacle to tax transition. The processing of information is one of the most crucial to be included on the post-2015 agenda. During the last decade, most African countries engaged in tax-administration reforms, although these have not entirely borne fruit – faced with resistance, reformers were often compelled to make compromises that reduced the efficiency of the reforms. Shortcomings in the processing of tax information were also a major handicap in many countries. It is now a matter of urgency to move towards more efficient tax administrations. Measures Regional integration and cooperation on African continent This need of uniting nations had been the motive behind the creation of several cases of regional integration organization on African continent. The Economic Commission for Africa (E.C.A) of early days of independence had long envisioned this ideal regional integration and cooperation through its two main forerunner actions. The Lagos Plan for Action (L.P.A) of 1980 saw the creation of Economic Community of West African States and the Preferential Trade Areas in 1981 for East and Southern African States which later became the common markets for Eastern Africa (CO.M.ES.A). It was followed by the Economic Community of Central African States in 1993 together with the Arab Maghreb Union (AMU). All these regional integration organizations and those that were formed later on had a common aim and vision to lead to an African common market by 2025. In the Abuja Treaty was where initiatives of putting in place the African Organization Union (A.O.U) started and it was preceded by the creation of the African Union in 2001. The other important regional groups formed outside the Treaty were the West African Economic and Monitory Union (W.A.E.M.O) which ECOWAS grouped under C.F.A Zone and, the Economic Monitory Union of Central Africa (C.E.M.A.C). Within C.O.M.E.S.A, came the southern African Union (SACU) and the Southern African Development community (S.A.D.C) and the East African Community (E.A.C). It was remaining with what is known today as the Horn of Africa (H.O.A) countries which were grouped under the Inter-governmental Authority and Development (I.G.A.D). War on Terrorism in Africa: A Challenge for Regional Integration and Cooperation Organizations in Eastern and Western Africa Niyonkuru Fulgence* Social Administration, University of Development Studies, Public University, Ghana. Advances and Solutions Regional integration remains one of the solutions for boosting production by the manufacturing industry in Africa. This fact was unanimously acknowledged by participants in the panel discussion on “Competitiveness and Trade Integration”. The discussion was held on Tuesday, October 29, the second day of the eighth African Economic Conference (AEC) taking place in Johannesburg. During the panel discussion, Henri Atangana Onda, a researcher at the Yaoundé II University of Cameroon, introduced a report entitled “The effect of North-South and South-South trade on industrialization in Africa”. According to Atangana Onda, African countries have a comparative advantage in terms of the work factor. Between 1980 and 2009, the contribution of the manufacturing industries to Gross Domestic Product (GDP) rose slightly in North Africa: from 12.6 per cent to 13.6 per cent. However, it fell sharply in the rest of the continent: from 16.6 to 12.7 per cent. The speaker was basing his assertions on figures from the United Nations Economic Commission for Africa (UNECA) for 2013. Trade liberalization has exposed local industries in African countries to competition for which they were poorly prepared. Consequently, large sections of the manufacturing sector have disappeared during the last 20 years in Africa. That liberalization came too soon to those countries given their level of development. The speaker cited the difficulties facing industrialization in Africa. Referring to an analysis conducted by the African Development Bank (AfDB), he observed that the underperformance of industries is due especially to the lack of infrastructure, the energy gap, poor governance and fierce competition from products imported from emerging countries such as China. Trade with Asian countries leads to de-industrialization in some African countries. The market is flooded with poor quality manufacturing goods. In addition, the speaker stressed that South-South trade may also, in some circumstances, be a cause of de-industrialization for certain countries of the continent. He quoted the examples of South Africa and Nigeria. Those two “economic giants” could upset the balance of the manufacturing sectors in the countries in their regions unless regulatory mechanisms are implemented by the leaders of the Regional Economic Communities (RECs). The session also included the reports of Hopestone Chavula, responsible for economic affairs at the Economic Commission for Africa (UNECA). He spoke on the theme of “Trade policies, market structure and performance of the manufacturing sector in Malawi, 1967 to 2002”. The third subject of the discussion was raised by Joseph Parfait Owoundi. It concerned “Competitiveness and trade integration in the CEMAC countries: comparative advantages and contribution to the trade balance”. The discussion was chaired by Witness Simbanegabi, Head of Research at the African Economic Research Consortium. The African Economic Conference was organized jointly by the African Development Bank (AfDB), the United Nations Economic Commission for Africa (UNECA) and the United Nations Development Programme (UNDP). It continues until October 30. The conference brings together heads of State and experts in business and development from all over the world. They are discussing regional integration in Africa, and its role in strengthening the economic growth and well-being of the continent’s populations. The conference will also provide the opportunity to reflect on the efforts being made in various sectors and fields, such as finance, road transport, power pools, and management of water resources, tax convergence and the free movement of workers. AfDB : Regional integration, the solution for boosting industrial production in Africa Chapter 18 Strengthening international tax cooperation, Combating fraud, tax evasion and optimization. Accountability as a tool for fight against corruption Regarding tax collection, many developing countries face difficulties with respect to important premises for a well functioning tax administration, especially with respect to identifying and administering those citizens and firms that are liable to tax payments. Although there has been progress, tax administrations’ capacity to introduce and sustain e.g. well-functioning tax registers still pose severe difficulties in many developing countries. Problems of insufficient capacity may also occur due to the organizational set up of the tax administration and its relationship to the ministry of finance. In general, there are two approaches for the organizational set up of tax administration. The first option is where the ministry of finance itself assumes the tax administration function and departments within the ministry of finance collect taxes. The second option is a semi-autonomous revenue authority where tax administration is moved out the ministry of finance into a separate entity. Often, tax administration and collection by ministries of finance were considered inefficient and suffering from corruption and high compliance costs (see Fjeldstad/Moore, 2009). Therefore the creation of semi autonomous revenue authorities has been pursued in many developing countries mostly as part of comprehensive tax administration reforms as will be discussed in greater detail in Section 5. Additionally, unclear responsibilities regarding the collection and administration of specific types of taxes by different institutions can lead to inefficiencies and tax losses and require a reorganization of the tax administration. Typically, an organizational approach according to the functions of tax administrations is considered more efficient than one following different tax and revenue types. Addressing tax evasion and tax avoidance in developing countries Moreover, one has to bear in mind that tax administration and tax policy are intertwined spheres. Tax policy directly affects the costs and the organization of the tax administration. Additionally, the capacities of tax administration influence the way tax policy is implemented. Thus, both areas tax policy as well as tax administration have to be taken into consideration when designing successful tax reforms. Otherwise, the proper functioning of the overall system is affected. For this reason, the tax system should be aligned to the administrative and legal prerequisites of the respective country. Qualified, well trained and motivated tax officials are crucial for the collection of taxes and the performance of tax administration bodies as a whole. In order to motivate tax officials to work in accordance with the interests of the government and to reduce their vulnerability to corruption, attention has to be given to wages and other incentives. Addressing tax evasion and tax avoidance in developing countries Tax laws in many countries, especially in developing countries, changes rapidly, thus producing instability and low transparency of the tax code. As a result, complicated tax legislation and ongoing changes of the tax code confuse tax administrators and taxpayers alike. Different modes of evading tax obligations that violate national tax laws; these include misreporting and non-declaration of personal income or corporate profits to circumvent direct income taxation or tax obligations resulting from sales of goods and services. In this context, holding offshore financial accounts14 to conceal taxable income from tax authorities in the country of residence allows tax evaders to benefit from low or zero taxes abroad, exploiting bank secrecy and poor financial regulation abroad. The resulting tax revenue loss for developing countries is substantial: According to estimates reported by GFI, developing countries have lost $858.6 billion –$1.06 trillion in illicit financial outflows in 2006 (See also Baker, 2005). Along these lines, trade mispricing through faked invoices between colluding exporters and importers serves as a commonly used way to illegally transfer money from developing countries to financial accounts abroad usually with the purpose to evade taxes (GFI, 2010). In the past, developing countries like Cote d’Ivoire or Nigeria fell prey to substantial illegal capital outflows that where based on deliberate over-invoicing of imports or under-invoicing of exports (TJN Newsletter 2006, Vol.2(3)). VAT fraud: False statements of business transactions subject to VAT represents a type of tax evasion that has attracted increased attention in the course of broader adoption and rising rates of VAT or goods and services taxes (GST) in developing countries. For example, Sri Lanka which introduced the VAT system in 2002 had to incur major revenue losses (approximately 10 % of its net VAT receipts, see Keen and Smith, 2007) from a single case of VAT fraud. Fraudulent exploitation of the VAT system thereby takes a number of different forms and is carried out within as well as across national borders. All different forms of VAT fraud rely on the principle that all registered businesses are able to credit VAT expenses from purchasing input goods against VAT due on their sales. Bribery of tax officials: Developing countries that suffer from inefficiencies in the administration and enforcement of taxes are exposed to bribing activities by companies as shown in the case of Bangladesh where sugar importers evaded 90 % of excise taxes in collaboration with corrupt tax officials (TJN, 2003). All in all, it is important to note that the above described modes of tax evasion are not mutually exclusive but may also result as a consequence of one another. For instance, illicit financial flows that are directed to offshore accounts may result from proceeds that are realized through criminal activities such as the smuggling of goods or fraudulent manipulation of VAT records or bribery. As the preceding sections indicate, there is a large variety of reasons and factors contributing to a situation where tax evasion and avoidance occur on a large scale. Tax evasion and avoidance may derive from low tax morale, high compliance costs or may result in the course of firms’ endeavors to maximize profits by reducing their tax liabilities. Hence, in the same way as there is not only one type of tax evasion and avoidance, there is “no one size fits all” (GTZ, 2006a, p. 12) solution to counter tax evasion and avoidance. The practicability and the size of the window of opportunity depend on the specific situation and the predominant type of tax evasion and avoidance in a country. An effective strategy needs to address the underlying causes and most importantly - in the context of developing countries - needs to be tailored to the specific country environment. Any imbalance between a country’s absorptive capacity and the complexity reforms can either induce a failure of reform or a wasted opportunity. If, for example, the absorptive capacity is low, reform strategies should either not be too ambitious or be accompanied by extensive capacity development initiatives. If, on the other hand, the absorptive capacity is very high, simple reform strategies will likely be successful. Still, such a strategy would be unbalanced in the sense that more complex and more ambitious reforms could already be initiated. Addressing tax evasion and tax avoidance in developing countries Taxpayer education and taxpayer service The importance of taxes for the functioning of the state is not always apparent to the taxpayer. Similarly, individual tax liabilities as well as requirements to comply with the tax system such as filling out different tax forms might be unknown or difficult to understand. By means of taxpayer education and taxpayer service, citizens can be informed and educated about the tax system and be assisted in their attempts to comply with the tax system. Efforts in this direction have been conducted e.g. by the Rwandan Revenue Authority. Addressing tax compliance costs and administrative costs Apart from promoting voluntary tax compliance, governments in developing countries as well as development partners should concentrate on measures that reduce taxpayers’ costs of fulfilling their tax liabilities. In this regard, revenue authorities must be aware of the importance of acting service oriented and should therefore monitor customer satisfaction. Many revenue authorities shift towards a customer service orientation which reflects the growing awareness of the need to offer a quality service to the taxpaying public and to be responsive to public concerns. For instance, measures to simplify the taxpaying process and promoting service oriented tax administration include a reduction of the number of tax forms and officers assisting clients in filling out documents or the introduction of online services. Addressing tax evasion and tax avoidance in developing countries Corporate social responsibility Corporate social responsibility (CSR, also called corporate conscience, corporate citizenship or responsible business) is a form of corporate self-regulation integrated into a business model. CSR policy functions as a self-regulatory mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards and national or international norms. With some models, a firm's implementation of CSR goes beyond compliance and statutory requirements, which engages in "actions that appear to further some social good, beyond the interests of the firm and that which is required by law". The binary choice between 'complying' with the law and 'going beyond' the law must be qualified with some nuance. In many areas such as environmental or labor regulations, employers can choose to comply with the law, to go beyond the law, but they can also choose to not comply with the law, such as when they deliberately ignore gender equality or the mandate to hire disabled workers. There must be a recognition that many so-called 'hard' laws are also 'weak' laws, weak in the sense that they are poorly enforced, with no or little control and/or no or few sanctions in case of non-compliance. 'Weak' law must not be confused with soft law. The aim is to increase long-term profits and shareholder trust through positive public relations and high ethical standards to reduce business and legal risk by taking responsibility for corporate actions. CSR strategies encourage the company to make a positive impact on the environment and stakeholders including consumers, employees, investors, communities, and others. Wikipedia Forensic science as a tool to curb corruption practices The contribution/importance of Professional Forensic Accountant cannot be over emphasized, whether to the public sector or to the private sector. It has been observed that “Government spending has always been big business, but it has become so massive today that the public through its legislators is demanding to know whether the huge outlays of money are being spent wisely or whether they should be spent at all.” Officials and employees who manage public sector activities are by virtue of that duty, required to render adequate accounts of their activities to the public. The incidence of fraud continues to increase across private and public sector organizations and across nations. Fraud is a universal problem as no nations is immuned, although developing countries and their various states suffer the most pain. Forensic accounting is a rapidly growing field of accounting that describes the engagement that results from actual or anticipated dispute or litigations. “Forensic” means “suitable for use in a court of law”, and it is to that standard Forensic Accountants generally work. Forensic Accounting is an investigative style of accounting used to determine whether an individual or an organization has engaged in any illegal financial activities. Professional Forensic Accountant may work for government or public accounting firm. Although, forensic accounting has been in existence for several decades, it has evolved over time to include several types of financial information scrutiny. Employee and management fraud, theft embezzlement, and other financial crimes are increasing, therefore accounting and auditing personnel must have training and skills to recognize those crimes, both at the state level and the grassroots (local) level to better ensure the states prospect in the area of fraud prevention, deterrence, detection, investigation and remediation. In making reference outside the scope of this research to enhance better need of the service of forensic accounting in Kogi State is the news reports following the September 11 attacks depicted how terrorists used the international banking system to fund their activities, transfer money, and hide their finances, and signaled a need for investigators to understand how financial information can provide clues as to future threats. These events raised public awareness of fraud and forensic accounting. Forensic accounting includes the use of accounting auditing, and investigative skills to assist in legal matters. It consists of two major components. Litigations services that recognized the role of an accountant as an expert consultant, and investigative service that uses a forensic accountant’s skills and may required possible court room testimony. According to the definition developed by the Association of Institute of Certified Public Accountants (AICPA’s) forensic and litigation services committee, forensic accounting may involve the application of special skills in accounting, auditing, finance, quantitative methods, the law and research. It also involves quantitative skill to collect, analyze, and evaluate financial evidence, as well as the ability to interpret and communicate findings. Fraud includes all the multifarious means human ingenuity can devise that are resorted to by be individual to get an advantage over another by false suggestions or suppression of the truth. It includes surprises, tricks, cunning or dissembling, and any unfair way by which another is cheated (Black’s Law Dictionary, 1979). Forensic accounting is said to bring significant improvement in the quality of fraud detection and prevention. This study meant to help and remind the public sector organization of Kogi State, in the affected ministries to design an integrated approach to preventing and controlling fraud and corruption within the workplace through an establish service of Professional Forensic Accountants. HRMARS: Forensic Accounting: A Tool for Fraud Detection and Prevention in the Public Sector. How things are done now In recent times, series of fraud have been committed both in the public sector and private sector of the economy. These in no doubt are perpetrated under the supervision of the internal auditors of the organization. It suffices to say that the independent of the internal auditor is not guaranteed because he works as an employee of the government or organization. Then come the idea of external auditors, yet frauds are still being committed on a daily basis. The above scenario indicated that as more and more development both in the information Communication Technology (ICT) world and other fields, so fraudsters continue to groom their own tactics towards fraudulent practices. HRMARS: Forensic Accounting: A Tool for Fraud Detection and Prevention in the Public Sector. It now become pertinent that forensic accounting be introduced and practices since the external auditors do not or may not have the required training to be able to tackle modern frauds like white collar crimes such as security fraud, embezzlement, bankruptcies, contract disputes and possibly criminal financial transaction; including money laundering by organized criminals, also is the ability of the forensic accountant to provide litigation support and investigative accounting. These areas have become a complex area of concern for the accounting profession. HRMARS: Forensic Accounting: A Tool for Fraud Detection and Prevention in the Public Sector. Same causes produce the same effects Since much public corruption can be traced to government intervention in the economy, policies aimed at liberalization, stabilization, deregulation, and privatization can sharply reduce the opportunities for rent-seeking behavior and corruption. Where government regulations are pervasive, however, and government officials have discretion in applying them, individuals are often willing to offer bribes to officials to circumvent the rules and, sad to relate, officials are occasionally tempted to accept these bribes. Identifying such policy-related sources of corruption is obviously helpful in bringing it under control. The following sources have for some time been well known. Why Worry About Corruption? Paolo Mauro ©1997 International Monetary Fund February 1997 Trade restrictions are the prime example of a government-induced source of rents. If importing a certain good is subject to quantitative restriction (for example, only so many foreign automobiles can be imported each year), the necessary import licenses become very valuable and importers will consider bribing the officials who control their issue. More generally, protecting a home industry (such as plywood manufacturing) from foreign competition through tariffs creates a semi-monopoly for the local industry. Local manufacturers will lobby for the establishment and maintenance of these tariffs and some may be willing to corrupt influential politicians to keep the monopoly going. Studies have shown that a very open economy is significantly associated with lower corruption. In other words, countries tend to be less corrupt when their trade is relatively free of government restrictions that corrupt officials can abuse. * Government subsidies can constitute a source of rents. Studies show corruption can thrive under industrial policies that allow poorly targeted subsidies to be appropriated by firms for which they are not intended. The more such subsidies are available to industries, the higher the corruption index. * Price controls, whose purpose is to lower the price of some good below its market value (usually for social or political reasons), are also a source of rents and of ensuing rent-seeking behavior. Price controls create incentives for individuals or groups to bribe officials to maintain the flow of such goods or to acquire an unfair share at the below-market price. * Multiple exchange rate practices and foreign exchange allocation schemes lead to rents. Some countries have several exchange rates--one for importers, one for tourists, one for investors, for example. Differentials among these rates can lead to attempts to obtain the most advantageous rate, although this rate might not apply to the intended use of the exchange. Multiple exchange rate systems are often associated with anti-competitive banking systems in which a key bank with government ties can make huge profits by arbitraging between markets. Some countries have little foreign currency and distribute what they have through various schemes, with varying degrees of transparency. If, for example, state-owned commercial banks ration scarce foreign exchange by allocating it according to priorities established by government officials, interested parties may be willing to bribe these officials to obtain more than their fair share. * Low wages in the civil service relative to wages in the private sector are a source of low-level corruption. When civil service pay is too low, civil servants may be obliged to use their positions to collect bribes as a way of making ends meet, particularly when the expected cost of being caught is low. In addition to government regulations as an occasion for corruption, other reasons for corruption have been identified. * Natural resource endowments (oil, gold, exotic lumber) constitute a textbook example of a source of rents, since they can typically be sold at a price that far exceeds their cost of extraction and their sale is usually subject to stringent government regulation, to which corrupt officials can turn a blind eye. Resource-rich economies may be more likely to be subject to extreme rent-seeking behavior than are resource-poor countries. * Sociological factors may contribute to rent-seeking behavior. An index of ethnolinguistic fractionalization (societal divisions along ethnic and linguistic lines) has been found to be correlated with corruption. Also, public officials are more likely to do favors for their relatives in societies where family ties are strong. Consequences of Corruption Among the many disagreeable aspects of corruption is evidence that it slows economic growth through a wide range of channels. * In the presence of corruption, businessmen are often made aware that an up-front bribe is required before an enterprise can be started and that afterwards corrupt officials may lay claim to part of the proceeds from the investment. Businessmen therefore interpret corruption as a species of tax--though of a particularly pernicious nature, given the need for secrecy and the uncertainty that the bribe-taker will fulfill his part of the bargain--that diminishes their incentive to invest. Empirical evidence suggests that corruption lowers investment and retards economic growth to a significant extent. * Where rent seeking proves more lucrative than productive work, talent will be misallocated. Financial incentives may lure the more talented and better educated to engage in rent seeking rather than in productive work, with adverse consequences for the country's growth rate. * Of particular relevance to developing countries is the possibility that corruption might reduce the effectiveness of aid flows through the diversion of funds. Aid, being fungible, may ultimately help support unproductive and wasteful government expenditures. Perhaps as a result, many donor countries have focused on issues of good governance, and in cases where governance is judged to be especially poor, some donors have scaled back their assistance. * When it takes the form of tax evasion or claiming improper tax exemptions, corruption may bring about loss of tax revenue. * By reducing tax collection or raising the level of public expenditure, corruption may lead to adverse budgetary consequences. It may also cause monetary problems if it takes the form of improper lending by public financial institutions at below-market interest rates. * The allocation of public procurement contracts through a corrupt system may lead to lower quality of infrastructure and public services. * Corruption may distort the composition of government expenditure. Corruption may tempt government officials to choose government expenditures less on the basis of public welfare than on the opportunity they provide for extorting bribes. Large projects whose exact value is difficult to monitor may present lucrative opportunities for corruption. A priori, one might expect that it is easier to collect substantial bribes on large infrastructure projects or high-technology defense systems than on textbooks or teachers' salaries. Why Worry About Corruption? Paolo Mauro ©1997 International Monetary Fund February 1997 Alleviating corruption through modern tools Nine ways to use technology to reduce corruption 1 | Remember deterring corruption is the best solution A few years ago, I advised the people behind the Trade Route Incident Mapping System (TRIMS) in Nigeria - a crowd sourced whistle blowing system which allowed truckers and small traders stuck at border check points (some real, some artificial, set up to harass and extort bribes) to report corrupt officials using a mobile phone. There may have been no direct link to officials being punished, but there were stories of a deterrent effect: some truckers mentioned TRIMS and they were let go without being harassed for bribes. Hari Mulukutla, managing director, Stream House, New York, United States 2 | Use technological tools to develop institutional trust My observations in an east African country recently were that despite decent anti-corruption institutions, an active civil society and a relatively free press, corruption seemed to be ingrained. Leadership in government, media and NGOs seemed cynical. One of my recommendations was to use secure case management systems with audit trails and secure workspaces so investigators can trust these tools and that their work won’t be undermined or leaked. Hari Mulukutla 3| Automate tax collection Automation is playing an important contribution to reducing discretionary practices in tax collection. Taxpayers hoping to pay less and tax administrators hoping to earn more can easily lead to bribery and corruption in the tax office. In Afghanistan, we implemented an automated tax administration system that moved taxpayer information from being hidden in a desk drawer to being recorded electronically and only accessed by the people who need it. This helped reduce opportunities for corruption, built public trust in the tax system, and increased revenue collection from $250m to almost $2bn since 2004. Iker Lekuona, senior manager, Adam Smith International, Kampala, Uganda 4 | Share information across borders Corruption doesn’t stop at national borders. Sharing information internationally on aid, public contracts, or company ownership, for example through a public registry of beneficial owners, can be really powerful to compare, identify, and prosecute. Agreeing an open data standard also reduces discussions on which information should be public and this being different in different countries. In Ukraine, implementing the standard has led to 14% in savings. Georg Neumann, senior manager, Open Contracting Partnership, Washington DC, USA 5 | Digitise public services Due to the fact that there is a 40% unemployment rate in Kosovo, recruitment is very often prone to bribes. One way we are helping local governments to prevent corrupt practices by public service personnel is to put their entire recruitment process online. We’ve also used social innovation challenges and hackathons to build tools that show budget expenditures in real time. Shqipe Neziri Vela, manager of the Anti-Corruption Programme at UNDP Kosovo, Prishtina, Kosovo 6 | Take inspiration from other initiatives around the world From a UK point of view, I think the OCCRP, OpenCorporates and my Society really stand out as organisations who’ve used technology to prevent, detect and deter corruption. OpenCorporates, for example, pulled together a global register of companies, and partnered with Global Witness to do some great research into corruption in the jade trade in Myanmar. Steve Goodrich, senior researcher, Transparency International UK, London, UK 7 | Pay attention to local contexts Replicability is a tricky issue. I think mySociety and Fundación Ciudadano Inteligente have done a great job at creating tools that are easily adjustable to local contexts because they are very specific. The risk is sometimes with tools like Ushahidi that provide a great technology, but when implemented locally, people’s motivation for why they would or wouldn’t use the service is overlooked. Georg Neumann 8 | Be aware using technology to fight corruption is not risk free In countries where the state tightly controls the internet and other communication networks, it is possible that some governments could try to block or censor anti-corruption campaigns, particularly as many corrupt acts are often committed by state actors. Kwami Ahiabenu II, executive director, Penplusbytes, Accra, Ghana 9 | And remember technology doesn’t always democratise access In India, in order to access subsidised fertilisers and seeds farmers have to submit their land registration certificates which they have to obtain from the land registration department, providing ample opportunities for corrupt officers. The government of Karnataka initiated a project called ‘Bhoomi’ where technology was used to load all details about land ownership and copies of these documents could be obtained though an IT booth. However, lack of literacy meant that middlemen were still able to use the vulnerabilities of the service seeker to demand money. Professor Indira Carr, research professor of law, University of Surrey, Guildford, UK. Theguardian: Nine ways to use technology to reduce corruption Corruption has been around for a very long time and will be around in the future unless governments can figure out effective ways to combat it. This is not going to be easy. Chapter 19 Diversification of the economy by making it less vulnerable and competitive in the face of trade liberalization. Building our home industries (agriculture, industry, technology, etc) Economic growth is the most powerful tool to reduce poverty. However, many low-income countries are still confronted by major obstacles in expanding and diversifying their trade, and trade reform and liberalization have not always delivered the expected benefits in terms of trade expansion, growth and poverty reduction. Against this backdrop the international community has agreed to expand and improve aid for trade to help developing countries, particularly the least developed, build the supply-side capacity and trade-related infrastructure needed to expand their trade and to benefit from their integration into the world economy. Technology Transfer. Trade allows developing-country firms to access technologies that are essential for improving their productivity and competitiveness which will generate growth and employment opportunities, including for poor men and women.3 Particularly where trade is accompanied by foreign direct investment, it is likely to promote the transfer of skills and of innovation. Beyond this direct transfer of technology embodied in trade, or as spillovers from trade (Nordas et al., 2006), there is also an indirect contribution as trade serves to lower prices and hence the cost of accessing such embodied technologies. As the experiences of newly industrialised economies in Asia has demonstrated from the 1960s through to the 1990s, latecomers can – with the right preconditions and determinants – take advantage of the newest technological development and simply buy technology for their own industrial development at a relatively lower cost and less risk4 (Lin, 2007; UNIDO, 2007). OECD Journal on Development Trading Out of Poverty HOW AID FOR TRADE CAN HELP Globalisation of value chains. Trade and trade reform can help foster the global fragmentation of production processes in a number of ways: by promoting harmonisation around international technical standards to which firms in fragmented value chains must conform; by addressing the danger that restrictive rules of origin (designed to ensure that only imports from partners in bilateral or regional preferential trade agreements (PTAs) have preferential access) will disadvantage low-cost suppliers within the chain; and by encouraging trade facilitation, enabling suppliers to respond quickly to developments further down the value chain. Intellectual property rights (IPRs). Recent analysis from the OECD shows the positive link between IPR protection and increased transfers of technology-intensive goods, services and capital to developing countries, increasing the stock of inward foreign direct investment (FDI) by 1.6%. More importantly, the research shows a strong positive link between patent protection and innovation in developing countries (Lippoldt and Park, 2007). Trade and poverty reduction Economic theory tells us that trade should contribute directly to reduced poverty in developing countries through the process of factor-price equalisation, whereby the trade increases the returns to the most abundant factor of production, which in developing countries tends to be low-skilled labour.5 In fact, empirical studies are not unanimous on this issue; while some point to trade reducing inequality, others are more nuanced (Box 1).. OECD Journal on Development Trading Out of Poverty HOW AID FOR TRADE CAN HELP Given the benefits that ICT can bring to Small and Medium size Enterprises (SMEs), SMEs in most developing countries, such as in the Central-African region and Cameroon in particular still have been slow to adopt ICT as an integral part of their business operation tools. Meanwhile, our counterparts in developed countries are using advanced ICTs. One of the numerous causes of limited adoption is the well known existing lack of dynamism between ICT firms and the SMEs operating out of the ICT sector. This however because these ICT firms have not provided products and services tailored to SMEs in the past because demand from the SMEs has been low, partly due to unawareness of the importance of ICT in today's business settings. Conversely, their demand often turn to be low in part because ICT products available in the market are too complex, considered as an unnecessary luxury and thus expensive. The result in the past several years has been a vicious cycle of limited supply and limited demand that ultimately excludes SMEs from the benefits of ICT innovation. Foreign firms in both the import and export markets additionally add to competitive pressures, mainly if they react faster to improve their product, process, promotion, or distribution channels. This is the problem of the Digital Divide. When firms in developed countries adopt ICT, firms in developing countries lose out on the competition. This in turn can slow the growth rate of Small and Medium size Enterprises and hurt the economy as a whole, which is something that often happens unnoticed. ICT can thus play a very important role because it can help SMEs both create business opportunities and combat pressures from competition. Appropriate ICT can help SMEs cut costs by improving their internal processes, improving their product through faster communication with their clients, and better promoting and distributing their products through online presence and telesales. In fact, ICT has the potential to improve the core business of SMEs in every step of the business process. In addition, the most common way for the government to encourage ICT adoption by SMEs is through workshops and training seminars or forum with tailored content that strategically response to the targeted audience needs or at least proposes solutions that can help for their business growth, with enough focus on the core benefits. So, to encourage SMEs to adopt ICT, efforts first need to concentrate on convincing top management that implementing ICT can improve their business, whether through cost savings or enabling expansion to new markets. This is because these managers determine the overall strategy of the firm, and they make the decision whether or not to adopt ICT. Middle management are usually the ones to implement the ICT project and thus need to have a deeper knowledge of how to implement it, so their training should always include a mix of strategy and implementation skills. Frontline employees are the ones who will use ICT on a daily basis and, it is therefore more important to concentrate their training on the actual skills required than on the strategic benefits of ICT. Opening and liberalizing the economy Trade is central to economic growth and poverty reduction, with aid for trade providing a framework within which the opportunities of trade can be more fully realized. However, it is also important to acknowledge that a broad range of other policy actions will be needed in order for aid for trade to be fully effective. First, aid for trade needs to be backed by international co-operation to tackle the external impediments to trade, whether directly trade-related in the form of tariff and non-tariff barriers or indirectly trade-related as in areas such as government procurement and access to finance. The global financial crisis and its aftermath have made access to credit a particular concern. One aspect of international co-operation is the pursuit of greater coherence in the application of trade and aid policies of the advanced economies. Second, aid for trade needs to be backed by a range of complementary policies within developing countries. The benefits of a liberal trade regime will only be fully realised in an economy equipped to deal with adjustment. This calls for appropriate macroeconomic policies, efficient labour markets, a supportive system of education and training and a sound regulatory environment. Together, these measures facilitate the mobility of workers and the entry and exit of firms, which, in turn, enable labour and capital to move from declining to expanding areas of activity. Dealing effectively with adjustment also requires the provision of social safety nets for those, often the poorest, most disadvantaged by market opening. This may need to be targeted assistance, but where it is it should be transparent, time-bound, aimed at re-employing the displaced and compatible with any general safety nets. Building a competitive market What are the areas of focus? Pillars of a strong competitive market What does Africa have competitive advantage over? Globalisation certainly poses new questions as to the relation between size and development. On the one hand, globalisation is making all countries smaller relative to the relevant (world) market. By reducing the transaction costs associated with distance, new technologies have reinforced this process. The relative importance of large national markets has thus declined, and even larger economies are increasingly dependent on external conditions. This is also true in terms of macroeconomic variables, as capital mobility has reduced the effective autonomy that macroeconomic authorities enjoy even in large economies. But size has certainly not become an irrelevant factor in the current phase of globalisation. In this regard, it can be argued that small economies have both advantages and disadvantages, in particular disadvantages relating to economies of scale, less diversification and macroeconomic policy autonomy, but also –at least potential— sociological and political advantages in achieving greater social cohesion. The latter is important because these factors are generally recognised as important determinants of the investment climate and economic growth. Development in both trade and growth theories since the 1980s has shed doubt on these conclusions, by demonstrating that, instead of facilitating convergence in productivity and income levels, trade among asymmetric countries may well lead to an increase in income gaps, as technological advantages may be cumulative and polarisation will then be the rule rather than the exception. The essential factor in this regard is scale economies, both internal and external to firms. Thus, to the extent that small economic size implies that economies of scale and scope cannot be attained, higher production costs and an unfavourable competitive position will result. The factors underlying this result are diverse and affect both public and private sectors. Indivisibility of Public Goods and Infrastructure Services Most public goods and infrastructure services are usually characterised by their indivisibility. As a result, the cost of public services per capita is usually higher than in larger economies. Limitation of scale economies may also force states to provide –often on a subsidized basis– a wide array of goods and services that are now typically offered by private sectors in larger economies. Firm Size and Production Costs Private activities are faced with the same difficulties, because the smallness of the domestic market implies that economies of scale cannot be achieved. The new trade theory shows that trade flows in processed products –those more likely to promote industrialisation and growth– are determined by economies of scale and specialisation rather than by comparative cost advantages associated with factor endowments. Whereas economies of scale and scope may still be exploited in tradable sectors by specialising in a narrow range of products and designs – certainly at the cost of greater vulnerability to the external shocks that may affect the markets for those products—, this is not true of non-tradable sectors, for which the market is, by definition, domestic. To the extent that non-tradable goods and services are inputs for production in tradable sectors –including such activities as domestic financing and marketing services— the absence of economies of scale in the production of the former will spill over into the competitiveness of the latter. Moreover, economies of scale or of scope in tradable sectors may be difficult to attain. This is the result of minimum efficient size requirements even in highly specialised plants and the additional costs caused by a lack of complementary tradable activities (e.g., higher costs arising from the need to bring inputs from abroad, a lack of joint trading or advertising channels, less learning from the experience of other firms). The role of complementary activities and firms illustrates a further point: to the extent that economies of scale are external to firms, the agglomeration of production in a few locations would tend to be the rule, generating a spatial hierarchy in which small size is certainly a disadvantage. This point has long been made by regional economics and has recently been emphasised by the literature on economic geography. Market Structure, Employment and Adjustment Costs Smallness also determines production and market structures. Being mainly composed of small firms, the domain of viable production alternatives is naturally more limited in small economies. Small firms are also financially weak and tend to be viewed by financial agents as more risky borrowers. They are thus more vulnerable to shocks than larger enterprises, including those which compete with them in international markets. On the market side, high unit costs and small market size naturally tend to create monopoly situations. The size of labour markets matters too, and has adverse consequences for both suppliers and demanders. Because the pool of human capital is naturally limited, firms must compete for scarce labour skills and may have difficulty in finding the full range of skills they require in the labour market. On the other hand, specialised workers have very few employment alternatives. This is particularly acute when industries have to restructure. Thus, social costs associated with structural adjustment are not transitional in small economies, because alternative domestic employment is at best scarce, and at worst non-existent. Advantages of Small Size Small market size also has some microeconomic advantages, especially when it comes to diseconomies of scale associated with transaction costs. The smallness of the population involved promotes better information for economic partners (suppliers or customers) and thus reduces risks associated with information asymmetries and moral hazard. Reputation and peer pressure to behave according to established ethical standards is a partial substitute for regulation and law enforcement. Ceteris paribus, smallness also favours better social cohesion and facilitates the relationship between the state and its citizens: almost by definition, public policy is decentralised in a small democratic state and there is no great distance between policy makers and policy takers. Nevertheless, these advantages materialise only when governance conditions are guaranteed. Small Economies in the Face of Globalisation Third William G. Demas Memorial Lecture at the Caribbean Development Bank. Chapter 20 Follow-up measures taken at the Extraordinary Summit by the Program for Economic and Financial Reforms. Key financial reforms for the sub-region Economic and financial reforms now underway in the CEMAC countries have as their strategic aim the integration of the national economy with the world economy. Integration means not only increased market-based trade and financial flows, but also institutional harmonization with regard to financial policy, trade policy, legal codes, tax systems, ownership patterns, and other regulatory arrangements (Sachs and Warner, 1995). Economic reforms indicate a country necessary structural adjustment to external economic and financial events. These reforms include the function of country’s spending to the level parallel to their incomes and thereby reducing fiscal deficits. This requires gradual reduction in import and increase in export. These adjustments also require market change in order to make economy flexible. Economic and financial reforms were observed in various directions: institutional reforms which strategy objective is to develop an effective, professional, honest and transparent public service committed to the safeguarding of democratic principles. Do Economic Reforms Spur Bancarisation Rate in the CEMAC Region? Empirical Analysis: Gérard Tchouassi Anticorruption measures which the core objectives is to fight against corruption. The anticorruption measures administered in the CEMAC countries are aimed at reforming law enforcement and judicial systems, as well as the fiscal, administrative and public service sectors. Significant payroll raises for public servants employed in the ministries were carried out within a short time-frame in order to help fight economic crime and corruption. Liberal economic reform is one of the main goals of the economic policy of the CEMAC countries is to promote the development of private entrepreneurship by creating a favorable business climate. Economic and financial reforms are aimed at ensuring economic growth based on economic and financial liberalization, development of the private sector and extension of financial and banking services. Budgetary discipline - Cash discipline The BEAC formulates and implements the common monetary policy in the context of a fixed exchange rate against the euro, free capital movement between countries in the CEMAC, but remaining capital controls with non-CEMAC countries. As its operational framework, the BEAC formulates common monetary policy targets with the view to meeting the foreign exchange cover ratio established in the monetary cooperation agreement with France. However, liquidity management remains largely country-based due to the lack of integration of the money market. This has allowed the BEAC to apply differentiated reserves requirement ratios to CEMAC countries based on the liquidity situation of their respective banking sectors. Open market type operations in the form of deposits auctions are also used to absorb part of the excess liquidity. Central African Economic and Monetary Community: Financial System Stability Assessment, including Reports on the Observance of Standards and Codes on the following topics: Monetary and Financial Policy Transparency, and Banking Supervision The financial relations between the BEAC and CEMAC governments do not ensure a clear separation between money creation and budget financing . The policy objective formulated at the end of 1999 to phase out monetary financing (“avances statutaires”) to governments and to develop treasury bi ll markets has stalled due to lack of political will, and all the CEMAC countri es except one had recourse to the “ avances statutaires” as of end 2005. On the other hand, the growing fiscal surpluses in several countries have brought to the forefront the conditions at which the BEAC remunerates government deposits. This has prompted a review of the arrangements in place with a view to increase the attractiveness of the deposits at the BEAC. Monetary policy procedures and cash management practices by CEMAC governments are not well suited to the prevailing excess liquidity in the banking sector: • While the regional monetary program allows a coordination of monetary and fiscal policy, currently it is not used by the BEAC to assess the volume of liquidity to be absorbed, and there is no framework to assess the adequacy of international reserves to deal with oil sector shocks and determine a corresponding level of government savings (i.e., Funds for Future Generations). •The absorption of liquidity has declined. In particular, reduced mopping up operations were not fully compensated by an increase in required reserves. •Limited transparency in monetary policy implementation and the recourse to administrative measures hamper money market development . The governor of the BEAC decides on the use of instruments, at times without reference to clear rules, and transfers abroad have occasionally been subject to prior authorizations which are not contemplated in the exchange regulations. • The current situation of excess liquidity has made evident the inconsistency of CEMAC interest rates with those in the euro area . The BEAC’s deposit auction rate, which is the relevant policy rate given the current structural excess liquidity, is below the policy rate of the European Central Bank (ECB) Therefore, residents have an incentive to export capital, as evidenced by the large foreign exchange positions of the banks. There is also anecdotal evidence of widespread evasion of the requirement for the repatriation of export proceeds. The poor centralization of government balances at the BEAC (Box 1) has complicated liquidity management by the BEAC. Placement of deposits with local banks has contributed to the excess liquidity, as did the continued recourse of governments to the “avances statutaires” from the BEAC. Central African Economic and Monetary Community: Financial System Stability Assessment, including Reports on the Observance of Standards and Codes on the following topics: Monetary and Financial Policy Transparency, and Banking Supervision Chapter 21 Regular regional -level meetings for monitoring and evaluation Since the 1960s, African states have embraced regional integration as a vital mechanism for political cooperation and for pooling resources to overcome problems of small and fragmented economies. In building meaningful institutions for regionalism, however, Africans have faced the challenges of reconciling the diversities of culture, geography, and politics. As a result, African regional institutions are characterized by multiple and competing mandates and weak institutionalization. ADB Working Paper Series on Regional Economic Integration; Institution Building for African Regionalism, Gilbert M. Khadiagala No. 85 The creation of CEMAC was a very significant milestone in the regional integration process in Central Africa and was based on the ideas of promoting regional integration and effectiveness of policies throughout the region. Upon its creation, CEMAC set out to promote trade, establish a Central African common market and unite the inhabitants of the CEMAC region in three main phases which stretches over a period of 15 years from 1999-2014. The member states considered regional integration as a means to greater regional development and a way through which the regional economy will be integrated into the global economic system thereby giving it more economic power in the international arena. It is without doubt that CEMAC member states were influenced by economic theories of integration and the assumption that regional economic integration increases the level of private-sector investment, as well as the standards of living of the average population and transforms the region. Also, the assumptions that integration has a positive impact on the gross national product of all its member states through an increase in the size of the markets, the efficiency of institutions within member states, and an increase in economies of scale has continuously influenced these Central African states to strive for regional integration. Additionally, Viner’s customs union theory suggests that the elimination of tariffs through integration will not only increase the market size but it will also lead to trade creation and increase the degree of trade which occurs within the region. THE HISTORY AND STRUCTURE OF CEMAC The idea of continentalism that was captured in the OAU pervaded the first decades of the post-colonial era because most of the security threats to African states emanated from neighbouring countries and subregions. At this time, African countries defined security primarily in terms of the absence of threats to the principles of sovereignty, physical components of territory, and the consolidation of statehood. Although border wars and subversive activities occurred in the Horn of Africa and some parts of North and West Africa, the OAU’s system of interstate norms and practices laid the solid foundation that permitted most African states to consolidate their independence and strengthen internal dimensions of statehood and nationhood (Zartman 1967). In addition, through international and regional bodies, the OAU also played a significant role in mobilizing against minority regimes in Southern Africa, a process that was concluded in the 1990s. In the economic realm, as will be discussed below, the OAU in collaboration with the UNECA made some efforts, through the Lagos Plan of Action of 1980 and the Abuja Treaty of 1991, to start dialogue on continental economic integration using subregional organizations. ADB Working Paper Series on Regional Economic Integration; Institution Building for African Regionalism, Gilbert M. Khadiagala No. 85 By the 1980s, continental institutions had produced remarkable stability among the African state system, defying those who had conjured up images of the disintegration of colonially-created states. Despite the OAU’s record in forging a collective security system for Africa, the assumptions underlying continental institution-building faced challenges from internal pressures within African states. The OAU had evolved mechanisms for dealing with external sources of threats to territory, but not internal convulsions within its member states. Thus, the centrifugal forces of ethnicity and regionalism wrought the civil wars, political instability, and state collapse that were to characterize the African security landscape starting in the late 1980s. Internal strains also coincided with the global forces that propelled democracy, participation, accountability, and good governance to the forefront of African politics and security. ADB Working Paper Series on Regional Economic Integration; Institution Building for African Regionalism, Gilbert M. Khadiagala No. 85 The coalescence of internal and external pressures forced a re-evaluation of the continental institutions tasked with managing the new strains and challenges. Given the increasing dissatisfaction with the OAU’s role in responding to Africa’s emerging threats, there were new initiatives by African leaders in civil society organization to evolve novel institutions that would balance the problems of democracy, security, stability, and economic development. At the center of these efforts was the African Leadership Forum (ALF) organized under the direction of former Nigerian President Olusegun Obasanjo to reform OAU principles to reflect changing needs and priorities. In the early 1990s, the ALF articulated ambitious proposals under the rubric of the Conference on Security, Stability, and Development Cooperation in Africa (CSSDCA) that would guide future continental institution-building (Zartman and Deng 2002). The escalation of civil wars in Liberia, Somalia, and Sierra Leone strengthened the momentum for institutional reforms to boost African capacity for intervention in internal conflicts. Initial attempts at reforms culminated in the 1993 OAU Mechanisms for Conflict Prevention, Management, and Resolution that were adopted in Cairo to give the Secretariat more power to manage problems related to weak and collapsing states. Although reflecting the spirit of the CSSDCA, the new mechanisms were inadequate in saving the OAU from obsolescence, particularly since subregional institutions were also beginning to take greater roles in the security arena (Touray 2005). ADB Working Paper Series on Regional Economic Integration; Institution Building for African Regionalism, Gilbert M. Khadiagala No. 85 However, since the OAU had also not been very effective in achieving intended objectives, it was high time that Africa embarked on a transformation towards stronger unity. It was on such grounds that African leaders finally adopted the Sirte declaration, which approved the transformation of the Organization of African Unity into an African Union (Khamis 2008, 94). To lend a participatory flavor to the AU, its framers came up with new institutions such as the Pan-African Parliament (PAP); the Economic, Social, and Cultural Council (ECOSSC); the African Court of Justice; and the Panel of the Wise. Consistent with the long-term objective of helping to foster African economic integration, the AU Constitutive Act pledged to build on the previous Abuja Treaty to use subregional organizations for the creation of an African Economic Community (AEC). Also underscoring Africa’s determination for development and integration, the continental strategic framework and vision for Africa’s renewal, the New Partnership for African Economic Development (NEPAD), sees subregional organizations as the fundamental building blocks needed to achieve its multifaceted objectives. Apart from UDEAC, the Economic Community of the Great Lakes Countries (CEPGL) was established in Central Africa in the mid-1970s comprising Burundi, Rwanda, and Zaire (now the Democratic Republic of Congo). Efforts to merge the CEPGL and UDEAC failed. In the early 1980s, building on the momentum generated by the Lagos Plan of Action for continental integration, Gabon led initiatives to establish a more comprehensive regional institution that became the Economic Community of Central African States (ECCAS). Its members were made up of CEMAC and CEPGL participants plus Angola, São Tomé and Principe, and Equatorial Guinea. In October 1983, as part of the implementation of continental initiatives, ECCAS members signed a treaty to establish the institution in Libreville, Gabon (Awoumou 2008). Currently, ECCAS has 11 members, including Angola, Burundi, Cameroon, Central African Republic, Chad, Democratic Republic of Congo, Republic of Congo, Equatorial Guinea, Gabon, Rwanda, and São Tomé and Principe. From the outset, ECCAS faced problems typical of most African regional institutions, notably the competitive and duplicative nature of regional integration. The multiplicity of regional integration institutions is seen in the fact that most of the members of ECCAS are also members of CEMAC and CEPGL: Angola and the DRC are members of ECCAS and SADC; Burundi and Rwanda are members of ECCAS, CEPGL, and the EAC. These institutional overlaps have limited the capacity of established institutions to foster collective efforts toward effective harmonization and integration (Gankou and Ntah 2008). More critically, even though ECCAS is the largest regional institution in Central Africa, CEMAC with only six member countries, has advanced further toward regional integration because it has established more effective institutions such as coordinated and preferential trade reforms; a common currency zone known as the Communuate Financier de l’Afrique (CFA); a regional central bank; and a regional development bank (Gankou and Ntah 2008). Paradoxically, the AU has recognized ECCAS, rather than CEMAC, as the foundation for the AEC in Central Africa. ADB Working Paper Series on Regional Economic Integration; Institution Building for African Regionalism, Gilbert M. Khadiagala No. 85 Objectives and Mandates The overriding mandate of ECCAS is to promote regional economic cooperation and to ultimately establish a Central African Common Market. ECCAS has set out the following priorities: (i) Development of the capacities to maintain peace, security, and stability as the prerequisite for economic and social development; (ii) Development of physical, economic, and monetary integration; (iii) Development of a culture of human integration; and (iv) Establishment of an autonomous financing mechanism for the region (ECCAS 1983, 3). To realize these objectives, ECCAS has promoted policy reforms, including the removal of restrictive trade practices, streamlining of customs procedures, increased surveillance of macroeconomic policies, and greater fiscal discipline. In addition, several of the key ECCAS mandates include promoting harmonious cooperation and self-sustained development, and gradually eliminating obstacles between member states to the free movement of persons, goods, services, and capital. In recognition of the many landlocked states in the region, the ECCAS treaty gives prominence to the rapid development of landlocked states, island states, and semi-landlocked states. Over the years as conflicts have proliferated in Central Africa, ECCAS has added the mandate of promotion of peace and security. Like most African regional organizations, the ECCAS treaty puts more emphasis on economic cooperation than mainstream integration. This approach is consistent with the traditional linear pattern of integration that proceeds from FTAs, common markets, and economic unions (ECCAS 1983). ADB Working Paper Series on Regional Economic Integration; Institution Building for African Regionalism, Gilbert M. Khadiagala No. 85 … Mile stones for economic growth Africa has major development aspirations in the broader context of a global and continental economic development agenda. This calls for substantial financial resources at a time when the global development finance landscape is changing, from a model centred on official development assistance and the coverage of remaining financing needs through external debt, to a framework with greater emphasis on the mobilization of domestic resources. The Economic Development in Africa Report 2016 examines some of the key policy issues that underlie Africa’s domestic and external debt, and provides policy guidance on the delicate balance required between financing development alternatives and overall debt sustainability. This report analyses Africa’s international debt exposure and how domestic debt is increasingly playing a role in some African countries as a development finance option, and also examines complementary financing options and how they relate to debt. Economic Development in Africa Report 2016: UNCTAD Following debt relief under the Heavily Indebted Poor Countries Initiative and Multilateral Debt Relief Initiative over the past two decades, external debt in several African countries has rapidly increased in recent years and is becoming a source of concern to policymakers, analysts and multilateral financial institutions. While Africa’s current external debt ratios currently appear manageable, their rapid growth in several countries is a concern and requires action if a recurrence of the African debt crisis of the late 1980s and the 1990s is to be avoided. In 2011– 2013, the annual average external debt stock of Africa amounted to $443 billion (22.0 per cent of gross national income (GNI)). Africa’s external debt stock grew rapidly, by on average 10.2 per cent per year in 2011–2013, compared with 7.8 per cent per year in 2006–2009. The burgeoning debt of several African countries may be explained by the fact that they currently have better access to international financial markets, as Africa has registered robust levels of economic growth over the past decade. In this regard, investors are seeking better yields and higher rates of return1 based on the perceived risk of investing in Africa (given low-yield asset investment in advanced countries). The rise of other developing countries, particularly the group of Brazil, China, India, the Russian Federation and South Africa, commonly known as the BRICS countries, has also opened up new sources of external finance that African countries may take advantage of, often without the imposition of conditionalities. As a result of this favorable external environment, some African countries have successfully issued sovereign bonds since the mid-2000s. However, the favourable environment that contributed to the decline in debt ratios has changed. For instance, risks associated with commodity exporters have risen, and their borrowing costs have increased sharply. Economic Development in Africa Report 2016: UNCTAD In 2015, the adoption of two important United Nations resolutions, endorsed by world leaders, marked a milestone in terms of setting the international agenda for development in the years to come. The 2030 Agenda for Sustainable Development sets the Sustainable Development Goals that countries aspire to achieve in the next 15 years, and the Addis Ababa Action Agenda (A/RES/69/313), an outcome of the Third International Conference on Financing for Development, held in Addis Ababa in July 2015, sets the agenda and means of implementation for development finance. Both resolutions contain interrelated goals and commitments on sustainable financing for development, which have abearing on Africa’s development. These resolutions reflect a shift in emphasis from global development finance based on a model predominantly centred on official development assistance to a new global framework that places greater importance on domestic sources of finance, while maintaining public finance as a fundamental basis for achieving the Sustainable Development Goals. This poses an important financing challenge for African Governments; it is estimated by various sources that the required investment to finance the Goals in Africa could amount to between $600 billion and $1.2 trillion per year (Chinzana et al., 2015; Schmidt-Traub, 2015; United Nations Conference on Trade and Development (UNCTAD), 2014). Africa’s public budgetary resources are inadequate to address this need, and development partners will need to share the burden. Economic Development in Africa Report 2016: UNCTAD Second, it may no longer be presumed that external assistance, whether concessional debt or grants, will continue to play a key role in financing poverty reduction, the Sustainable Development Goals and growth-enhancing programmes in the foreseeable future. With recurring global financial crises and increased fiscal austerity, concerns have emerged that traditional donor funds may become more scarce and, therefore, having sufficiently liquid domestic bond markets is becoming increasingly unavoidable. Development challenges have also evolved, with the donor community paying increasing attention (and thus devoting increasing resources) to issues such as climate change and disaster prevention, which did not feature prominently in the development agenda a decade ago (United Nations Economic Commission for Africa, 2015). Economic Development in Africa Report 2016: UNCTAD Third, some African countries have recently transitioned to middle-income status (World Bank, 2016a). Concessional financing from the soft windows of multilateral development banks is therefore likely to be phased out in the future, as development partners divert more budgetary resources towards the poorer and more vulnerable countries. In other words, a transition to middle-income status means that financing becomes more expensive for such Governments, which have to rely more extensively on non-concessional or less concessional public and private financing sources. Economic Development in Africa Report 2016: UNCTAD Fourth, as many African countries are commodity dependent, external debt sustainability is also subject to the boom and bust cycles of international commodity markets and the associated fiscal squeeze countries experience when expected revenues fall. The current collapse in commodity prices provides evidence of this. The apparent end of the upward phase of the commodity price super cycle has translated into lower revenues from Africa’s commodity exports. In short, Africa needs to be less dependent on volatile commodity markets. Economic Development in Africa Report 2016: UNCTAD Fifth, the global economic outlook remains gloomy, as fiscal austerity underpins the deceleration in growth in the eurozone, and China is shifting to a growth strategy that implies lower but more sustainable growth rates and a rebalancing of economic activity away from investment and manufacturing towards consumption and services. Manufacturing activity and trade also remain weak globally, reflecting not only developments in China, but also subdued global demand and investment more broadly, which could have a negative effect on Africa’s development prospects. The recent instability in China’s economy will most likely translate into lessened demand for African commodities, lower lending volumes and possibly higher interest rates. Against this backdrop, Africa must critically assess its capacity to tackle its significant development challenges in light of its development finance requirements. This entails a redoubling of efforts to harness potential and innovative sources of finance, including those that may come from the private sector, such as through public–private partnerships, while also tackling rising levels of debt. Africa and its partners will also need to revisit existing debt sustainability frameworks. Debt sustainability is critical for Africa as it seeks to implement the Addis Ababa Action. Agenda, achieve the Sustainable Development Goals and sustainably transform the continent. Economic Development in Africa Report 2016: UNCTAD Projecting development Several important international developments occurred in 2015 that will have significant implications for the scale of Africa’s financing needs and debt sustainability. In September 2015, the international community adopted the Sustainable Development Goals. African Member States have thereby committed to implementing national and regional development programmes in the next 15 years that aim to contribute to achieving the 17 Goals and 169 targets. Compared with the eight Millennium Development Goals and 21 targets, this international engagement is a far more ambitious development endeavour that will necessitate substantial financial resources. Most of the studies cited in this section highlight the difficulty of estimating financing needs in Africa related to the Sustainable Development Goals. The studies vary in methodologies and underlying scenario assumptions. Given the complexity, scope and differences in methodology, it is difficult to make a direct comparison between the estimates presented in (table 1). A recent analysis of available sector studies by Schmidt-Traub (2015) shows that incremental spending needs for achieving the Sustainable Development. Economic Development in Africa Report 2016: UNCTAD Goals in low-income countries and lower middle-income countries2 may amount to $1.2 trillion per year ($342 billion–$355 billion for low-income countries and $903 billion–$938 billion for lower middle-income countries). For 2015–2030, this corresponds to 11 per cent of gross domestic product (GDP), measured using market exchange rates. Schmidt-Traub (2015) does not provide estimates by region. However, using the estimates for all low-income countries to estimate the incremental costs for achieving the Sustainable Development Goals in African low-income countries gives a total of $269 billion–$279 billion per year (the share of GDP of African low-income countries in GDP of all low-income countries is78.5 per cent). Similarly, using the estimates for all lower middle-income countries to estimate the incremental financing needs related to the Sustainable. Development Goals in African lower middle-income countries gives a total of $345 billion–$359 billion per year. In total, therefore, the incremental costs of financing the Sustainable Development Goals in Africa may amount to $614 billion–$638 billion per year. Chinzana et al. (2015) focus on Goal 1 (end poverty) and estimate the level of additional investment that Africa will require to meet the Goal, assuming that savings, official development assistance and foreign direct investment remain at current levels, given that Africa will require a GDP growth rate of 16.6 per cent per year in 2015–2030 to achieve Goal 1 by 2030. Based on Africa’s nominal GDP in 2015, this corresponds to an investment–GDP ratio of 87.5 per cent per year ($1.7 trillion) and a financing gap–GDP ratio of 65.6 per cent per year ($1.2 trillion). However, the results vary widely across subregions and individual countries and based on levels of development. Economic Development in Africa Report 2016: UNCTAD Preliminary forecasts by UNCTAD show that total investment needs at a global level to achieve the Sustainable Development Goals could reach $5 trillion–$7 trillion per year during the 15-year delivery period (UNCTAD, 2014). Investment needs in key sectors of developing countries related to the Goals could reach $3.3 trillion–$4.5 trillion per year for basic infrastructure (roads, rail and ports; power stations; and water and sanitation), food security (agriculture and rural development), climate change mitigation and adaptation, health and education. At current investment levels (both public and private) of $1.4 trillion per year in Sustainable Development Goals-related sectors, an annual funding gap of up to $2.5 trillion would remain in developing countries. Based on Africa’s current share of nominal GDP in GDP of developing countries (around 8.4 per cent, based on UNCTADStat figures for 2013), this implies an annual funding gap of up to $210 billion in African countries. This is likely a conservative estimate for African countries; given that their share of GDP is low and that their infrastructure deficit is higher than that of most of the other developing countries, their share of resources should be much higher. The World Bank (2012) estimates that investment needs in infrastructure alone amount to $93 billion per year in Africa. Average private sector participation in current infrastructure investment in developing countries is considerably lower than that in developed countries and may not address existing investment needs without significant upscaling (African Union et al., 2010). In 2015, the African Development Bank initiated the infrastructure fund Africa50, which aims to increase the level of investment funds channelled into national and regional projects in the energy, transport, information and communications technology and water sectors. For example, the Fund intends to mobilize over $100 billion for infrastructure development, from the stock market, African central bank reserves and African diaspora, and will target lending to the private sector to enhance their participation in the development of the economy. This will help develop Africa’s infrastructure by lending to high-return infrastructure development investments to unlock its economic potential. Economic Development in Africa Report 2016: UNCTAD Data from the Programme for Infrastructure Development in Africa and Africa Infrastructure Country Diagnostic study show that African countries lag behind other developing regions in terms of measures of infrastructure coverage, such as road, rail and telephone density, power generation capacity and service coverage. While lower middle-income countries and resource-rich countries could meet their infrastructure needs with an attainable commitment of 10–12 per cent of GDP, low-income countries need to devote 25–36 per cent of GDP (World Bank, 2015b). While infrastructure investment needs are already large, including requirements related to the other Sustainable Development Goals raises this number higher. Estimates made prior to the United Nations Conference on Sustainable Development, held in Rio de Janeiro, Brazil in June 2012, determined that Africa would require close to $200 billion per year to implement sustainable development commitments under the social, economic and environmental dimensions (United Nations Economic Commission for Africa, 2015). Economic Development in Africa Report 2016: UNCTAD Measurable targets African leaders committed in 2013 to implementing the continental development vision in Agenda 2063 (box 1), followed in January 2015 by the adoption of a first 10-year plan of action for Agenda 2063. Agenda 2063 sets out seven aspirations for Africa and emphasizes that it needs to become self-reliant and finance its own development while building accountable institutions and States at all levels (African Union, 2015). An important objective is for African countries to finance their development through the mobilization of domestic resources (savings and taxes), accompanied by a deepened and enhanced use of capital markets (both equity and debt), while maintaining debt levels within sustainable limits. Box 1. Agenda 2063: The Africa We Want Agenda 2063 delineates the vision of African leaders of “an integrated, prosperous and peaceful Africa, driven by its own citizens and representing a dynamic force in the international arena” (African Union, 2015). It serves as a road map for Africa’s development until 2063 that is committed to achieving the following seven aspirations: • A prosperous Africa based on inclusive growth and sustainable development • An integrated continent, politically united based on the ideals of pan-Africanism and the vision of Africa’s renaissance • An Africa of good governance, democracy, respect for human rights, justice and the rule of law • A peaceful and secure Africa • An Africa with a strong cultural identity, common heritage, values and ethics • An Africa whose development is people-driven, relying on the potential of African people, especially its women and youth, and caring for children • Africa as a strong, united, resilient and influential global player and partner Agenda 2063 calls for strengthening domestic resource mobilization, building continental capital markets and financial institutions and reversing illicit flows of capital from the continent, with a view to achieving the following by 2025: • Reducing aid dependency by 50 per cent • Eliminating all forms of illicit flows • Doubling the contribution of African capital markets in development finance • Rendering fully operational the African Remittances Institute • Reducing unsustainable levels of debt, heavy indebtedness and odious debt • Building effective, transparent and harmonized tax and revenue collection systems and public expenditure. M$E systems Expected outcomes Accountability ECONOMIC TRANSFORMATION OF THE CENTRAL AFRICAN SUB-REGION MIRAGE and SEDUCTION