REPORT OF THE STUDY ON OPERATIONAL MODALITIES OF THE COMESA FUND

Davyson B Marape

Consultant

OCTOBER 2006

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TABLE OF CONTENTS

Pages

TABLE OF CONTENTS…………………………………………………….. 2-3

ABBREVIATIONS AND ACRONYMS…………………….…………… 4

PREFACE…………………………………………………………………………. 5

EXECUTIVE SUMMARY……………………………………………………. 6-9

CHAPTER ONE : BACKGROUND……………………………………. 10-12

Introduction……………………………………………………………………………………….10-11

Studies Done for Regional Integration Budget Support Operational Modalities ……………………………………………………….

11-12

Outline of the Report…………………………………………………………………………12

CHAPTER TWO: EXPERIENCES OF SIMILAR FUNDS……. 13-30

ECOWAS Fund/ ECOWAS Regional Development Fund…………………… 13-16

Institutional and Strategic Reform of ECOWAS Fund………………………. 13-14

Project Financing………………………………………………………………………………..15

The Compensation Fund……………………………………………………………………..16

The West African Economic and Monetary Union……………………………….17-24

Operational Modalities for the Regional Integration Support Fund……………………………………………………………………………………….

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The Compensation Fund …………………………………………………………………….20-23

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The Regional Agricultural Development Fund………………………………………….23-24

The African Development Fund……………………………………………………………24-29

Project Financing………………………………………………………………………………………. 26

The Development Budget Support Lending…………………………………………….. 26-29

PTA Bank……………………………………………………………………………………………………

29-30

CHAPTER THREE: PROPOSALS FOR THE OPERATIONAL MODALITIES OF THE COMESA FUND……………..31-45

Resource Mobilisation………………………………………………………………………………… 31

Contributions…………………………………………………………………………………………….. 31

Other Sources of Finance…………………………………………………………………………..31-34

Budget Support/ Compensation Fund……………………………………………………… 34-37

Eligibility Criteria………………………………………………………………………………………. 35

Procedures for Accessing Compensation Fund………………………………………… 35-37

Performance Monitoring……………………………………………………………………………. 37

Infrastructure Development Fund……………………………………………………………. 37-42

Eligibility Criteria………………………………………………………………………………………..38

Lending Policies and Procedures…………………………………………………………………38-41

Repayment Terms……………………………………………………………………………………… 41

Revolving Nature of the Fund…………………………………………………………………… 42

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Organisational and Management Structure……………………………………………… 42-43

The Committee……………………………………………………………………………………………42

The Manager……………………………………………………………………………………………….43Cooperation of the Fund With Other Financial Institutions and Organisations………………………………………………………………………………………………43-45

CHAPTER FOUR: CONCLUSION………………………………………………46-47

ANNEXES….…………………………………………………………………………………………………….48-69

REFERENCE LIST…………………………………………………………………………………………70-71

ABBREVIATIONS AND ACRONYMS

ADB African Development BankADF African Development Fund BOAD West African Development BankCIF Cost Insurance and FreightCOMESA Common Market for Eastern and Southern AfricaCPA Country Performance AssessmentCPIA Country Policy and Institutional AssessmentCPR Country Portfolio RatingDBSL Development Budget Support Lending

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EBID ECOWAS Bank for Investment and Development ECOWAS Economic Community for West African StatesERDF ECOWAS Regional Development FundERIB ECOWAS Regional Investment BankIM Initiating MemorandumNDP National Development PlanPBL Policy Based LendingPRSP Poverty Reduction Strategy PaperPTA Preferential Trade AreaRIBS Regional Integration Budget SupportRISF Regional Integration Support FundUA Unit of Account which is equal to the SDR of the

International Monetary Fund. UEMOA West African Economic and Monetary Union

PREFACE

In carrying out this study, I benefited greatly from discussions I held with officials of various international organizations. In particular, I owe a debt of gratitude to ECOWAS Regional Development Fund in Lome, Togo, the West African Economic and Monetary Union in Ougadougou, Burkina Faso, the African Development Fund in Tunis, Tunisia and the COMESA Secretariat in Lusaka, Zambia.

I should point out that the views expressed in this report are not for the institutions mentioned above. In this regard, I take the responsibility for whatever errors are contained in the report.

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EXECUTIVE SUMMARY Introduction

This study has been carried out in response to the decision of the Nineteenth Meeting of the Council of Ministers. The Council decided that the COMESA Secretariat should work out operational modalities of the COMESA Fund. The study has undertaken literature review and looked at the experiences of similar Funds. In light of the experiences of similar Funds, the study makes specific proposals regarding the operational modalities of the COMESA Fund. The study also proposes the urgent need for the introduction of a community levy as a way of mobilizing the much needed financial resources for financing projects, budget support and administrative expenses of COMESA institutions.

Background

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The COMESA Fund is made up of the Base Fund and the General Fund. Member states contribute to the Base Fund while the cooperating partners contribute to the General Fund, which will be leveraged by the Base Fund. The COMESA Fund is divided into two windows, one is for financing infrastructural development and the other window is for budgetary support / compensation for those member states experiencing revenue loss as a result of implementing the COMESA trade liberalisation programme. For the Fund to be operational, seven ratifications are required and to date, five member states have ratified the Protocol for the Fund.

Studies Undertaken for the Regional Integration Budget Support (RIBS) Operational Modalities

The studies which were undertaken for Regional Integration Budget Support (RIBS) proposed eligibility criteria based on stringent conventional conditionalities which are applied by development financial institutions for development budget support lending for financing economic and institutional reform programs. These studies also proposed resource allocation system based on estimated revenue loss. This study suggests that the eligibility criteria for targeted budgetary support / compensation to encourage countries to continue to implement trade liberalisation measures should be flexible, without compromising credibility of the Fund, so that all member states can be accommodated.

Experiences of Similar Funds

The study surveyed the experiences of the ECOWAS Fund/ECOWAS Regional Development Fund (ERDF), the West African Economic and Monetary Union (UEMOA) and the African Development Fund (ADF). The experiences of similar Funds in other regions have indicated that an effective resource mobilization is very important for a Fund to accomplish its objectives. It was also clear from these experiences that resource mobilization has been a great challenge to most of these Funds, and some of them did not make much progress in mobilizing resources from the International Financial Institutions and donor agencies. In this regard, the COMESA Fund should work out an effective and realistic resource mobilization strategy that will guide its efforts in undertaking this important task. It should be pointed out that ADF has been successful in mobilizing resources from the non-regional members who replenish its resources in every three years. UEMOA and ERDF have relied on their own resources generated from the community levies they charge on imports from outside their regions.

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With regard to the Compensation Fund, the experience of UEMOA is a success story, having achieved a Customs Union in three and half years following the establishment of a Compensation Fund in July 1996. Allocation of resources for compensation was based on actual loss of revenue on industrial goods. The eligibility criteria for accessing funds from the Compensation Fund was flexible to accommodate all the member states of UEMOA. ADF provides development budget support for financing country – driven economic development.

The experiences of similar Funds, indicate that project financing capacity of the Fund is determined by its ability to mobilize financial resources both within and outside the region. The ECOWAS Fund’s inability to mobilize resources from within and outside the Community resulted in its limited activities in the area of infrastructural development. As a result, the ECOWAS Fund was restructured into a regional Holding Company called the ECOWAS Bank for Investment and Development (EBID) with two subsidiaries, the ECOWAS Regional Development Fund (ERDF) and the ECOWAS Regional Investment Bank (ERIB). The main purpose of ECOWAS Fund’s strategic and institutional reform was to provide the Community with a strong financial institution capable of mobilizing resources within and outside the Community for financing investment and development. UEMOA set up a Regional Integration Support Fund (RISF) in 1998 and the Commission began financing projects in 2005 with a budget of 8.3 billion CFA francs raised from the community levy. For both ERDF and RISF, the resources are targeted towards projects which benefit more than one country, contribute to the attainment of balanced development and promote rural development and special community development programmes. ADF has been successful in financing projects in forty (40) low-income African countries. In recent years, focus of ADF has been on providing support for poverty reduction and economic growth efforts in regional member countries. Allocation of resources is based on Country Performance Assessment (CPA). As a result, the resources have been channeled to countries where the policy and institutional environment are most conducive for sustainable and broad-based growth. ADF’s success in financing projects is mainly due to replenishments made by the non-regional members in every three years.

Recommendations

In light of experiences of similar Funds, the study proposes that the COMESA Fund should workout a resource mobilization strategy, focussed mainly on inviting donor agencies to become non-regional

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members of the Fund and the introduction of the community levy. Regarding the Budget Support /Compensation Fund, it is recommended that the eligibility criteria should be flexible, without compromising financial viability of the Fund, so that all the member states can be taken on board, thereby making it possible for a Customs Union to be attained within the agreed time frame. It is further recommended that the bulk of funds mobilised should finance COMESA priority infrastructural projects which will benefit more than one country, contribute towards balanced development and should be economically and financially viable. Based on the proposed operational mechanism, it is recommended that preparatory work for the operationalisation of the COMESA Fund should continue, particularly in the areas of crafting resource mobilization strategy, preparation of operational manuals, lending policies, operational guidelines and sensitizing member states and donor agencies regarding the operations of the Fund. As member states achieve higher levels of integration, it is suggested that COMESA Fund should broaden the scope of its operations to include compensation for areas or regions that will suffer loss as a result of the integration process, such as closure of industries in an area or region which will adversely affect its socio-economic development. The focus will be on establishing alternative productive activities in the affected region.

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CHAPTER ONE

1. BACKGROUND

1.1. Introduction

The Seventh Summit of COMESA Heads of State and Government held in Addis Ababa, Ethiopia on 23 May 2002 adopted and signed the COMESA Protocol for the Fund for Cooperation, Compensation and Development (hereinafter referred to as the COMESA FUND) pursuant to article 150 of the COMESA Treaty. The COMESA Fund is a holistic instrument for tackling the special problems of underdeveloped areas and the other challenges that arise from implementation of the COMESA regional integration process. The COMESA Fund is composed of the Base Fund and the General Fund. The member states constitute the membership of the Base Fund. The cooperating partners admitted by the Committee of the Fund constitute the membership of the General Fund, which will be leveraged by the Base Fund.

The COMESA Fund is divided into two windows. One window is for infrastructural development, which is central to the entire development process. Although there is wide spread consensus that infrastructure is the key to economic growth and poverty reduction, financing it has proved rather difficult because projects

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are long-term and capital intensive. The COMESA Fund is expected to play a pivotal role in financing basic infrastructure, such as transport, telecommunications, and energy which will promote regional integration and reduce production costs, thereby making the member countries competitive. The second window of the COMESA Fund will be for budget support or compensation for those member states that suffer budgetary problems as a result of implementing the COMESA trade liberalization program. While in the long-run, governments might increase revenue through restructuring their fiscal program, this does not solve the immediate problem faced by governments of reducing tariffs as part of their on-going economic reform program without placing a further burden on the already strained social sectors. The budget support will, therefore, encourage countries to continue the implementation of the trade liberalization program.

The Protocol for the COMESA Fund is in the process of being ratified by member states. A total number of seven (7) ratifications are required for the Protocol to come into force. To date, five countries have ratified the Protocol. These are Ethiopia, Kenya, Mauritius, Rwanda and Sudan. Kenya has paid its contributions to the Fund. Some member states have indicated that they prefer to have operational modalities of the Fund worked out before they sign and ratify the Protocol. It was, therefore, decided by the Nineteenth Meeting of the Council of Ministers that the COMESA Secretariat should work out the operational modalities of the Fund. The terms of reference for the study are as follows;

1. To suggest innovative ways of mobilizing other resources for the Fund.

2. To propose the organizational and management structure of the Fund.

3. Review the operational modalities of similar Funds.4. To define the terms and conditions under which the Fund will

operate its lending and resource mobilization. 5. Describe the general lending eligibility criteria for both budget

support and infrastructure Fund. 6. Elaborate on the procedures to be followed by member

countries for accessing resources of the Fund. 7. To indicate the linkages and cooperation of the Fund with other

regional and inter-regional financial and monetary institutions and organizations.

8. Elaborate on the procedures to be followed for the disbursement of the resources of the Fund.

9. To propose the repayment terms.

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10. To define performance targets and set out rules that should be met by borrowing member countries and how they will routinely be monitored.

11. To identify an array of instruments that will be used to achieve the targets.

12. To make proposals for ensuring that the Fund will revolve, and

13. To make any other appropriate recommendations on all aspects of the Fund.

1.2. Studies Done for REGIONAL INTEGRATION BUDGET SUPPORT (RIBS) Operational Modalities

Proposals have been made for RIBS operational modalities based on studies by two consultants, E. Ronsholt and M. Davenport. The studies propose eligibility criteria based on stringent conventional conditionalities that are applied by development financial institutions that provide funds for economic structural adjustment program. It is worthy noting that the concept of targeted budgetary support or compensation for encouraging trade liberalization differs from development budget support lending. The latter, is a lending instrument that constitute integration of external assistance into the national budget to finance country-led development frameworks and the stringent conditionalities would have been crafted to contribute to the attainment of the objectives in the national plan.

The major weakness of the proposals of the two studies is that the eligibility criteria might exclude many countries. This could mean that countries experiencing significant revenue losses might be excluded from support or compensation. This will defeat the purpose for the Fund, that is, to get all member states on board so that a Customs Union can be achieved within the agreed time frame. There is need, therefore, to ensure that the eligibility conditions contribute to the attainment of the purpose of the Fund. In this regard, the criteria should be flexible without compromising the financial credibility of the Fund. The two studies also propose allocation of resources based on estimated loss of revenue. It is suggested that the allocation system of resources for compensation should be based on actual loss of revenue, which can be verified.

1.3 Outline of the Report

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Chapter two of the report reviews the experiences of similar Funds in other regions while chapter three makes specific proposals regarding the operational modalities of the COMESA Fund. These proposals are based on lessons drawn from the review of the experiences of similar Funds. Chapter four consists of conclusions.

CHAPTER TWO

2. EXPERIENCES OF SIMILAR FUNDS

Before recommendations are made, it would be important to look at the experiences of similar Funds in order to draw lessons that can be useful in making specific proposals for the operational modalities of the COMESA Fund.

2.1. ECOWAS Fund / ECOWAS Regional Development Fund

The Treaty of 1975 establishing the Economic Community of West African States (ECOWAS) created the Fund for Cooperation, Compensation and Development of the Economic Community of West African States (ECOWAS Fund). The founding member states of the Fund are Benin, Burkina Faso, Cote d’lvoire, Guinea Bissau, Mali, Mauritania, Niger, Nigeria, Senegal, Gambia, Ghana, Guinea, Liberia, Sierra Leone and Togo. Cape-Verde joined in 1999 and Mauritania withdrew from the Community in 2000. The ECOWAS Fund was then created to be the community’s development financial institution with focus on financing infrastructure development and providing compensation to member states experiencing loss as a result of the integration process.

The ECOWAS Fund had an authorized capital of US$500 million, of which US$100 million was called up and fully subscribed in two equal tranches of US$50 million each in 1977 and 1988 respectively. The paid up amount stands at US$85 million. As at 31 December 2002, commitments of the Fund to the member states stood at US$125 million. As at the same date, disbursements stood at about US$95 million being 76% of total commitments. The breakdown of the ECOWAS Fund’s intervention

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as at 31 December 2002 was as follows, UA45 million (36%) was for roads, UA36,25 million (29%) was for telecommunications, UA16,65 million (13%) was for rural development and UA27.50 million (22%) was for industry and lines of credit.

2.1.1 Institutional and Strategic Reform of ECOWAS Fund

As shown by its performance above, the ECOWAS Fund’s major weakness was its inability to mobilize funds from the international financial institutions and donor agencies, resulting in limited project financing capacity. Having observed that the ECOWAS Fund was no longer in a position to meet the major challenges of socio-economic development and private sector promotion, it was transformed on 10 December 1999 into a regional Holding Company with two subsidiaries. The Holding Company is called ECOWAS Bank for Investment and Development (EBID) with authorized share capital of US$750 million of which US$139 million (79,45%) of the called up capital of US$167 million was subscribed by member states as at 30 June, 2005. EBID and its two subsidiaries are located in Lome, Togo.EBID’s two subsidiaries are:

The ECOWAS Regional Development Fund (ERDF) for public sector financing with authorized share capital of US$500 million of which US$50 million of the called up capital has been paid by EBID.

The ECOWAS Regional Investment Bank (ERIB) for private sector financing with authorized share capital of US$500 million of which US$50 million of the called up capital has been paid by EBID. The essential purpose of ECOWAS Fund’s strategic institutional reform was to provide the Community with a strong financial institution capable of mobilizing both internal and external financial resources with a view to financing investment and development. It was also aimed at setting up an administrative structure that insulates the institution from political pressure on day-to-day operations. The objectives of the ERDF are:

Granting direct medium and long-term concessionary loans for the financing of infrastructure and economic and social development projects in ECOWAS member states.

Granting loans for financing of special Community Programs. Managing the community levy reserves meant for financing the

community’s development activities.

The community levy is the major source of finance for financing projects. A decision was made by the Authority to commit 60% of the community levy to finance development projects. The ERDF has approached a number of donor agencies to mobilize funds for

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financing development projects. Efforts are also being made to raise funds from the regional stock exchange.The decision-making and control bodies of ERDF are the General meeting and the Board of Directors. The General meeting represents all the shareholders and it meets at least once a year. The Managing Director is an ex-officio member. The Board is made up of eight (8) Directors of which six represent EBID.

2.1.2 The Community Levy The taxable base of the Community levy is the taxable value of goods originating from third countries imported into the Community and released for home consumption. However some of the products are exempted from the Community levy such as aid, gifts and non-repayable grants received by the State or public enterprises for public works and goods originating from third countries imported as part of financing agreements with foreign partners.

The Community levy is levied on basis of CIF value at the port of entry. The rate of Community levy is fixed at one and a half per cent( ½ %) of the value of imports originating from third countries and may be amended as necessary by the Authority. The National Customs Administration of each Member State is responsible for assessment and collection of the Community levy. The proceed from the Community levy enjoy in all Member States, the privileges and immunities provided for in the Treaty, the General Convention on Privileges and Immunities of the Community and the Headquarters Agreements.

Amounts collected as Community levy are paid by the national Customs Administration within a period not exceeding one month from the date of collection into an account opened by the Executive Secretariat with the Central Bank of each Member State and with BCEAO in the case of the UMEOA Member State. The Community levy funds are allocated as follows:

a) the ordinary budgets of the Community and its institutions and these are the Executive Secretariat and the court of Justice

b) the compensation budget for loss of revenue arising from trade liberalization

c) the funding of development projects

d) any other uses as may be decided by the Authority or the Council including and increases to the capital of the ECOWAS Regional Development Fund (ERDF)

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At the Community level, the Council of Ministers is responsible for overseeing all operations carried out by National Customs Administrations through the Executive Secretariat. Details regarding the conditions governing the application of the Community levy are contained in the Protocol attached to this report as Annex 1.

2.1.3 Project Financing

a.) Eligibility Criteria

Project should benefit more than one country. Project should contribute towards balanced development in the

Community. Project should be for rural development and special community

programmes.

b.) Procedures for Project Financing

A request is submitted to ERDF for the financing of a project. If the project is likely to receive the financial support it will be

included in the Fund’s pipeline. Preparation and processing of documents follows receipt of a

request for financing. This includes project appraisal. Technical Committee examines appraisal report. Fund submits to its Board of Directors the project for approval. Disbursement of funds takes place when the borrower meets terms

and conditions for disbursement. Project monitoring and supervision follows the disbursement of

funds. Project evaluation takes place on completion of the project.

2.1.4 The Compensation Fund

The Compensation Fund is managed by the ECOWAS Executive Secretariat located in Abuja, Nigeria.

ECOWAS reformed its compensation scheme to operate along the West African Economic and Monetary Union (UEMOA) model. The Compensation Fund is financed by a community levy of 0.5% on imports from outside the ECOWAS region. The scheme has not operated effectively because of non-payment of community levy to the ECOWAS Secretariat by some of the ECOWAS member states.

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2.2 The West African Economic and Monetary Union (UEMOA)

The UEMOA common monetary zone has been in place since 26 December 1945. UEMOA is located in Ougadougou, Burkina Faso. The member countries are Benin, Burkina Faso, Cote d’ivoire, Guinea Bissau, Mali, Niger, Senegal, and Togo. Most countries in the zone are poor with Cote d’ivoire’s GDP accounting for 40% of total GDP for the region, Senegal (20%) and 40% is shared by six member countries. In such a situation, it was necessary to mobilize resources to finance the less developed nations in order to achieve balanced development in the region.

In this regard, the UEMOA established a Regional Integration Support Fund (RISF) in 1998 to finance balanced development of the Union, thereby contribute towards the reduction of regional disparities. This institution is managed by the UEMOA Commission and its three specific objectives are to:

a.) finance economic infrastructure such as transport, telecommunications and energy

b.) finance social infrastructure such as basic education, health and environment protection

c.) facilitate the transformation of regions of the Union adversely affected by the integration process through the establishment of alternative productive activities.

The Fund’s assistance is based on four principles, namely, concentration, programming, partnership and additionality.

a.) Concentration principle- this constitutes concentrating the funds resources on selected areas within member states facing structural problems

b.) Programming principle- requires the Fund’s assistance to be programmed after five years

c.) Partnership principle- the aim is to develop complementarity and synergy of actions of various players pursuing a common goal

d.) Additionality principle- the Fund’s resources supplement the efforts made by the State, local government and other development agencies.

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The selection of eligible regions is based on socio-economic indicators which are reviewed by the Commission in every five-year program in close consultation with the Member States. On the basis of the United Nations human development indicators, state of the roads, state of health facilities and educational level UEMOA identified seventy five (75) least developed regions in the Union. The regions belonging to at least two member states of the Union are considered cross boarder regions eligible for the Fund’s assistance.

The programs funded by the Fund are grouped into two categories; a.) National initiated programsb.) Community initiated programs ( those initiated either by

at least two Member States or the Commission or BOAD)

The resources of the Fund are made up of own resources and external resources. The source of funds for financing projects is community levy charged on imports from outside UEMOA at the rate of 1% C.I.F. value. From 1998 to 2002 UEMOA collected revenue of 29 billion CFA francs. Efforts are being made to mobilize resources in the form of grants and donations from the donor agencies and borrowing concessionary loans from the international financial institutions and the donor community.

The assistance from the Fund consist of grants to finance socio-economic infrastructure and loans and lines of credit to finance job creating and income generating activities as well as support for the transformation of regions adversely affected by the integration process. The Fund prefers co-financing especially with BOAD in extending the forms of assistance mentioned above.

The indicative allocation of the Fund’s resources is as follows:a.) 50% for economic infrastructureb.) 30% for social infrastructurec.) 20% for the support of the transformation of regions

adversely affected by the integration process.

The UEMOA Commission work in conjunction with the West African Development Bank (BOAD) in financing projects. Since 2002, a decision was made that BOAD finances 80% of the project and the Commission, 20%. The 20% disbursed by the Commission is a grant and BOAD’s loans have a maturity period of 25 years with a grace period of 7 years. Interest rate charged is 2.5% per annum of which 0.5% per annum is paid by the Commission so the borrowing country pays interest of 2% per annum. The Commission

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began financing projects in 2005 with a budget of 8.3 billion CFA francs. Of the projects submitted, the Commission has started financing projects in Togo and Burkina Faso.

The organizational and management structure of the Fund consist of the Council, the Commission and the Support Structure.

The Council Adopts the list of regional beneficiaries, decides on the

overall amount to be allocated to the Fund over the programming period and determines its distribution by objective,

Approves the annual budget for the Fund, programs and the intervention,

Authorises the Commission to borrow.

The Commission

The Commission is responsible for the operation of the Fund. To this end it,

Adopts procedures manual for the Fund interventions, Compile the programs presented by the Member States as

well as the financing requests, Design community initiated programs, Coordinate the implementation of the Fund assistance, Manages finances and accounts of the Fund, Prepare an annual progress report on the Fund interventions, Negotiates and mobilizes resources.

Support StructuresThe Commission relies on the support structures in the implementation of the programs and projects. These include,

An Advisory Technical Committee, composed of representatives from the Commission BCEAO and BOAD. This Committee makes recommendations to the Commission

BOAD, the main executing agency, through the authorization of the Commission and on its behalf, undertakes project appraisal, supervises and undertakes project evaluation of the Fund’s interventions.

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2.2.1 Operational Modalities for the Regional Integration Support Fund

a) Eligibility Criteriai) The project should meet at least one of the three specific

objectives of the Fund stated aboveii) Be within the priorities set in the five year programiii) Be located within the region eligible for assistance (75

under developed regions)iv) Accompanied with a report justifying the need for

assistance, thereby making it possible for a decision to be made on the pertinence and credibility of the project

v) Coming from different target beneficiaries

b)Procedure for Project Financing

Member states submit projects to the Commission from regions eligible for Fund assistance (75 under developed regions)

One project per country is selected for financing during a five year period.

Disbursement takes place once all the loan terms and conditions are met.

Monitoring and supervision of the projects by BOAD follow the disbursement of funds.

Evaluation of the project takes place on completion of the project.

2.2.2 The Compensation Fund The Fund was established in 1996 to give compensation to Member States that suffered revenue loss as a result of implementation of inter Community Preferential Trade regime and that of the UMEAO Common External Tariff (CET). Within three and half years from July 1996-2000, the UEMOA countries eliminated customs duties and established a Customs Union. From 2000, all goods with certificates of origin were imported duty free within the UEMOA region. UEMOA progressively reduced tariffs and paid compensation on actual loss of revenue. Claims for compensation were submitted to the Commission once or twice a year. It is important to note that compensation was only paid on loss of revenue for industrial goods. In the first period (1996-1997) UEMOA tariff rate was reduced from 20% to 14% so the compensation of 6% was given to those states that experienced loss of revenue. For example if a country imported cement from another member state for US$1000 000 C.I.F. value, the compensation was 6% of US$1 000 000 which

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is US$ 60 000. In the second period (1997-1999), the tariff rate was reduced to 8% and the compensation was 12%. In the third period (1999-2000), the UEMOA tariff rate was reduced to 4% and compensation was 16% of the C.I.F value of imports. In 2000, a Customs Union was achieved. The system of compensation changed from 2000. During the period (2000-2002), the total revenue loss was compensated. For instance if a country imported cement from another member state for $1000 000 with a common external tariff of 20%, the compensation would amount to US$200 000. In 2003 the compensation was reduced to 80% of the actual loss and in 2004 compensation was further reduced to 60% of the actual loss and in 2005 compensation was only 30% of the actual loss. From 1 January 2006, the compensation system was phased out having been in place for 9 ½ years, from 1 July 1996 to 31 December 2005.

a.) Eligibility Criteria

The country had to submit customs declarations and original certificates of origin to the Commission

The country would have been paying the Community levy to the Commission

b.) Procedures for Accessing the Compensation Fund

The Commission put in place modalities for processing the applications received for compensation of revenue loss as a result of the implementation of the UEMOA trade liberalisation program. The operational procedures are indicated below:

i) Receipt of ApplicationThe Member State submitted an application for compensation accompanied with a copy of each customs declaration processed under the UEMOA trade arrangement and an original copy of the certificate of origin of the product concerned. Member States were requested to make a summary of declarations submitted with numbers of declarations, numbers of Tariff and Statistical Nomenclature, the value per item, the numbers of certificates of Origin, the registration numbers of productive enterprises and the country of origin. The computer file was attached to the applications so as to avoid double entry for the Commission. The recoding of the declarations was done in the presence of a representative of the member state concerned.

ii) Drafting of Minutes

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The Commission and the country representative verified the claims. The differences detected during the verification process were indicated and the two parties signed the minutes.

iii.) Control of AdmissibilityDuring this process, the control was mainly on the declarations submitted, the presence of the original certificate of origin validity of the certificate of origin furnished, the match between the elements declared and those of the certificate of origin and the time for submission of declarations. In all the Commission ensured that the form and the content prescribed by the community regulations were met.

iv) LiquidationThe computer file with corrections of possible anormalies noted during the checking process and mentioned in the minutes would be processed and the amounts were computed by declaration. The total of these amounts constituted the sum to be compensated.

v) NotificationThe Member State would b notified by the commission the amount determined in order to get its concerned for payment thus, as long as a final agreement on the amount for compensation was not agreed between both parties the procedure for payment could not start.

vi) Procedure for Payment

The Fiscal Customs and Commercial policies department sought authorization from the President of the Commission to settle the claim. The claim was settled once the request was approved.

The compensation arrangement spanning from 1 July 1996 to 31 December 2005 resulted in the settlement of claims for 86 billion CFA francs out of applications of over 1OO billion CFA francs. The control measures resulted in numerous rejections especially for the following reasons:

Absence of the certificate of origin Unmatchable number of Tariff and Statistical Nomenclature Contradiction in the tariff description of the product Difference between the Tariff classification declared, etc

The problems encountered included the quantity of documents received for which the department had no appropriate place to store, lack of adequate computers and the volume of work regarding the number of claims submitted by the Member States.

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2.2.3 The Regional Agricultural Development Fund

UEMOA is currently making preparations for the operationalization of the Agricultural Development Support Fund that focuses on financing agricultural development in the UEMOA region. Four Directors and the necessary officers have been appointed to carryout the preparatory work, which has reached an advanced stage. The Regional Agricultural Development Fund is an instrument for specifically financing the agricultural sector in the UEMOA Member States. The specific objectives of the Fund shall be to finance activities, projects, programs and structures aimed at;

The adoption of the production systems and improvements of the production environment

The expansion of the Common Market Agricultural Sector and Management of Shared Resources.

Integrating the Union Agriculture in the Regional and World Market.

The intervention of the Fund focuses on priority activities defined by the Union relating to agriculture, livestock, fishery and forestry. This intervention shall be aimed at supporting the development of agricultural financing systems, capacity building and Regional Institutional Investments. The Fund beneficiaries shall be the State, local government and the Agricultural Development Institutions.

The Fund intervention modalities shall be governed by the following principles:

Programming principle- framework document for programming shall be developed by the Commission on a triennial basis

Concentration basis- resources shall be concentrated on the priority activities that promote the achievement of the UEMOA Agricultural Policy

Partnership principle- this consists of intervention in the technical and financial aspects of programs and projects, in close consultation with the Member States concerned, the Commission, Central Bank of West African States and the West African Development Bank.

Principle of additionality-the Agricultural Fund resources supplement efforts made by the State, local government and development partners. The Fund shall intervene in the following forms.

Grants to finance infrastructure of socio-economic nature and calamities relating to animal and vegetable diseases.

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Loans to finance job creating and income generating activities.

Credit lines and interest accrued from loans to finance projects of economic and social nature.

Guarantee for short, medium and long term credits.

The resources for the Fund will consist of own resources, (made up of contribution from resources obtained from the Community Solidarity Deduction and other internal resources) and external resources from bilateral and multilateral sources.

The organizational structure of the Fund consists of the Council of Ministers, the Commission and the Advisory Technical Committee (which makes recommendations to the Commission and is chaired by the Commission responsible for Agriculture. The UEMOA Commission may delegate management of some operation to regional support institutions. The details regarding the intervention, organization and operation modalities for the Regional Agricultural Development Fund are contained in Annex i.

2.3 The African Development Fund (ADF)

Since its establishment in 1973, the African Development Fund has become an important source of financing and technical assistance to 40 low-income African countries to which it provided resources of about UA16 billion during its nine (9) replenishment cycles. In recent years, the Fund has been focussing on providing support for poverty reduction and economic growth efforts in regional member countries, in line with its Strategic Plan for the period 2003-2007.

The ADF is part of the AFRICAN DEVELOPMENT BANK (ADB) Group. Fifty percent of the shareholding of the ADF is for the ADB (representing member states) and the remainder (50%) is for the twenty-six (26) non-regional state participants. Replenishments are made by non-regional state participants in every three years. For every replenishment, negotiations are held with Deputies (representatives of non-regional members) on how the funds will be used. ADF is a soft window and forty (40) low-income African countries can access ADF funds only and the other African States can borrow from ADB. Loan projects or policy based loans are repayable over a period of fifty (50) years with a grace period of ten (10) years. Credit lines are repayable over a period of twenty five (25) years including a grace period of five (5) years. No interest is charged on loans to its borrowers except a service charge of 0.75 percent per annum on amounts disbursed and

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outstanding. A commitment fee of 0.5% per annum is charged on undisbursed balances. Allocation of the resources is based on country performance. The introduction of the performance based resource allocation system based on Country Performance Assessment (CPA) under the last two ADF cycles, has resulted in the bulk of the Fund resources being channeled to countries where the policy and institutional environment are most conductive for sustainable and broad-based growth. The introduction of the CPA also enabled the Fund to stress the importance of the poverty reduction and other critical issues such as governance and regional integration and public expenditure management during policy and program dialogue with countries. In this regard, priority will therefore be given to allocation of resources to poor countries that have demonstrated their commitment to poverty reduction, sound polices, good governance, the rule of law and robust institutions, the strength of which is the key determinant of the effectiveness of external assistance. Adjustments recently brought to the CPA formula have led to an Enhanced Performance Based Allocation system. This system will be guided by the CPA, consisting of the Country Policy and Institutional Assessment (CPIA) and the Country Portfolio Rating (CPR). The CPIA will account for 70 percent of the rating, and the CPR for 30%. The CPIA process will include a stronger involvement of the country authorities as part of a continuous dialogue between the country and the Fund. This will help to identify areas where country performance is perceived as weak.

A certain portion of the ADF resources is reserved for financing the activities of Technical Assistance Fund. With regard to technical assistance, priority is given to activities having direct link with project generation and the implementation of the projects and programmes (around 90% of the resources), the balance (10% of the resources) is earmarked to lend support to capacity building.

2.3.1 Project Financing

a.) Eligibility Criteria

The poorest countries are the major beneficiaries of ADF resources.

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Country creditworthiness and performance and per capita GNP remain fundamental criteria of eligibility to receive the Fund’s resources.

b.) Operational Procedures

Each project goes through a cycle comprising of successive phases from its inception to post evaluation.

Identification – the identified project will be put in the pipeline of projects.

Preparation – this stage involves feasibility study and implementation study.

Appraisal – the phase ends up with an appraisal report and involves bank mission to the project location.

Negotiations – at this stage the borrower and the Bank negotiate the terms and conditions for the Fund’s participation in the financing of the project.

Approval – The Board of Directors decides to approve or reject the project or programme.

Implementation and supervision – the borrower reports periodically on project progress while the Bank will supervise the project regularly to verify its status and to ensure that funds disbursed are as agreed between the borrower and the Bank.

Project Evaluation - at this stage, the Bank prepares a completion report in order to evaluate the results of the project.

2.3.2 The Development Budget Support Lending (DBSL)

One of the measures that has been taken to align Bank Group assistance to the development needs of Regional Member Countries entails, where appropriate, in the context of pragmatic lending, pragmatic adaptation of traditional balance of payments Policy Based Lending (PBL) to an exante performance – based multi-year Development Budget Support Lending (DBSL) that assures regular inflow and availability of resources to facilitate the implementation of Poverty Reduction Strategy Papers (PRSPS) and National Development Plans (NDPs). DBSL has gained wider and renewed interest among donors including Multilateral Development Banks and bilateral agencies, all seeking to provide resources to the general budget of countries with appropriate policy frameworks and fiduciary controls. In line with the Directives of the ADF- 1x Deputies, guidelines on Budget Support have been developed as a lending instrument to facilitate the Bank’s support to the development efforts of ADF member countries that satisfy the requirements for the use of this instrument.

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DBSL has specific identified advantages over the traditional PBL and other forms of aid among which the following are prominent (a) increasing local ownership of the development programme through integration of external assistance into the national budget, (b) ensuring better predictability of aid flows as DBSL is delivered in one or a few tranches and involve longer-term commitments from donors (c) increase efficiency in public spending as dialogue will shift from individual or particular donor related expenditure items towards improving overall direction and consistency of budget allocations,

d) reduce transaction costs as DBSL can be managed and monitored through a single coordinated process to which all participating donors subscribe. e) enhance effectiveness of the state and public administration with strong domestic accountability as DBSL will use existing government system and work with national stakeholders. It also focuses on government’s own accountability channels, thereby improving transparency and accountability to the country’s parliamentary institutions. f).facilitate effective Donor Coordination due to the existence of a strong donor coordination mechanism, in the context of DBSL which reduces the difficulties governments face in meeting donors’ varying conditionalities.

a.)Pre-requisites for Funding of DBSL

i). General pre-requisites: economic and political stability and strong government commitment are two conditions that are given prominence.

ii). Technical pre-requisites: these include availability and implementation mechanisms of the PRSP or NDP in Regional Member Countries, a viable macro-economic and financial medium term framework, partnership between donors and regional member countries and fiduciary review. These features must be assessed to be adequate and satisfactory prior to any Bank Group decision to participate in a DBSL operation.

It should be pointed out that conditionality is a commitment between the Bank Group and the borrower. In practice, conditionality is country and operation specific and elaborated collectively among donors and the regional member country.

b.) Operational Procedures

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The processes involved in the design and implementation of DBSL operations are by and large similar to the cycle and review process applied for other traditional lending instruments, particularly for PBL.

i) Identification - The country PRSP or the NDP prepared by government, together with the Bank Group’s Country Support Paper provide prerequisites for considering the identification and preparation of DBSL operation in a country. The other consideration relates to the assessment of the timing of Bank Group involvement in the DBSL operation.

ii) Inclusion of a DBSL Operation in the Pipeline of Operations and Lending Program: Once a DBSL operation has been identified, an Initiating Memorandum (IM) would be prepared by the relevant department and be submitted to Senior Management Committee for clearance. The IM, among other contents, confirms that preconditions for starting a DBSL process have been met and assess the extent to which a country fulfils the essential conditions for commitment of Bank Group funds. iii) Preparation: This work is primarily the responsibility of the

borrowing member country. However, the Bank Group and other donors have a major role to play in assisting the government to develop an effective and viable package of reforms and macroeconomic management as well as other financial and institutional reforms that constitute DBSL proposal. The PRSP/NDP underpinning the preparation of a DBSL operation will be done in a participatory manner, with due consultation with all stakeholders, including civil society and private sector representatives. Draft memorandum of understanding shall also be prepared.

iv) Appraisal : Following the preparation report and the resolution of any outstanding issues, and in line with the IM, an appraisal mission will take place following which the appraisal report will be prepared. The Appraisal Report will be subjected to the Bank’s review process, going through the DBSL team review, the Internal and Inter-Departmental Working Groups and Senior Management Committee, which will provide the ultimate guidance.

v) Approval The Board of Directors decides to approve or reject the DBSL proposal.

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vi) Disbursement This depends on conditionality. Normally the DBSL will be disbursed in one tranche. However, where circumstances related to the preconditions of the DBSL dictate, disbursement of multiple tranches would be considered. Funds will be disbursed to the Government accounts at Treasury or the Central Bank.

vii) Monitoring and Supervision

Monitoring and performance assessment play critical roles in ensuring the smooth implementation of DBSL operations. The Annual Performance Review of Poverty Reduction Strategies is a joint government donor exercise through which budget support operations are assessed and implementation bottle necks reviewed and remedial measures proposed. There will also be regular supervision missions and mid-term reviews.

viii) Program Completion : As is the case with all Bank Group’s operations, a DBSL operation cannot be deemed completed until a joint country / donors completion report has been prepared. This will form the basis for drawing lessons and assessing the impact of the operation.

2.4 P.T.A. Bank The Eastern and Southern African Trade and Development Bank, commonly referred to as the P.T.A. Bank was established in 1985 under the auspices of the Treaty establishing the Preferential Trade Area, which was subsequently superceded in 1993 by the Common Market for Eastern and Southern Africa (COMESA)

a.) Project Financing The P.T.A. Bank provides financial resources to both public and private sectors projects in Manufacturing, Agro-Industry, Service, Mining, Infrastructure and Tourism. The modes of financing applied include direct loans (minimum of US$500 000 and maximum of US$20 million), co-financing, lines of credit to local financial institutions for on-lending to small enterprises, equity participation and loan guarantees.

b.) Project Financing Procedures Receipt of applications from public and private sectors Preparation of a brief on the project. Project appraisal. Submit project to the Board of Directors for approval.

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Disbursement takes place when the borrower meets all the conditions of disbursement.

Monitoring and supervision follow disbursement. On completion of the project, project evaluation takes place.

The bank also provides trade finance and trade related-facilities that are tailored to meet the client’s needs.

CHAPTER THREE

3. PROPOSALS FOR THE OPERATIONAL MODALITIES OF THE COMESA FUND.

The proposals made for the operational modalities of the Fund are based on the experiences of similar Funds discussed under chapter two.

3.1 Resource Mobilization

The success of the COMESA Fund in achieving its set objectives will, to a great extent, depend on its ability to raise resources both within and outside the COMESA region. In this regard, COMESA should work out an effective and realistic resource mobilization strategy that will guide its efforts in mobilizing the much needed resources.

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3.1.1. Contributions

The resources of the COMESA Fund will come from contributions to be made by member states. A decision has been made for the member states to contribute an initial capital of US$10 million. In view of the financial constraints of the Fund, several types of financing within and outside COMESA would be required to finance operations of the Fund. The strategies for resource mobilization will focus on enhancement of the level of own resources and mobilization of concessional resources within and outside COMESA for the financing of basic infrastructure and compensation for revenue losses as a result of implementing trade liberalization measures.

3.1.2. Other Sources of Finance

To accomplish its objectives, the Fund will augment the contributions of the member states by tapping resources from other sources of funding. Several possibilities will be open to the Fund, but there is need to come up with resource mobilization strategy that will guide the activities of the Fund on this front. The Fund would approach and raise money from non-regional countries and institutions including financial markets. Ways of tapping resources from other sources recommended include the following:

a. Contributions from International Financial Institutions and Donor Agencies

The Fund may invite donor agencies and international financial institutions such as the European Union, World Bank and African Development Bank to become its members, thus, these institutions may participate in the capital stock of the Fund thereby increasing its resources. Donor agencies will be invited to make contributions to the General Fund which will be leveraged by the Base Fund. These agencies may like to increase and diversify their channels of investment and loans to the COMESA region and the Fund would, therefore, offer opportunity for such diversification. The Fund would be able to acquire for the region funds that would not have been available. Besides direct capital, governments and institutions may provide the Fund with their guarantee powers by participating in its capital.

b. Concessional Borrowing

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There will be possibilities of augmenting contributions by concessional borrowing. The Fund’s borrowing efforts will be focused on mobilizing concessional funds to make concessional lending possible. Concessional assistance may come from a wide range of sources such as The World Bank, The European Development Fund, The African Development Bank, etc. The Fund would clearly spell out borrowing policies and appropriate standard practices and guidelines would be adopted.

c. Grants and Donations

Grants and Donations from both developed and developing countries may constitute another source of funds to augment subscriptions by members of the Fund. The management of the Fund would approach the institutions and donor agencies within and outside COMESA for grants and donations to enable the Fund to become fully operational. The institutions would include development agencies such as the European Development Fund, The World Bank and The African Development Bank. Member States would also be encouraged to donate funds over and above their assessed contributions to the Fund.

d. Financial Markets

i) International Financial Markets The Fund may float in international capital markets bonds, which may be taken up by governments and institutions. However, experience of other financial institutions indicates that this might not be possible in the initial years of the operation of the Fund. The players in the market would take some time to have confidence in an institution without a track record, regarding quality and calibre of management, commercial soundness of the operations of the Fund and its prospects for the future. There will be need, therefore, for an active public relations exercise to establish the Fund’s credibility in the key capital markets dominated by developed countries. To ensure success in the case of sale of securities, the Fund would have to ascertain that these securities give competitive yields.

ii) National Financial Markets

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The Fund could float its securities in the financial markets of the member states, which could be taken up mainly by institutional investors, which include, among others, pension funds and insurance companies. The funds raised in national financial markets would be used to finance the Fund financed projects in those member countries. It should be pointed out that in an inflationary environment, the floated bonds might not be attractive to investors unless they are indexed to the inflation rate.

e. Co-financing

The Fund may co-finance projects with other donor agencies and institutions. This will not place funds at the disposal of the Fund but, it would assist it in financing certain large projects. In this regard, the Fund would participate in joint financing large scale multi-national projects.

f. Community Levy

One way of mobilizing resources internally for financing the activities of the Fund is the introduction of community levy of 0.5% on imports from outside the COMESA region. This will raise huge amounts for financing the Fund’s activities. For instance, on the basis of 2004 total imports from outside COMESA which amounted to US$ 40,762,809,377, a 0.5% levy would have yielded an income of US$203,814,047 while a 1% levy would have yielded double this amount or US$407,628,094.

g. Special Funds

Assistance from non-regional members could also take the form of contributions to special funds, which could be managed by the Fund. These special funds could include the Technical Assistance Fund for financing feasibility studies for projects submitted to the Fund without such studies.

h.)Contribution CommitmentsThis source of funding constitute contribution commitments assumed by each member state and contributions will only be made at a time that the funds are needed to support one of the member states that might suffer losses from the integration process. These commitments are based on the formula for assessing contributions to the Fund and each member state will be expected to contribute to the loan amount to be raised, its

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percentage share of the Fund’s capital. This facility has been introduced among the central banks of the Latin American Integration Arrangement to deal with their countries’balance of payments deficits and shortages of liquidity resulting from natural disasters. The problem of this method of raising funds is that funds will not be at the disposal of the Fund and member countries might fail to meet their commitments when called upon to do so because of unforeseen circumstances that might confront them.

The above possibilities, however, need not be exclusive of each other. The governments and institutions may be persuaded to provide financial assistance to the Fund in any one of the ways outlined above.

3.2 Budget Support/ Compensation Fund

In providing compensation to countries experiencing loss of revenue due to implementation of the COMESA trade liberalization programme, a decision will have to be made by the Committee whether to compensate the total loss of revenue or part of it, on the basis of resources available. It will also be necessary to decide on the type of goods for which loss of revenue could be compensated. It is suggested that claims should be submitted to the Fund once a year.

3.2.1. Eligibility Criteria

For a country to access budget support/compensation Fund it is recommended that it should fulfil the following conditions.

a. The applying member state must have acceded to the Protocol of the Fund.b. The country must have paid in full its contributions to the Fund.c. The country must be implementing the COMESA trade liberalization program d. The country must be undertaking customs and tax reform so

that it will be able to sustain its development program when compensation is phased out.

3.2.2 Procedures for Accessing Compensation Fund The operational procedures for processing applications received for compensation of revenue loss are as follows:

a) Receipt of Applications

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The member state will submit an application for compensation to the Fund accompanied with a copy of each customs declaration processed under the COMESA trade arrangement and an original copy of the certificate of origin of the product concerned. Member States will be required to make a summary of declarations submitted with numbers of declarations, numbers of Tariff and Statistical Nomenclature, the value of each item, the numbers of certificates of origin, registration numbers of companies and the country of origin. The recording of the declarations submitted will be done in the presence of the Member State representative.

b) Signing of the MinutesThe Fund and the country representative will check and verify the claims submitted. The differences detected will be indicated and the two parties sign the minutes.

c) Control of AdmissibilityFocus is mainly on the declarations submitted, the presence of the certificate of origin, validity of the certificate of origin and the time of submission of declarations.

d) Computation of the Compensation AmountThe anormalies noted during the verification process and mentioned in the minutes will be processed and the amounts are computed by declaration. The total of these amounts constitute the sum to be compensated.

Thus, for eligible claims, compensation will be arrived at by subtracting the COMESA tariff rate from the one that applies to non-COMESA countries and the difference will be the percentage rate for compensation. For example, if the tariff rate that applies to non COMESA imports is 20% and the COMESA rate is 14%, compensation rate will be 6%. If a country imports goods for US$1 million, its compensation will be: 6/100 x 1000 000 = US$60 000. The formulae for calculations of compensation is as shown below :

n{ (an bn) – (cn bn) }

Where:

an is the tariff rate for band n that apply to non-COMESA states

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bn is the value of imports for band n

cn is the COMESA tariff rate for band n.

e) Notification The Member States representative will be notified of the amount of compensation computed in order to get his consent for payment. Thus, the payment process will only start when the two parties agree on the amount for compensation.

f) PaymentWhen the Fund and the Member State representative agree on the amount for compensation, authorization will be sought from the Manager of the Fund to settle the claims.

3.2.3 Performance Monitoring

The Fund will monitor the performance of the countries that received compensation. This will include ensuring that the countries actually implement tax reform measures outlined in the application.

3.3 Infrastructural Development Fund

It is recommended that COMESA should identify priority infrastructural projects in the region that should be funded and compile a COMESA priority infrastructural projects list since the resources of the Fund will not be adequate to meet all the requirements for infrastructural financing. There will be need to establish a special fund for technical assistance that will be required for undertaking or financing feasibility studies for those projects that will be submitted by member states without such studies. A decision will have to be made whether this Fund will operate in conjunction with the P.T.A Bank (Executing Agency) as the case with UEMOA or be a stand-alone institution as the case with the ERDF.

If the decision made is for the COMESA Secretariat to manage the Fund in conjunction with the P.T.A bank as the executing agency, the COMESA Secretariat will be responsible for;

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a) preparation of community initiated programs in close consultation with the Member States and COMESA policy organs

b) coordination of the implementation of the Fund programs

c) negotiation and mobilization of financial resources

d) managing financial resources of the Fund

e) preparation of an annual progress report on Fund interventions and the annual financial statements

The P.T.A. Bank, the executing agency, through the COMESA Secretariat’s authorization and on its own behalf, will undertake project appraisals, monitor and supervise implementation of projects financed by the Fund and on completion of the project undertakes project evaluation. The terms and conditions for the operations of the executing agency will be in accordance with an agreement between the two parties.

The third option is for the Fund to operate under the direction and control of the P.T.A bank President. In this regard, the P.T.A bank will be entirely responsible for managing the Fund activities.

3.3.1. Eligibility Criteria

a. The applying country must have acceded to the Protocol of the Fund.

b. The country must have paid its contributions in full to the Fund.

c. The project to be financed should benefit more than one country and will be on the proposed COMESA priority infrastructural projects list.

d. The country must be implementing all the COMESA regional integration programmes

e. Project financed should be viable economically, financially and technically.

f. Project should contribute towards balanced development in the COMESA region.

3.3.2 Lending Policies and Procedures

It is recommended that the following procedures be followed for project financing.

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a). Identification

A request and/or a feasibility study must be submitted to the Fund. Once a project has been identified and considered feasible, it will be included in the Fund’s pipeline of projects.

b). Preparation and Processing The preparation and processing of project documents begins as soon as the financing request is received together with the supporting documents (feasibility studies, engineering study, guarantee, etc). For projects with no feasibility and engineering studies, the Fund will either undertake feasibility studies or assist the borrower to finance the preparation of the project by means of various resources at its disposal.

If the feasibility and/or engineering studies and the tender documents are available, project preparation activity should lead to the desk appraisal of the project by the Fund. The desk appraisal should conclude whether to continue or not with the processing of the project.

c). Project Appraisal

The process involves dispatching a multi-disciplinary team to the project location to verify all the assumptions made in the studies available. This phase ends up with the preparation of an appraisal report, which provides a basis for the decision of the Fund to finance the project. The appraisal report prepared by the multidisciplinary team will be submitted to an internal Committee which can be called the Technical Committee. The finalized report and the Committee’s recommendations will be forwarded to the Management Committee which decides whether the Fund should participate in the financing of the project or not.

d). Negotiations

On completion of the appraisal stage, formal negotiations will be entered into between the borrower and the Fund on the terms and conditions of the Fund’s participation in the financing of the project. These negotiations result in a legal agreement that

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defines the project and specifies the program to meet the objectives.

e) Approval

After the negotiations are completed, the Fund management will submit the Appraisal Report to the Board of Directors for consideration and approval. After detailed review of all the issues concerning the project, the Board of Directors will decide to approve or reject the project.

f.) Project Implementation

The implementation phase of the project cycle will begin with the signature of the loan agreement. During this stage, the Fund and the borrower, on the basis of the appraisal report and the loan agreement will hold discussions and agree on practical procedures and modalities deemed adequate for the smooth commencement and execution of the project, particularly:

the procedure for procurement of goods and services the procedures and modalities for the execution, supervision

and monitoring of works; the procedures and modalities for disbursements the amount of the initial advance to be granted for the

execution of the project; the procedures and modalities for the management of funds

placed at the disposal of the project.

At the end of the meeting the Fund and the borrower will prepare and sign a memorandum to serve as a reference document for the first project supervision meeting.

g.) Disbursement

Following the meeting for project implementation, the borrowing country will submit a request for disbursement with all the supporting documents and the appropriate forms duly filled. The disbursement will begin when the borrower has fulfilled the conditions for disbursement. The loan proceeds will be disbursed to pay for eligible expenditures. The Fund will ensure that the Funds will finance items as indicated in the loan agreement and approved by the Fund. These items will also be procured in accordance with the Fund’s procurement procedures. h.) Project Monitoring and Supervision

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Following the provision of financing for the project and the award of various contracts between the project promoters and the suppliers and service providers, the project execution phase will begin. The borrower, who benefits from various forms as stipulated in the loan agreement will be responsible for managing and implementing the project satisfactorily. The borrower will report periodically on the project’s progress and must satisfy the Fund that the project shall attain its objectives. The Fund on its part will have the obligation to supervise the project regularly to verify its status and to ensure that the funds disbursed are as per loan agreement. In this regard, field inspection (supervision) will be organised.

Borrowing countries would have agreed with the Fund regarding performance targets they will meet. These targets are important for assessing progress and differ from project to project. Such targets might include, a given level of bridge construction in a given time period. To achieve these targets, an array of possible financial instruments would have been secured and these include loans, grants and lines of credit.

i.) Project Evaluation

When the project is completed and the loan closed, the Fund’s multi-disciplinary team will carry out an evaluation of the project. At this stage, the Fund will prepare a completion report in order to evaluate the results of the project. This evaluation will make it possible for the Fund and the borrower to identify their mistakes and achievements and will re-examine their strategies in order to make development assistance more effective.

j.) Post Evaluation

About five years after end of the project, post evaluation will be undertaken to ascertain the impact of the project. Through critical analysis, lessons can be drawn for future projects.

3.3.3.Repayment Terms

It is proposed that loans maturity will be twenty-five (25) years with a grace period of five (5) years. No interest will be charged

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on the loans to member states except service fees of 0.75% per annum on amounts disbursed and outstanding. A commitment fee of 0.5% per annum will be charged on undisbursed balances.

Repayments will be made on a semi annual basis following the end of the grace period. If a country defaults, sanctions will be applied. This includes suspension of funding projects in the country that would have defaulted.

3.3.4 Revolving Nature of the Fund

The Fund will ensure that the revolving character of its resources would be maintained since it would be the custodian of members’ contributions and other available funds. Stipulation of compliance with a set of rules would serve to ration credit among competing needs. Replenishment of resources on a regular basis by the cooperating partners and the continuous inflow of the funds from the proposed community levy would contribute towards making the Fund revolve.

3.4 Organisational and Management Structure

In order to carry out its functions efficiently, the Fund will have a Committee, the Manager and such other officers and staff as it may consider necessary to run its operations. According to its protocol, the Fund shall be administered by a Committee and a Manager.

3.4.1 The CommitteeThe Committee shall consist of Ministers who are members of the Council and whose states would have paid contributions into the Base Fund. Each member of the Fund will appoint one Minister to the Committee and each of the cooperating partners will appoint one representative. Each member and cooperating partner shall appoint an alternate to its representative on the Committee who shall be a person possessing high competence and wide experience in economic, financial and banking affairs. The Committee shall normally meet at headquarters of the Secretariat but may meet at other places as the Committee may decide. The Committee shall meet at least every twelve months or more frequently if the business of the Fund so requires. Meetings of the Committee shall be convened by the Manager on the directions of the Chairman or at the request of two thirds of the Committee. Two thirds of the members of the Committee shall constitute a quorum for any meeting.

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Each member state on the Committee shall have voting rights apportioned equal to their proportionate contributions to the Fund. All members shall collectively have a total voting block of up to fifty percent in the General Fund. Representatives of the cooperating partners shall be entitled to a voting block of fifty percent of the voting rights with voting rights apportioned equal to their proportionate contributions to the General Fund.

3.4.2 The Manager

The Manager of the Fund shall be appointed by the Committee and will attend and participate at meetings of the Committee without the right to vote. The Manager shall be responsible for the day-to-day administration of the Fund and shall conduct the business of the Fund under the direction of the Committee. The Manager shall be the legal representative of the Fund and will be supported by two assistant managers who will be appointed by the Committee. The organisational chart of the Fund is shown in Annex ii. In addition to the Committee, the Manager and Assistant Managers, the organisational chart shows details of the operating divisions of the Fund. To be in line with other similar institutions it is recommended that the Manager’s position be changed to Managing Director.

The organizational chart mentioned in Annex ii assumes that the Fund will be a stand alone organization like the ERDF in the ECOWAS region. In Annex iii, the organizational chart indicated is based on the assumption that the Fund will operate under the COMESA Secretariat in conjunction with the PTA Bank (executing agency) as the case with RISF in the UEMOA region. Under such an arrangement, some of the functions would be performed by the COMESA Secretariat such as finance and administration. The organizational chart in Annex iv is based on the assumption that the Fund will operate under the PTA bank with the latter performing some of the functions of the Fund.

3.5 Cooperation of the Fund with other Financial Institutions and Organizations

Present day global interdependence makes it highly desirable for the Fund to cooperate with institutions within and outside COMESA that are pursuing similar objectives or engaged in like activities. The nature of cooperation will vary from one organization to another. There will be several forms of cooperation in pursuit of specific objectives of the Fund. In all situations, the Fund would

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seek to establish functional relationships with agencies within and outside COMESA. The areas of cooperation will include the following:

a.) Cooperation with Similar FundsThe Fund will cooperate with similar Funds in order to exchange information, views and ideas. The objective of this cooperation will be to compare notes and learn from each other’s experience. This will lead to improvements in the way these organisations will operate as a result of sharing ideas and learning from each other the best practices in business administration and use of appropriate technology. The institutions that the Fund would cooperate with, include the ECOWAS Regional Development Fund, the West African Economic and Monetary Union and the African Development Fund.

b.) Technical Cooperation and Research

Another area which lends itself to fruitful cooperation between the Fund and other institutions is technical assistance, training, research and advisory services to COMESA countries. Cooperation would be sought with all institutions concerned with these issues in the region notably the World Bank, African Development Bank etc. These institutions have over the years accumulated vast experience in assisting countries with such issues as program loans, structural adjustment and policy formulation.

Through cooperation with these organizations the Fund will also benefit from contributions which will come in the form of technical assistance funds used to meet cost of services of consultants engaged by the Fund for assignments in support of operational work. The assignments will range from identification and preparation of Fund financed projects and programmes. These funds will also be used for training Fund staff and the member States officials, for procurement of information technology equipment and services as well as for meeting costs for technical experts attached to the Fund. It should be pointed out that the intervention of the COMESA Fund in financing infrastructural development will not be meant to compete with the institutions already involved in financing infrastructure in the region but its role will be complimentary and, therefore, there will be need for cooperation.

In the area of research and training, the Fund will cooperate with research and training institutions within and outside COMESA.

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c.) Cooperation With Bilateral and Multilateral Donors

This form of cooperation would greatly enhance the Fund’s ability to respond to the needs of its Member States requests, and could be vital in obtaining additional funds in the form of grants, donations and concessional loans.

d.) Cooperation in Co-financing

Another area of cooperation between the Fund and other institutions could be co-financing. The Fund and other co-financiers could grant loans for the same project or program under various co-financing arrangements. Co-financing include the following:

joint financing or co-financiers finance the same components in agreed proportions parallel financing- the Fund and co-financiers share financing of

different components of the project

In this regard, the Fund could participate in joint financing of large-scale multi-national projects. Another form of co-financing could be program lending to the Fund by established development financial institutions such as the African Development Bank.

e.) Cooperation in Equity Participation Arrangements

The established development financial institutions such as the ADB could participate in the capital stock of the Fund and hence increase its resources and the Fund could benefit from the experience of these institutions regarding policy making.

f.) Cooperation in Joint Financing of Activities

Cooperation with other institutions may lead to joint financing of research activities, training and feasibility studies.

It should be pointed out that the list of agencies, organisations and institutions with which the Fund might cooperate with is virtually inexhaustible.

CHAPTER FOUR

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4.CONCLUSION

The proposed operational modalities of the COMESA Fund form part of COMESA’s continuous effort to operationalise the Fund with the objective of achieving sustainable development through financing infrastructural development and providing budgetary support to member states experiencing budgetary imbalances as a result of implementing the COMESA trade liberalization programme. The successful implementation of the Fund operations along the proposed operational modalities will require the Fund to appropriately position itself in terms of sufficient preparatory work, skills mix of staff and financial resources allocated to its operations.

In crafting the proposed terms and conditions for the lending operations of the Fund, consideration was made to ensure that they directly contribute to the attainment of the stated objectives of the Fund. The proposed operational modalities, therefore, form a foundation on which detailed preparatory work for the operationalisation of the Fund can be based. It is, therefore, recommended that the momentum gained in preparation of the commencement of the operations of the Fund should be maintained. To this end, I recommend that detailed work should continue in the areas of preparation of operational polices, procedures manuals, operational guidelines, developing a resource mobilization strategy and sensitizing member states and the donor agencies regarding the operations of the Fund. For effectiveness, and to ensure smooth take off of the Fund, preparatory work, coordination and follow up of issues related to the Fund should be given priority and be taken as a full time task.

Experiences of similar institutions indicate that compensation for revenue loss plays an important role in encouraging countries to implement trade liberalization measures, thereby making it possible to achieve a Custom Union within the time frame agreed. Successful resource mobilizations is critical for the Fund to accomplish its objectives. There will be need, therefore, to craft a clear and coherent resource mobilisation strategy to ensure the viability of the Fund. It should be pointed out that success of the resource mobilization policy will be tied to the Fund’s credibility, relevance of operational policies and strategies, the political support of the member states and their financial efforts in relation to their commitments. Fund’s credibility calls for the creation and preservation of an image which should be characterised by reliable corporate governance, efficient control systems, relevant experience in the fields of project study, assessment, financing and

45

follow up. This image is also tied to a healthy portfolio and sound management.

On the basis of the resource mobilisation strategy, the Fund would be expected to mobilise both domestic and external resources to meet the financing gap for development. In this regard, the Fund will approach the donor community and invite them to become members of the Fund. In view of the financial constraints of the Fund, consideration should also be made as a matter of necessity and urgency to introduce the community levy as a way of enhancing the ability of the member states to raise their own financial resources required to finance activities of the Fund. There will also be need for the member states to increase their capital, which will contribute greatly towards success in resource mobilization. To use the resources of the Fund effectively and make a lasting impact on the region’s development, there will be need to work out a resource allocation system which is objective and equitable.

To achieve balanced development in the COMESA region, thereby reducing development disparities among the member countries, there is need for broadening the scope of the operations of the Fund to finance the least developed regions in the Common Market. These regions will be identified in all the member states and development programmes will be designed by the COMESA Secretariat in each of the identified regions with a view of achieving balanced development in the Common Market. As member countries achieve higher levels of integration, there will also be need to broaden the scope of the operations of the Fund to include compensation for areas or regions that will suffer loss as a result of the integration process, such as closed industries in an area or region which adversely affect its socio-economic development. The focus will be on promoting and supporting alternative productive activities in the region adversely affected by the integration process. Appropriate operational modalities for the Funds intervention will be crafted to deal with this potential challenge of the integration process.

Annex IPROTOCOL ON CONDITIONS GOVERNING APPLICATION OF THE COMMUNITY LEVY

The High Contracting Parties

Mindful of article 7 of the Economic Community of West African States (ECOWAS) Revised Treaty establishing the Authority of

46

Heads of State and Government and defining its composition and functions;

AND MINDFUL of Article 72 of the ECOWAS Revised Treaty introducing a Community levy to generate revenue for financing the activities of the Community;

DESIROUS of concluding a Protocol defining the conditions for the application of the Community levy and the modalities for transfer of receipts and utilization of recourses:

HAVE HEREBY AGREED AS FOLLOWS:

I DEFINITIONS

Article 1 For the purposes of this Protocol : “Treaty” means the Revised Treaty of the Economic Community of West African States signed in Cotonou on 24 July 1993;

“Community” means the Economic Community of West African States whose establishment is reaffirmed by Article 2 of the Treaty.

“Member State” or “Member States” means a Member State or Member States of the Community.

“Third country” means any non-Member State of the Community.

“Authority” means the Authority of Heads of State and Government of the Community established under article 7 of the Treaty.

“Council” means the Council of Ministers of the Community established under article 10 of the Treaty.

“Executive Secretariat” and “Executive Secretary” means the Executive Secretariat and Executive Secretary of the Community referred to under Article 17 of the Treaty.

“Fund” means the ECOWAS Fund for Cooperation, Compensation and Development established under Article 21 of the Treaty.

“Administration and Finance Commission” (AFC) means the Commission established under Article 22 (h) of the Treaty.

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II TAX BASE, ASSESSMENT AND COLLECTION

Article 2This Protocol defines the conditions for the application of the Community levy instituted in Article 72 of the Treaty.

Article 3The taxable base of the Community levy shall be the taxable value of goods, originating from third countries imported into the Community and released for home consumption.

Article 4The following shall fall outside the scope of the Community levy:

Products of ECOWAS origin (approved industrial products, unprocessed goods and traditional handicrafts) ;

A) Goods manufactured or obtained in Member States but which do not satisfy ECOWAS rules of origin:

B) Goods originating from third countries cleared for home consumption in a Member State and re-exported to another Member State.

Article 5The following shall be exempted from the Community levy:

a) Aid, gifts and non-repayable grants received by a state or by legal entities constituted under public law and destined for charitable works recognized as being for the common good:

b) Goods originating from third countries, imported as part of financing agreements with foreign partners, subject to a clause expressly exempting the said goods from any fiscal or para-fiscal levy;

c) Goods imported by enterprises under a stabilized fiscal regime in force at the date of entry into force of this protocol:

d) Goods on which Community levy has been paid under an earlier regime.

Article 6 The Community tax shall be levied on the basis of: a ) the CIF value at the port of disembarkation for imports arriving by sea;

b) the CIF value at the point of entry into Community, Customs territory in case of imports arriving by road,

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c) the Customs value at the airport of disembarkation for imports arriving by air:d) the market value for products featuring on the market price list.

Article 7The rate of the Community levy shall be fixed at one half per cent (O.5%) of the value of imports originating from third countries. This rate may be amended, as necessary every three years by Authority on the recommendation of the Council of Ministers.

Article 81)The National Customs Administration of a Member State shall be responsible for assessment and collection of Community levy.

2) Customs collectors offices of heads of Customs offices shall assess and collect all amounts receivable in respect of the Community levy. 3) Such collectors or heads of Customs Offices shall open an additional column in their ledgers to record a daily account of amounts received.Article 9

1) The securities and privileges granted to States in the collection of State fiscal revenue shall also apply to the collection of dues paid as Community levy

2) The proceeds from Community levy shall enjoy, in all Member States, the privileges and immunities provided for in the Treaty, the General Convention on privileges and immunities of the Community and the Headquarters Agreements.

3 DECLARATION AND ALLOCATION OF RETURNS

Article 10Amounts collected as community levy shall be paid by the national Administration within a period not exceeding one month from the date of collection into an account opened by the Executive Secretariat in the name of ECOWAS with the Central Bank of each Member State for States which have their own Central Banks, and with the national office of the Banque Centrale des Etats de I’Afrique l’Ouest (BCEAO) in the case of Member States the Union Monetaire Ouest Africaine (UEMOA)Article 11Amounts collected as Community levy shall be allocated as follows:

a) the ordinary budgets of Community and of its institutions, with the exception of the budget of the Fund for Cooperation, Compensation and Development;

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b) the compensation budget for loss of revenue arising from trade liberalization

c) the funding of development projects;d) any other uses as may be decided by the Authority or the

Council including any increases to the capital of ECOWAS Fund.

Article 12The budgets and other uses referred to in article 11 above shall be decided annually by the Council of Ministers as recommended by the Administration and Finance Commission.

4 Surpluses and Deficits

Article 13Any surplus recorded on the Community levy pursuant to authorized expenditure for a financial year shall be carried over into the accounts of the Executive Secretariat

Article 141. Any deficits between total authorized expenditure and proceeds from the Community levy shall, on the decision of the Council of Ministers be corrected using funds carried over from surpluses from the previous years 2. Where such deficits cannot be offset from the surpluses

carried over, there shall be reversed by either of the following methods;

I) by deferring execution of certain activities which may be postponed or for which alternative funding may be obtained

II) by requesting additional funds from Member States the deficit shall then be spread between the different budgets according to their respective share within the entire budget. The additional contribution from Member States shall be determined on the basis of the different contribution quotas applied for the budgets of the Community.

Article 15Where the deficit or surplus over three consecutive years exceeds 25% of the total vote, the Council of Ministers shall effect the necessary adjustments either by widening the tax base or, where there is a deficit, by raising the rate of the Community levy or by reducing the rate in case of a surplus.

V. ADMINISTRATION OF THE COMMUNITY LEVY

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ARTCLE 16In the Member States, regulations governing the management of disputes concerning Customs duties and taxes shall also apply to operations involving the tax base, assessment and collection of the community levy. Proceeds from contentious cases shall, with the exception of the actual Community levy, be paid exclusively to the state.

Article 17At the Community level, the Council of Ministers shall oversee all operations carried out by national Customs Administrations through the Executive Secretariat. The Administration and Finance Commission shall present an annual report to Council accordingly. Conditions governing this supervisory role shall be determined by Council.

Article 18The Executive Secretariat shall in its detailed annual report to Council on the application of the mechanism and subject to the provisions of Article 7,propose any amendments it may deem necessary or which have been submitted by one or more Member States.

VI. TRANSITIONAL PROVISION

Article 19During a transitional period of three years, commencing from the date of entry into force of this protocol:

1. Collection of the Community levy may be executed through channels other than those stipulated under article 8 of the protocol.

However, the proceeds of the Community levy shall be paid in the manner and within the time-limit provided under article 10 of this protocol.2. Total annual withdrawals from the proceeds of the Community levy by the Executive Secretary in each Member State, shall not exceed the total of its dues in respect of contributions to all budgets and grants combined.3. Contributions from Member States and their share of any

eventual call for additional funds shall be determined in accordance with existing criteria and rules of procedure.

51

4. Where there is a shortfall between revenue generated by the Community levy and the contributions due from a Member State towards all budgets and grants, the Member State concerned shall pay the difference.

5. Any surplus shall be used to settle arrears of contributions and any balance there from shall revert to the Member States.

Article 20The Minister responsible for ECOWAS affairs in each Member State shall on the 1st of January of each fiscal year, notify the bank in which the ECOWAS Community levy account has been opened, of the maximum amount which may be withdrawn from this by the Executive Secretary of ECOWAS.

The Executive Secretariat shall, in collaboration with the Member States and the ECOWAS national units, present an evaluation report to the Council of Ministers on the mechanism of the Community levy before the expiration of the transition period.

Council shall, on the basis of this evaluation report determine the arrangements necessary o ensure a smooth passage to the substantive regime.

VII.FINAL PROVISIONS

Article 22

Settlement of Disputes

1. Any dispute between a Member State and the Community with regard to the interpretation and application of this Protocol shall be settled amicably within a period of six months from the occurrence of the dispute

2. Failing this, the dispute shall be referred to the Community Court of Justice whose decision shall be final and binding.

Article 23

Sanctions

The sanctions specified in Article 77 of the Treaty shall be applicable to a Member State which fails to honor the obligations imposed on it by the provisions of this Protocol.

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Article 24Amendments and Revision

1. Any Member State may propose any amendment or revision of this Protocol.

2. All proposals shall be submitted to the Executive Secretariat which shall transmit them to Member States within thirty (30) days of their receipt. The Authority shall examine all proposals for amendment and revision at the expiration of the three-month period granted to Member States.

Article 25Deposit and Entry into Force

This Protocol shall enter into force upon ratification by at least nine (9) signatory States, in accordance with the constitutional regulations in force in each Member State.

The Protocol and all instruments of ratification shall be deposited with the Executive Secretariat which shall transmit certified true copies thereof to all Member States, notify them of the date of deposit of the instruments of ratification and register the Protocol with the Organization of African Unity, the United Nations and all other organizations as may be determined by the Council of Ministers

3. This Protocol shall be annexed to the Treaty and shall form an integral part thereof

IN FAITH WHEREOF, WE, THE HEADS OF STATE AND GOVERNMENT OF THE ECONOMIC COMMUNTY OF WEST AFRICAN STATES, HAVE SIGNED THIS PROTOCOL.

DONE AT ABUJA,THIS 27TH DAY OF JULY, 1996

(IN SINGLE ORIGINAL IN ENGLISH, FRENCH, AND PORTUGESE, ALL THREE TEXTS BEING EQUALLY

AUTHENTIC).

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H.E. MATHIEU KEREKOUPresident, Head of State, and Head of Government of the Republic of BENIN

H.E. BLAISE COMPAOREPresident of FASO and Chairman of the Council of Ministers of BURKINA FASO

H.E. CARLOS ALBERTO WAHANON DE CARVALHO VEIGAPrime Minister and Head of Government of the Republic of CAPE VERDE

H.E. HENRI KONAN BEDIEPresident of the Republic of COTE D’IVOIRE

H.E. CAPTAIN YAHYA A.J.J. JAMMEHChairman of the Armed Forces Provisional Ruling Council and Head of State of the Republic of GAMBIA

H.E. FLT. LT. JERRY JOHN RAWLINGSPresident of the Republic of GHANA

H.E. SIDYA TOUREPrime Minister and Minister of Economy, Finance and Planning of the Republic of Guinea, for and on behalf of the President of the Republic of GUINEA

HON. LUIS OLIVEIRA SANCAMinister of Trade of the Republic of Guinea Bissau, for and on behalf of the Head of State of the Republic of GUINEA BISSAU

H.E. WILTON SANKAWULOChairman of the Council of State of the LIBERIA National Transitional Government

H.E. ALPHA OUMAR KONAREPresident of the Republic, Head of State of the Republic of MALI

HON. E. AHMED OULD MINNIH

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Minister and Secretary General of the Office of the President, for and on behalf of the President of the Islamic Republic of MAURITANIA

H.E. IBRAHIM MAINASSARA BAREPresident of the Republic of NIGER

H.E. GENERAL SANI ARBACHAHead of State and Commander in Chief of the Armed Forces of the Federal Republic of NIGERIA

HON. E. MASSOKHNA KANE,Minister of African Economic Integration, for and on behalf of the President of the Republic of SENEGAL

H.E. ALHAJI AHMAD TEJAN KABBAHPresident of the Republic of Sierra Leone

H.E. GNASSINGBE EYADEMAPresident of the TOGOLESE Republic

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Annex II

WEST-AFRICAN ECONOMIC AND MONETARY UNIONUEMOA

AUTHORITY OF HEAD OF STATE AND GOVERNMENT

RULE NO 06/2006/CM/UEMOA DETERMINING INTERVENTION, ORGANISATION AND OPERATION MODALITIES FOR REGIONAL

AGRICULTURAL DEVELOPMENT FUND “(FRDA)”

THE COUNCIL OF THE WEST-AFRICAN ECONOMIC AND MONETARY UNION

(UEMOA).

CONSIDERING the Treaty establishing UEMOA, particularly its articles 1,4,20 to 25,41,101 and 102

CONSIDERING Additional protocol no ii concerning UEMOA’s sectoral Policies namely, in Article 13 and 14;

CONSIDERING Additional Act No 03/2006 dated 27th March establishing a Regional Fund for Agricultural Development;

CONSIDERING rule No 10/2001/CM/UEMOA dated 26th November 2001establishing financial rules for the UEMOA Organs;

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CONSIDERING the need to implement the UEMOA Agricultural Policy (PAU) and achieve its objectives.

Convinced that putting in place an instrument for specific financing agriculture shall enable the Union disburse the resources secured needed for the contribution towards the financing of the agricultural sector in the UEMOA member States;

On the proposal of the UEMOA Commission;

After the opinion of the Statutory Committee of Experts on the 17th of March 2006;

ADOPTS THE RULES OF WHICH THE CONTENT IS AS FOLLOWS:

CHAPTER I: OBJECTIVES AND SCOPE OF INTERVENTION OF THE FUND FOR AGRICULTURAL DEVELOPMENT

Article one: Definitions

For the purposes of these rules:

Agriculture means the sub-sectors of agriculture, forestry, livestock and fisheries;

BCEAO means the central Bank of the West African States

BOAD means the Development Bank for West African States;

COMMISSION means the commission of UEMOA

(DFS) means decentralized financing system

FID means Financial Institution for Development

IMF means Micro Finance Institution

Member State means Any State part to the Union

PAU means the UEMOA agricultural policy

RFAD means Regional Fund for Agricultural Development

UEMOA means West-African Economic and Monetary Union

UNION means West-African Economic and Monetary Union

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Article 2: General Objective of the Fund

In accordance with the provisions of the Additional Acts No 03/2001 dated 19 December

2001 and No 03/2006 dated 27th March 2006, the Fund aims at achievement of the objectives

assigned to the UEMOA agricultural policy by contributing towards the financing of the Union

agricultural sector.

Article 3: Specific objectives of the Fund

The specific objectives of the Fund shall be to finance, actions, projects, programmes and

structures aiming at:

-the adoption of the production systems and improvement of the production Environment;

- the expansion of the Common Market in the agricultural sector and management of shared resources.

- the Union agriculture into the regional and world market.

Article 4: Scope of intervention of the Fund

The intervention of the Fund consists, in financing priority actions defined by the

Union relating to agriculture, livestock, fisheries, and forestry. Under this

framework, the Fund shall intervene mainly in accordance with the following

components:

- Support for the development of the agricultural financing systems;

- Support for capacity building;

- Regional institutional investments

Chapter II ELIGIBLE ACTIONS AND BENEFICIARIES

Article 5: Eligible actions

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The priority actions contributing towards the implementation of its three main

components indicated in Article 4 shall be eligible for the Fund resources.

Article 6. Support for the development of the agricultural financing systems

The intervention of the Fund shall be to support the development of a performing

agricultural credit system and improve the credit environment for the Security of

production and producers facing risks related to the agricultural activity, as well as

for the growth of productivity and modernization of agriculture.

To do this, the resources made available to the DFI by the Fund, shall finance

mainly the actions hereafter:

- Land development: hydro agricultural development, pastoral hydraulic,

improvement of grazing, improvement of soil fertility;

- Fisheries and acqua-culture development;

- Forestry and agro forestry development, including soil degradation control

- Infrastructure and agricultural equipment;

- Production and supply of agricultural zoo technical and veterinary inputs;

- Processing, conservation and marketing of agricultural products;

- Animal and vegetable diseases control, as well as pests.

Article 7: Support for capacity building

Interventions shall be directed at the support for putting in place and building

organization and intervention capacity of the institutional structures contributing

towards the implementation of the UEMOA Agricultural Policy.

In this regard, the actions eligible for Fund shall be:

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-training in agricultural holding management and agricultural Professional

organizations as well as durable management of natural resources;

-support for the creation of regional professional organizations;

-support for the organization intra community marketing network with the third

States;

-support for training in agricultural international negotiations;

-support for professionalisation of DFS;

-support for dissemination of technologies.

Article 8: Regional institutional investment

The intervention of the Fund shall aim at financing the actions with structuring and

catalyst effects for productive investment of regional nature.

Under this framework, the actions here after shall be eligible for the Fund resources:

- Studies of regional nature in order to implement integrating programmes and

validation of their results;

- Applied research programmes of regional nature;

- Cross boarder public counterpart projects financed on external resources,

repayable;

- Institutional support programmes for national and regional structures

responsible for quality control and zoo sanitary and phyto-sanitary activities

- Support for regional institutional mechanisms for the implementation of

UEMOA Agricultural Policy.

Article 9: Beneficiaries

According to the nature of the eligible actions, the Fund beneficiaries shall be:

9.1 For infrastructure of economic and social nature:

-State;

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-Local government

-organisations in the agricultural sector.

9.2 for capacity building and job and revenue creation activities:

- State

- SME/SMI in the agriculture sector;

- Micro agricultural enterprises

- Socio professional organizations in agricultural sector;

- DFS operating in agricultural sector.

9.3 for institutional investments and regional projects;

- The UEMOA Commission;

- Member States;

- Regional institutions.

CHAPTER III: PRINCIPLES, FORMS AND CONDITIONS FOR

INTERVENTION

Article 10: Principles for intervention

The Fund intervention modalities shall be governed by the principles hereafter:

Programming principle

The UEMOA Commission shall use the programming principle to programme pluri-

annually the interventions of the fund, on the basis of the priorities defined. The

Framework document for programming shall be developed by the Commission on

the triennial basis.

Concentration basis

The Fund resources shall be concentrated on the priority actions that can help

achieve efficiently the objectives of the UEMOA Agricultural Policy. The

Framework document for programming shall specify the priority areas for

intervention.

Partnership principle

The partnership principle shall consist in intervening in technical and financial

aspects of programmes and projects, in close consultation with the member state

concerned, the Commission, BCEAO, BOAD and partners in development. This

61

partnership aims at developing complementary and synergy of actions of various

contributors following a common goal.

Principle of additionality

In order to have a real economic impact, the structural Fund resources must not be

substituted by investment public impact effected by the State and/or local

government in a given region. Therefore, the structural Fund resources supplement

the efforts made by the State, the Local government and development partners.

Article 11: Forms of interventions

The Fund shall intervene in the following forms:

Grant to finance infrastructure of socio-economic nature, capacity building,

institutional investment and regional projects;

Interests accrued from loans, credit lines and refinancing lines to finance

interventions of economic and social nature;

Loans for intervention in the areas of job creating and income generating

activities;

Guarantee for the refinancing credit operations and short, medium and long

term credits;

Grants to cushion the effects of calamities relating to animal and vegetable

diseases as well as for pest control.

Article 12: Conditions for intervention

The general conditions for the Fund assistance shall be defined in the manual of

procedures and the UEMOA Commission shall determine special conditions.

CHAPTER IV- RESOURCES FOR THE FUND

Article 13: Own resources

The Fund shall be funded by contribution from the resources obtained from theCommunity Solidarity Deduction (CSD) and from any other internal resource that

the Union may resort.

Article 14: External resources

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The Fund shall also receive any external resource, which shall be specifically allocated to

it (borrowing resources, bilateral, Multi-lateral co-operation grant, contributions from

member States etc).

CHAPTER V. ORGANISATION AND OPERATION OF THE FUND

Article 15: Organs of the Fund

The Fund organizational framework shall be constituted by: The Council of Ministers;

The Advisory Technical Committee.

Article 16: The Council

The Council of Ministers shall define general orientations and approve the overall amount allocated to the Fund on the basis of multi-annual programming established by UEMOA.

Article 17: Commission

The UEMOA Commission shall be responsible for the smooth operation of the Fund. To this effect, it shall:

- Adopt a manual of procedures for the Fund interventions;

- Prepare the programming framework documents, as well as the financing

agreements;

- prepare programme of activities and annual budget for the Fund;

- co-ordinate the implementation of the Fund assistance, as well as monitoring and

evaluation of its activities.

-. manage finances and accounts of the Fund;

- prepare financial contributions for member States and Institutions and decides the

amount of financing;

63

- prepare an annual progress report on the Fund;

- negotiates and mobilizes external resources to replenish the Fund.

Article 18: Advisory Technical Committee

The Advisory Technical Committee shall formulate recommendations to the Commissions. The Commissioner responsible for the department for Rural Development and Environment or his/her representatives from the Commission, BECEAO, and BOAD.The UEMOA Commission may call upon, if need be, any institution or qualified expert on the basis of the matters dealt with.

The operation modalities of the Committee shall be specified by the Commission’s implementation rules.

Article 19: Support Institutions

The UEMOA Commission may delegate management of some operations to regional support institutions (orders, monitoring and disbursement), according to modalities of application to be defined by the way of the rules of implementation. The regional support institutions may rely on the development financing institutions (DFI) in order to reach final beneficiaries of the assistance of the Fund.

In the case of need, the Commission may, itself, directly entrust these institutions with operations.

CHAPTER VI FINAL PROVISIONS

Article 20

In accordance with the provisions of Article 24 of the Treaty of the Union, the Commission shall have power to lay down by way of the implementation rules the application measures of these rules.

These rules shall enter into force on the date of its signing and shall be published in the Union’s official Gazette.

Ouagadougou 2nd May 2006

Jean-Baptiste M.P. CompaoreChairmanFor the Council of Ministers

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65

Annex IV

66

Annex IV COMESA FUND

ORGANISATIONAL CHART

REFERENCE LIST

African Development Bank / African Development Fund (1997) Disbursement Handbook.

African Development Bank/ African Development Fund (1997) Loan Account, Billing and Recovery Handbook.

67

COMESASECRETARY GENERAL

ASSISTANT SECRETARY GENERAL

MANAGER

ASSISTANT MANAGERINFRASTRUCTURE

FINANCING

ASSISTANT MANAGER BUDGET SUPPORT

LOAN ADMINISTRATION

OPERATIONS AND POLICY

PARTNERSHIP AND COOPERATION

DISBURSEMENT AND MONITORING

OPERATIONSAND POLICY

African Development Fund (2003) Agreement Establishing the African Development Fund.

African Development Bank / African Development Fund (2004) Guidelines on Development Budget Support Lending.

African Development Bank / African Development Fund (2004) Annotated Format for Bank Group Results-Based Country Strategy Paper.

African Development Fund (2005) ADF-X Financing Policy Guidelines.

African Development Bank (2006) ADB Bilateral Technical Assistance Programmes Handbook.

COMESA Secretariat (2002) Establishment of a COMESA Compensation and Infrastructure Fund.

COMESA Secretariat (2002) Protocol Relating to the Fund for Cooperation, Compensation and Development of the Common Market for Eastern and Southern Africa.

Davenport M. (2006) Funding Proposals for a Regional Integration Budget Support Facility.

Economic Commission for Africa (1981) Report of the Joint Study Team on the Establishment of a Sub-regional Trade and Development Bank.

ECOWAS Bank for Investment and Development (1999) Protocol Report to the ECOWAS Bank for Investment and Development.

ECOWAS Bank for Investment and Development (2003) Vision of the Bank.

ECOWAS Bank for Investment and Development (2004) Annual Report.

ECOWAS Bank for Investment and Development (2005) The Group’s Business Plan, 2005 – 2007

ECOWAS Fund (1976) Protocol Relating to the Fund for Cooperation, Compensation and Development of the Economic Community for West African States.

ECOWAS Fund (2001) Annual Activity Report.

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Marape D.B and Chanthunya C. (1993) Establishment of a Credit Scheme in Support of intra-PTA Trade Expansion and Economic Integration.

Ronsholt E. (2004) Note on Options for a Trade Integration Budget Support Facility for Eastern and Southern African Region.

United Nations (1985) The Establishment of an African Monetary Fund: Structure and Mechanism.

West African Economic and Monetary Union (2006) Rule no. 06/2006/CM/UEMOA Determining Integration, Organization and Operation Modalities for Regional Agricultural Development Fund.

69