Empowered Lives Resilient Nations AFRICAN INTEGRATION FUND A special continental fund for the implementation of the priority regional integration and minimum integration programs of the African Union Commission DRAFT FEASIBILITY STUDY Prepared by: Oumar SECK Wilfred THARIKI October 14, 2013 1 TABLE OF CONTENTS Disclaimer Notice 4 List of Acronyms and Abbreviations 5 1.0 EXECUTIVE SUMMARY 8 2.0 INTRODUCTION: PROJECT RATIONALE, BENEFICIARIES AND DELIVERABLES 14 2.1. The Regional Integration Agenda 14 2.2. Project Genesis and Rationale 14 2.3. Scope and Deliverables of the Study 15 2.4. Beneficiaries of the Study 15 3.0 METHODOLOGICAL APPROACH 16 4.0 SOCIO-ECONOMIC, POLITICAL AND INSTITUTIONAL CONTEXT 18 4.1 Introduction 18 4.2 Regional Socio-economic Overview 18 4.2.1 Population 18 4.2.2 Political and Institutional Framework: The Regional Integration Agenda 19 4.2.3 Socio-Political Context and Outlook 21 4.3. Economic Outlook 22 4.3.1. Economic growth 22Year A for 4.3.2 Foreign direct investment 23 4.3.3 Review of Africa’s Key Economic Sectors 23 4.3.4 Risks 26 4.3.5 Policy Recommendations 27 4.4 Regional Investment Climate and Business Enabling Environment 27 5.0 TRADE PATTERN IN AFRICA 29 5.1. Africa’s International Trade 29 5.2. Intra-African Trade 30 6.0 RE-ACTUALIZED MIP AND PRIORITY REGIONAL INTEGRATION PROGRAMS AND PROJECTS TO BE TARGETED BY THE AIF 31 6.1. The MIP as Initially Planned 31 6.2. Re-actualizing the MIP and Identifying Priority Regional Integration Projects 33 6.3. Progress in the Regional Integration Agenda 34 6.4. Free Movement of People 36 6.5. Macroeconomic Convergence 36 6.6. Investment Promotion and Competition Policies 37 6.7. Trade and Intra-African Trade Development 38 6.7.1. African External Trade Pattern 39 6.7.2. Addressing Africa’s Poor Regional Trade Performance 39 6.8. Energy and Infrastructure 42 6.8.1. Africa’s Massive Infrastructure Gap 42 6.8.2. Program for Infrastructure Development in Africa (PIDA) 44 6.9. Agriculture and Rural Development 46 6.9.1. The Unrealized Potential of Africa’s Agriculture 46 6.9.2. Initiatives at REC’s Level 46 6.9.3. Comprehensive African Agriculture Action Program (CAADP) 47 6.10. Accelerated Industrial Development of Africa (AIDA) 49 6.11. Social Affairs 50 6.12. Peace, Security and Political Affairs 51 2 6.12.1. Political Affairs 51 6.12.2. Peace and Security 52 6.13. African Charter on Statistics and Strategy for the Harmonization of Statistics in Africa 52 6.14. Capacity Building Program of the AUC, RECs and Member States 53 6.14.1. Capacity Building in Advanced PSD and Regional Integration Project Planning and Implementation 53 6.14.2. Capacity Building in Financial Resources Mobilization 53 6.14.3. Mainstreaming Regional Integration in the Institutional and Policy Framework of Member Countries 54 6.14.4. Capacity Building for Ministry of Justice and Constitutional Affairs 54 6.15. Best Practice Sharing in the Management of the Regional Integration Process 54 6.16. Typology of the MIP and Priority Regional Integration Program/Project Activities 57 7.0 THE AFRICAN INTEGRATION FUND 59 7.1 Rationale for a Dedicated Funding Vehicle for the MIP and the Priority RI Programs and Projects 59 7.1.1. Economic Rationale 59 7.1.2. Financial and Risk Mitigation Rationale 59 7.1.3. Slow Progress in the Implementation of the Abuja Treaty 60 7.1.4. Benefits of the AIF 61 7.2 Alternative Funding Options for the MIP 61 7.3 Multi-donor Trust Fund (MDTF) as the Preferred Funding Model 62 8.0 STRUCTURE, MANAGEMENT AND OPERATIONS OF THE FUND 63 8.1. Critical Design and Structuring Elements for the AIF 63 8.2. Structuring the African Integration Fund 64 8.2.1. Type of Fund 64 8.2.2. Mission, Goals and Financing Modalities of the Fund 64 8.3. Size of the Fund 65 8.4. Operations and Management of the Fund 68 8.4.1. Hosting and Administration of the Fund 68 8.4.2. Capital Preservation and Liquidity 70 8.4.3. Procedures for accessing the fund 70 8.4.4. Procedure for Approval of Projects and Project Eligibility Criteria 71 8.4.5. Disbursement Channels 73 8.4.6. Monitoring and evaluation 73 8.5. Governance of the Trust Fund 74 8.6. Relationship to other Related Funds 76 9.0 RESOURCE MOBILIZATION STRATEGY 77 9.1. Context of the Resource Mobilization Strategy for the AIF 77 9.1.1. Challenges Faced by the AUC and RECs 77 9.1.2. Resources Mobilization Initiatives in Support of Regional Integration 77 9.1.3. Increased International Interest for the African Continent 77 9.2. Resources Mobilization Principles and Tools 78 9.2.1. The AIF as a Catalyst, Synergy Partner and Bridge Financing Vehicle 78 9.2.2. Compliance with Donors’ Standards and Norms 78 9.2.3. Resources Mobilization Channels 79 9.2.4. The AIF Resources Mobilization Options and Opportunities 79 9.3. Implementing the AIF Resources Mobilization Strategy 80 9.3.1. Traditional Donors’ Resources Mobilization Strategy 80 9.3.2. Emerging Donors Resources Mobilization Strategy 82 9.3.3. Internal Resources Mobilization through Enhanced and Rationalized Member States Contribution 84 9.3.4. Commercial Resources Mobilization 85 9.3.5. Private Sector Resources Mobilization 87 9.3.6. Philanthropic Resources Mobilization 87 10.0 ROLLOUT AND IMPLEMENTATION PLAN 89 10.1 Approach to the Operationalization of the Fund 89 10.2 Implementation Timetable 89 11.0 CRITICAL SUCCESS FACTORS AND RISKS 91 3 11.1. Critical Success Factors 91 11.2. Risks and Risk Mitigation 91 TABLES: Table 1: Project Deliverables and Activities 17 Table 2: Selected Social Indicators – Africa 19 Table 3: Selected Macroeconomic, Social and Ease of Doing Business Indicators by Sub-region - Africa 28 Table 4: Value of trade within Groups Shares of Africa’s Trade 30 Table 5: Performance in Infrastructure Coverage – Africa 43 Table 6: Sources of Funding of the Program Budget of AU and its Organs 60 Table 7: Sources of Funding of the Overall Budget (Programs + Operations) of AU and its organs 60 Table 8: Sizing the Fund 66 Table 9: Overhead Costs per Year for the Fund 67 Table 10: Operating Expenses of the Fund 67 Table 11: Investment requirements for the Fund 68 Table 12: Project Eligibility Criteria 72 FIGURES: Figure 1: 5-Year Average GDP Growth Rate by Region (Africa versus Other Regions) 22 Figure 2: Evolution of African Trade 1999 – 2009 29 Figure 3: Evolution of African External Trade 39 Figure 4: AIF Governance and Management Framework 75 Figure 5: AIF Resource Mobilization Strategy 88 Figure 6: Project Rollout and Implementation Schedule 90 BOXES: Box 1: New Partnership for Africa Development 19 Box 2: Key Policy/Strategic Agenda & Steps for the Realization of the C-FTA 41 Box 3: Summary CSF Donor/Concessional Fund Mobilization 81 Box 4: Summary CSF BRIC Resources Mobilization 83 Box 5: Summary CSF PPP Funding Mobilization for Infrastructure Projects 86 APPENDICES Appendix 1: Selected Trust Fund Related Glossary 92 Appendix 2: Development Partners 94 Appendix 3: List of Selected Sovereign Wealth Funds (2011) 97 Appendix 4: List of Wealthiest Philanthropic Organizations (2012) 99 Appendix 5: Innovative Resource Mobilization Mechanisms 102 Appendix 6: World Bank and AfDB-managed Trust Funds Covering Africa 104 Appendix 7: Rules & Regulations of a Partnership Fund 109 Appendix 8: Sample Trust Funds and Co-financing Framework and Fund Administration Agreements 110 Appendix 9: Categories of Project Activities of the MIP and Priority RI Projects to be Supported by the AIF 146 Appendix 10: Program and Project Formulation Framework 150 Appendix 11: Questionnaire 153 Appendix 12: List of Institutions and Persons Met During Field Mission 157 Appendix 13: Terms of Reference 158 BIBLIOGRAPHICAL REFERENCES 176 DISCLAIMER NOTICE This document has been produced with the financial assistance of the UNDP. The views expressed herein can in no way be taken to reflect the official opinion of the UNDP nor of those of the African Union Commission. 4 LIST OF ACRONYMS AND ABBREVIATIONS ACP African, Caribbean and Pacific ACGM African Credit Guarantee Mechanism AEC African Economic Community AFC Africa Finance Corporation (Nigeria) AfDB African Development Bank AFP African Financing Partnership AFREXIM African Export-Import Bank AFRICA50 Fund Planned Infrastructure Fund of the AfDB targeting to raise US$ 50 billion AGA African Governance Architecture AGOA African Growth and Opportunity Act AIB African Investment Bank AIDA Accelerated Industrial Development of Africa AIDF African Infrastructure Development Fund AMU Arab Maghreb Union APSA African Peace and Security Architecture ASEAN Association of South East Asian Nations ATI Africa Trade Insurance Corporation AU African Union AUC African Union Commission BEE Business Enabling Environment BNDES Banco Nacional de Desenvolvimento Econômico e Social (Developt. Bank of Brazil) BRICS Brazil, Russia, India, China, South Africa CAADP Comprehensive African Agriculture Action Program 3ADI All Africa Agricultural Development Initiative CADF China-Africa Development Fund BCEAO (in French) Central Bank of West African States BEAC (in French) Central Bank of Central African States CCI Chamber of Commerce and Industry CCIA Chamber of Commerce, Industry and Agriculture CEMAC Commission Economique et Monétaire de l'Afrique Centrale CDC Commonwealth Development Corporation CDE Centre for Development of Enterprise CEN-SAD Community of Sahel-Saharan States CEPGL Communauté Economique des Pays des Grands Lacs C-FTA Continental Free Trade Area CIGL Conférence Inter-Gouvernementale des Pays des Grands Lacs COMESA Common Market for Eastern & Southern Africa DAC