President Uhuru Kenyatta addresses East Africa Legislative Assembly in
Nairobi last month. There can be no successful monetary union if there
is no political union first. FILE
By Charles Abugre
If you are an East African citizen or policy
maker, you will be forgiven if you have never heard of this group, given
that no East African Country was a member of the group in its founding
in 2006 (except Ethiopia, if that counts).
This group has since met 11 times, twice in Africa, and was to meet next in Abuja, Nigeria, on Friday last week.
The Leading Group on the Innovative Financing of
Development (The Leading Group) was the brainchild of former French
President Jacques Chirac, who convened a ministerial Conference in 2006
in Paris in which 93 Countries and all the leading development
organisations, including the then UN Secretary- General, Kofi Annan and
the then Chairman of the African Union, Denis Sassou Nguesso, President
of the Congo Republic, attended.
The Paris Forum was Chirac’s answer to Prime
Minister Tony Blair and then Treasury Secretary Gordon Brown’s big do at
Gleneagles, a year before when the duo used the UK hosting of the G8
Summit to launch a development strategy for Africa, and from which the
most elaborate aid strategy was launched – the Gleneagles Plan of
action.
The latter sought to tie down the G8 and the
subsequently the OECD to a time plan to deliver their aid commitments as
part of their commitment to the Millennium Development Goals (MDGs).
The Innovative Finance initiative can be traced
back to 2002 when a Heads of State summit was held in Monterrey, Uruguay
to consider strategies to finance development, including the MDGs.
The Monterrey Consensus on the Financing of Development, included a statement calling for innovative mechanisms to raise money.
A Technical Group on the subject presented its
report in 2004. In the same year, Brazilian President Luiz Inacio Lula
da Silva, hosted a United Nations meeting of World Leaders on “Action
against Hunger and Poverty”, which also called for innovative sources of
finance and a Declaration to that effect was subsequently signed by 79
countries in 2005.
The Paris Forum was the first substantive global
gathering on the subject, where a Leading Group of 40 countries was
established to promote the idea.
What qualifies as “innovative sources of
financing”? Is this the same as “financial innovation”? No, if the
latter refers to the creative means by which investment bankers made
money by manipulating money without necessarily lending to the real
sector of the economy. That strategy crashed in 2007/8 and the world is
still paying the price for it.
“Innovative Sources of Financing” as promoted by
the Leading Group refers to specific mechanisms to raise money for
projects which are outside the traditional forms of tax-based aid or
traditional forms of private capital flows, whether debt, equity,
portfolio capital or FDI
They are innovative because the instruments are
entirely new but that old instruments such as taxation, or debt, or
corporate investments, or market-based climate financing tools are used
differently to projects largely in the social sectors of which
healthcare has been the leading sector.
The innovative instruments so far explored include
small taxes on airline tickets deducted by the state to support
UNITAID, a global health initiative that funds, medicines, diagnostics
and prevention against HIV/Aids, Malaria and TB.
Opportunity also exists in instituting a financial
transaction tax (0,02 to 0,2 per cent) applicable to securities and
high frequency trading in the money markets.
The Financial Transaction Tax was originally
conceived as a mechanism to avoid global financial instability but was
subsequently promoted by NGOs as a means of plugging aid gaps. The
European Union is now considering it as a means of plugging its own
fiscal gaps.
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