Sunday, March 4, 2012

A Study of the African Union Finances and Budgeting Practices

Flag of Organization for African UnityImage via Wikipedia


The survival of any organization, regardless of whether it is large or small, national or international, depends on the flexibility and effective administration of its fiscal matters. The advancement of information technology and the proliferation of academic research in the last few decades ushered in the much-needed know-how and expertise in terms of monetary investments. The African Union (AU), founded in 2002, evolved out of the former Organization of African Unity (OAU) that was founded in 1963 in Addis Ababa, Ethiopia by a group of African leaders under the auspices of former Emperor Haile Selassie (Udombana, 2002). The AU evolved out of two groups of African nations: the Casablanca Group and the Monrovia Group (Genge, Kornegay, and Rule, 2000). Organizations that have strong economic foundations tend to survive longer than those managed with scarce resources. Surprisingly, the AU, that is almost foreign aid dependent, has been able to survive for a long period. In the last few decades, despite existence of various political, social, and economic upheavals, the AU has remained an exemplary force due to its ability to stay on course and remain part of the international community. The purpose of this paper is to uncover the fiscal administrative strictures that make the AU effective and is divided into various sections, each delving into an issue of particular interest to fiscal public sector.

Mission and goals of the organization

In its initial conception, the Union was founded on the principles of uniting the nations that constitute the massive African continent and was modeled from the EU (Steinberg, 2001). It was established on the notion of partaking in the elimination of apartheid and colonialism in the continent. The mission and goals of the AU include valuing diversity and respect for joint effort, putting the interests of Africa above everything, observing transparency and accountability, uprightness and fairness, efficiency and expertise, and propagation of information and knowledge. The AU is on the forefront of reducing conflicts in afflicted parts of the continent through the creation of contingents of multidisciplinary rapid deployment forces. It is strengthening to overcome humanitarian disasters and as well struggling to integrate into the international community of nations.

Ethical Considerations in Finance and Budgeting

There exist ethical considerations in the finance and budgeting systems of the AU. The AU spends large sums of money for the protection of civilians in war prone regions of the continent yet little is done to deter belligerent parties from causing harm to innocent unarmed civilians and their properties. Despite receiving considerable financial resources for its peacekeeping operations in southern Sudan, the AU has been unable to keep at bay antagonistic forces taking the lives of poor southern Sudanese citizens and the repressive Janjaweed militia that wrecked havoc in Darfur. The AU des not have the might and financial capabilities that can allow it to transcend borders and pursue enemies at long distances (Williams. 2006). Despite article 4(h) of the AU charter stipulating the use of force when incidents like genocide and crimes against humanity occur, in essence, the Union has been unable to meet its commitments in reclaiming peace in various parts of the continent such as in Somalia and Rwanda (Williams, 2006). The Union is beset by unprofessionalism and abuse of office by management and employees hailing from distinct backgrounds. Lack of qualified personnel, poor communication and linguistic barriers are some of the elements of concern that place a barrier in the creation of a strong, effective workforce (Ping, 2009).

Technological considerations

Modern technological innovations improve efficiency within organizations and if effectively used in the finance and budgeting sector, can bring significant improvements and garner support from shareholders and stakeholders as well. The AU has a lot to achieve from technological use. In the last few years, the AU has seen significant improvements especially with the establishment of an African parliament, a banking institution, and regional economies. There have been drastic improvements in the fields of technology within the AU since the start of the Arab Spring in 2011 (ACSS, 2011). Demand for dignity and political inclusion among the youth imitating the political changes visible in North Africa has never been so captivating. As elucidated by Franklin and Raadschelders (2004), favoring one determinant over another, may result in dilemmas for decision-makers. The use of technology has been skyrocketing for the AU primarily as a result of the effects of globalization, human interconnectedness, and global integration. Globalization evolved out of the modernization of the 1950s and 1960s and there is much talk about market and capital proliferation among nations that share common interests and cultural elements that make communication possible (Cooper, 2001).

Applicable laws, regulations, and policies

The Union is mainly guided by seventeen institutions that are responsible for its effective operations and financial stability. The African Heads of State and Government (AHSG) is drawn from the fifty-three leaders of the Union; others are the Executive Council (EC), the Permanent Representative Committee (PRC) that act like ambassadors of their respective nations, a legislative assembly known as the Pan-African Parliament, a judicial court, and three banking institutions (Tieku, 2004). Fear of state draconian laws continues to drive thousands if not millions of educated African intellectuals and professionals out of the continent that ultimately lead to brain drain and thereafter placing a strain on important social services. Authoritarian rule still captures the continent’s political spectrum with almost 40% of African nations still reeling under dictatorial repression consequently triggering unemployment, underdevelopment, and social decline (ACSS, 2011).

The stability of the African business enterprise is held aback by government bureaucracy and denied competition by a penumbra of stiff governmental legislations, that include lack of empowerment and limitations on foreign investments. Among the applicable laws and legal policies that bind the AU to other nations in the fields of trade and industry is the ACP-EU Cotonou agreement that opened the doors for better bilateral agreements (Udombana, 2004). Despite its explosive population growth that exceeds 700 million, the African continent accounts for only 1% of the world’s GDP and a mere 2% of international trade. What holds African products back and not fare well in the international markets, are the stringent measures that include imposition of hefty tariffs by industrialized nations in the European rim and North America. These nations feel African products to be of inferior qualities and having health hazards. However, according to Corkin & Burke (2006), the People’s Republic of China is filling the vacuum where Western powers have failed. China is playing a great role in assisting African nations in infrastructural developments. China is helping African nations so as to extract for itself the vast natural resources that remain untapped in the African continent. Communist China is engaged in Angola for oil; it is heavily engaged in Tanzania, Malawi, Sierra Leone, and Zambia.

Evaluation of budget process and revenue sources

One simple budget process that can be of vital importance to the AU’s financial operating procedures would be the use of the operating budget plan. This is a system that allows organizations to be able to summarize annually allotted monetary resources and succinctly be able to accelerate smooth operations of their existing valuable resources without losing tack. Udombana (2004) perceives that there exist challenging business relations between the AU and nations in the Caribbean rim, the EU, and North America. European Aid to the AU for the fiscal year 2008 was estimated at $28,656,819 (EuropeAid, 2008). The AU’S use of the Government Finance Officers Association (GFOA) budgeting system which is a specific budgetary system applicable to public finance could be of valuable use as it is a three-fold comprehensive budgeting operating procedure that can be easily applied when financial officers have the vital tools and expertise necessary for maintaining a mammoth organization like the AU.

Impact of internal factors

The Union has multiple internal factors that could impede its strategic planning and these include economic disparities, gender imbalances, pandemics, internal strife in states within the Union, drought, locust invasions, and a plethora of problems that evolve without warnings. Unlike the EU, the AU evolved as a result of colonialism and that nations that constitute it are regarded as multi-states and not nation-states as in the case of the EU (Steinberg, 2001). Money mismanagement at times evolve as fractions of a budget have to be sent to other regions that need immediate attention to overcome major challenges like unanticipated catastrophes and other natural disasters having destabilizing effects. Besides existence of antagonism that exists within the Union leadership, foreign hands at times meddle with the effective administration of the Union’s fiscal matters. Political instability and internal strife have had adverse effects on the economies of many states ruled by dictators. Besides the Arab Spring uprising that gripped the northern part of the continent, violent demonstrations have been seen in Djibouti, Cote d’Ivoire, Swaziland, Guinea Bissau, Mauritania, Gabon, Cameroon, Benin, Malawi, Senegal, Uganda, and Kenya respectively (ACSS, 2011). Only seven African countries fall under the category known as ‘consolidating democracies’; twenty are perceived as ‘democratizers’; eleven are ‘semi-authoritarians’; while another eleven are absolute ‘autocracies’ (ACSS, 2011). Political instability, poverty, repressive regulations, disease, human rights violations, and impermanence of nationhood are some indicators that lead to economic stagnation of the AU. The breakup of the former OAU came as a result of the improper handling of the African Economic Community (AEC), which, according to Tieku (2011), had all the hallmarks of functional and structural flaws. Despite changes in governance, the AU remains in economic limbo.

Use of cost-benefit analysis

The AU is a massive organization that has a working structure alike that of the EU and the UN. According to Mikesell (2011), separation of budgets is necessary if efficiency and financial elegance is to be experienced in business transactions. The presence of corruption has had adverse effects on the AU’s application of cost-benefit analysis. Corruption is an endemic factor that is visible in almost every country and that it is an immoral act that benefits the office-bearer or politician Nye (1967). Corruption in African states is so widespread that it is synonymous with weed decimating a healthy plant. Problems do exist in the management of the environment in many African countries whose tourism industries remain in infancy. The spread of various diseases that kill humans and animals alike continue to be of concern for many African countries whose medical and veterinary facilities are no match for the yearly spread of contagious diseases that cripple vast populations. However, working in concert with various international organizations, many African states have been able to emerge successful in combating diseases having catastrophic consequences though a lot needs to be done by these nations to achieve self-sufficiency in the medical field.

Cash management and investment strategies

The biggest investment institution for the AU is the African Development Bank (ADB) whose current temporary head office is in the city of Tunis, in Tunisia. It was relocated from its former base of Abidjan due to insecurity in the West African nation of Cote d’Ivoire. An African multilateral banking system that exists to be of service to the entire nations that constitutes the broader AU, ADB was established to eradicate poverty and improve the livelihoods of Africans in general (AfDevInfo, 2011). Founded in 1964, ADB has fifty-three shareholders that are primarily member states of the AU and twenty-four foreign entities coming from countries in Asia, Europe, and America.

Assessment of overall financial condition

Assessment and auditing of the AU finances is the prerogative of qualified AU auditors and financial experts who work in concert with foreign-based donor employees tasked with keeping an eye on effective use of foreign aid. The AU relies on foreign economic powers to finance its operations. The EU, some Middle Eastern countries, China, and the U.S. are by far the largest donors of the AU in terms of military infrastructure earmarked for peacekeeping operations, fight against pandemics, containment of HIV/AIDS, deforestation, control of malaria; infrastructures such as hydro-electric power generation, construction of medical facilities, educational institutions, and student scholarships. The AU budget for the fiscal year 2011 was estimated at $256,754,447 mostly from donors and a few generous entities residing in the continent (EuropeAid, 2008). The AU’s expenditure is mainly spent on its own operation and that it is a non-profit organization that lacks investment of its own with the exception of the African Development Bank (ADB) that serves as the only financial institution shared among member states. Without assistance from foreign donors, the AU may not be able to survive on its own. Nations within the Union have a funds collection system where every nation has to pay a certain amount of money for the upkeep of the Union official operations. However, some states tend to be delinquent in their remunerations.


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