AU Watch

Financial Institutions Unit (including the African Development Bank)

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What do you know about the AU financial institutions? We hope you are not confusing it with the African Development Bank. Ok, here’s what we also know. Probably not much more than you.

The Lome Summit (2000) adopted the Constitutive Act of the AU. That you know.It specifies the objectives, principles, and organs of the AU. All 56 African States have signed the Act, which provides for establishment of a wide variety of institutions, including the African Central Bank; African Monetary Fund; and African Investment Bank. Way back in 2005, the AU held a meeting of independent experts in Addis Ababa, Ethiopia, to consider concept papers and draft Protocols prepared by the AU Commission regarding the three institutions.

Yes, you are right. There is no African Central Bank. We are still talking. The decision to establish an African Central Bank was enshrined in Article 44 of the Abuja Treaty (1991), and Article 19 of the Constitutive Act, adopted in Lomé, Togo in 2000 which stated, respectively, the need to establish an African Monetary Union through the integration of regional monetary zones, and the establishment of three African Financial Institutions namely the African Investment Bank (AIB) in Tripoli, Libya; the African Monetary Fund (AMF) in Cameroun; and the African Central Bank (ACB) in Abuja, Nigeria.

And the African Investment Bank. Still on paper. The African Investment Bank’s (AIB’s) purpose will be to foster economic growth and accelerate economic integration in Africa, as envisaged by articles 6 and 44 of the Abuja Treaty.

And the African Monetary Fund?Still on paper. The African Monetary Fund’s (AMF’s) purpose will be to facilitate the integration of African economies by eliminating trade restrictions and providing greater monetary integration, as envisaged under articles 6 and 44 of the Abuja Treaty. The Fund is expected to serve as a pool for central bank reserves and AU Member States’ national currencies. The Fund will prioritize regional macro-economic objectives in its lending policies.

Aspiration 7 of Africa’s Agenda 2063 envisions “Africa as a strong, united, resilient and influential global player and partner” with a significant role in world affairs.To achieve this Aspiration, the Agenda 2063 framework identifies the need for Africa to improve its partnerships and refocus them more strategically to respond to African priorities for growth and transformation; ensure that the continent has the right strategies to finance its own development and reduce aid dependency through the establishment of continental financial institutions.

The role of these institutions is to implement the economic integration called for in the 1991 Treaty Establishing the African Economic Community (Abuja Treaty). The 1999 Sirte Declaration, under which the OAU decided to create the AU, also called for the speedy establishment of all institutions proposed in the Abuja Treaty. So, the creation of Pan-African Financial Institutionsaims at accelerating integration and socio-economic development of the continent through the establishment of organisations which will play a pivotal role in the mobilisation of resources and management of the African financial sector.

What about the Pan African Stock Exchange (PASE) and the African Central Bank (ACB)? Are these ones?

In addition, the AU Commission was mandated by the AU Assembly (Assembly/AU/Dec.109) in January 2006, in Khartoum, Sudan, to carry out a feasibility study on the establishment of a Pan-African Stock Exchange (PASE). In this respect, the three financial institutions mentioned above and the PASE are referred to in the AU Commission as the Pan-African Financial Institutions (PAFI). The Department of Economic Affairs has full responsibility for coordinating the activities leading up to the actual establishment of these institutions.

The African Central Bank (ACB) will be responsible for managing monetary and exchange rate policy in Africa. It will be preceded by the African Monetary Institute, which will lead the technical, political, statistical, legal and institutional preparatory work for the establishment of the ACB based on a gradual approach. The Fund will lend support to AU organs and RECs in the implementation of the monetary cooperation programme, working closely with regional monetary institutes and subregions to improve macroeconomic convergence and financial integration. In this regard, the AU Commission and the Association of African Central Banks (AACB) has set up a joint committee and drawn up a joint strategy for the establishment of the African Central Bank, a strategy in which the African Monetary Institute will play a vital role. The African Investment Bank has as objective to stimulate the economic integration and development of the Union by financing development projects, in accordance with Union goals.

We hope we have not added to your confusion.

The Unit monitors the finances of the AU including the work of the Recs, paying close attention the bank’s role in the New Partnership for Africa’s Development (NEPAD) initiative, which aims to reduce the gaps that exist between Africa and the developed world, and to achieve the Millennium Development Goals.