I think the fundamental problem with the African Union is it is a weak Union of weak states. It is like a club. The club members are mostly composed of weak democracies and dictatorships. As a result when we see the AU doing something we perceive as pro-active on a African issue it is because they were told to do so. This is why there was no action on Libya, Tunisia, or Egypt. The AU is composed of the current African leaders. In its current form the AU will mirror the average state of African countries and will only become an effective institution after a large majority of countries in Africa are themselves ran by effective governments.
Another approach would be to change the AU.
A first step would be to give the AU a parliament directly elected by African citizens. The next step would be to make the president elected by the parliament. This would make it into a real institution which derives its power from the people rather than corrupt leaders. Right now the AU is too far removed from the African people. Ok some elections would be shady but my hope is on average we would get better representation. In addition many of the elections which take place are not merit based. The concern is more on rotation to ensure members states also get a change to hold certain positions. I mean look at the composition of the peace and security council and you get the point.
3 year term members: Nigeria, Equatorial Guinea, Kenya, Libya, Zimbabwe.
In their defense they probably modeled it after the UN, another weak institution. However at least in the U.N. the U.S. strong influence which sometimes verges on being a bully gives the institution some semblance of functioning. In Africa no country took on this role.
Next financing must be taken care of. Imagine alot of the AU funds come from Libya. With this in mind how can you expect the institution to be credible and sound. A means of ensuring adequate funding must be found. You can't expect a institution to do anything without its own proper funds. I mean for most interventions they have to first ask the U.S or Europe for money. While Africa's GDP is above $ 2 trillion. Imagine 0.1% of that is $2 billion. The current budget is $250 million.
However I don't see this happening as no country want to give up its sovereignty. I personally have no problem with countries giving up sovereignty if they are proper institutions and representation of the people.