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African Development Bank must gear up for a more proactive role

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African Development Bank must gear up for a more proactive role

Photo by Reuters
Akinwumi Adesina

1st September 2015

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Africa’s only regional bank, the African Development Bank Group (AfDB), has come a long way since its near collapse in 1995. It now reflects its mandate to fight poverty by aiding public and private investment projects that promote socioeconomic improvement.

The bank’s advances under the decade-long leadership of outgoing president Donald Kaberuka have been driven by a number of factors. For example, it has joined forces with other multilateral agencies such as the World Health Organisation and the World Bank to fight health epidemics such as HIV/AIDS, polio and ebola.

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It has also bought into programs such as the highly indebted poor countries initiative, millennium development goals, food security, sustainable growth and financial inclusion. And it has raised awareness about the importance of closing Africa’s huge infrastructure deficit.

As commendable as the turnaround has been, Africa’s only multilateral development and finance institution has big and urgent challenges ahead. These include how it is financed, its governance structure and its need to develop a more effective network of multilateral partnerships.

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How can the incoming president Akinwumi Adesina ensure that the bank develops its own Africa-relevant solutions?

Resources are grossly inadequate

No fighter goes to war ill-equiped and hopes to win. This has been the narrative of Africa’s lone regional bank. This needs to change. By some estimates, it will cost US$93 billion per annum between 2010 and 2020 to plug the continent’s infrastructure deficit. Yet the bank distributes a paltry US$3 billion per annum in loans.

This miserly amount will not make a dent in assisting countries to meet crucial infrastructure needs. It will also be impossible for the bank to finance other urgent economic development priorities. The bank has only financed 2858 projects to the value of US$47 billion over 40 years.

What can be done about this? The bank needs firstly to review its sources of funding by recognising that it cannot rely on members' contributions and grants for the bulk of its funds. Almost all banks, particularly development ones, source most of their operating funds from the public debt market.

Nigeria, Africa’s largest economy, contributes only about 9% of the AfDB’s total ownership capital. Egypt contributes 5% and Africa’s most developed economy, South Africa, chips in a marginally lower amount. The European Union contributes 17%.

The current buzz about Africa rising makes this a fortuitous time to source investable funds externally. The world increasingly sees Africa as the next frontier of economic development and is willing to invest in them. One of the safest ways to do this would be through the bank.

Ownership structure needs an overhaul

Linked to funding is the bank’s governance structure. There is a popular saying that “he who has the gold rules”. This describes policy articulation and decision-making in the bank.

The bank’s ownership structure consists of African and non-African countries. A situation has developed in which only 11 African countries feature among the top 20 of the bank’s most powerful member countries. Between them, the 11 countries account for only around 40% of the vote.

This reflects a failure of leadership as well as a culture of dependence in which developmental responsibilities are left to chance or to grant providers.

There is nothing wrong with running a regional development bank on the basis of multilateralism. It is the tradition across other regions of the world.

Examples include the Asia Development Bank, the Asian Infrastructure Investment Bank (AIIB), the Development Bank of Latin America and the Inter-American Development Bank.

All have significant membership from non-regional countries. But decisions are led by member countries of the region. This sensible or guarded multilateralism fosters best practice in governance, in addition to facilitating access to external funds from offshore sources.

What’s missing is that the AfDB has failed to retain significant voting power within the region. This means that its development priorities are not appropriately prioritised. For effective agenda-setting, the bank must revisit its ownership and voting structure with the required acceptance of responsibility this would entail.

 

The AfDB must be alert to and respond strategically to the shifting centres of global economic development. Reuters/Gary Camero.

 

Power is shifting towards the east

The AfDB must be alert to the shifting centres of global economic development and respond strategically. Given the continent’s historical relationship with the World Bank and IMF, would Africa’s funding interest not be better served by the newly launched AIIB and the New Development Bank?

Both are being championed by emerging market countries which share a lot in common with African countries. This includes frustrations about unfair and inconsiderate treatment by the Bretton Woods institutions.

Most development projects in Africa are still World Bank-led, with the AfDB only on occasion playing a supporting or facilitation role. The new institutions might offer a more understanding partnership. And the bank must ready itself to be an imaginative and attractive partner.

Local knowledge must be mobilised

There is a need for Africa-relevant development strategies. The bank’s coming of age after 50 years must reflect in its engaged understudy of the region’s problems, development of appropriate strategies and readiness to offer technical support to implement them.

Collaboration with experts across African universities is a prudent way of ensuring this. Scholars who study their environment from within are best placed to point to relevant and effective solutions.

The AfDB can also get a bigger bang for its limited buck by adopting financing strategies that have wide impact. This would involve prioritising loans and investable funds to support projects involving multiple member countries, sub-regions or intra-regions. Roads, railway lines and electricity generation and distribution projects would fit this approach.

A leader fit for purpose

Serious consideration also needs to be given to provisioning loans in ways that minimises government waste or stealing. The bank can lead a crusade by ensuring Africa-relevant transparency mechanisms.

Given the lauded performance of Adesina as Nigeria’s Minister of Agriculture and Rural Development for the past four years, it seems that a truly round-peg has been chosen for the round-hole the continent desires and deserves.

The Conversation

Kalu Ojah is Professor of Finance, Wits Business School at University of the Witwatersrand

This article was originally published on The Conversation. Read the original article.

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