As it prepares to celebrate its 40th anniversary, the African Development Bank finds itself at the heart of a debate over the future of international aid and development funding.
The African Development Bank (ADB) is 40 years old in September. But while it looks forward to its anniversary celebrations and its annual summit in Kampala, Uganda, later this month, there’s dissension in the ranks of the international aid community at large.
The World Bank is currently at the center of a row between international investment banks and environment groups, and the system for appointing the International Monetary Fund’s new chief has also come under fire.
International investment banks are reportedly lobbying the World Bank to reject the recommendations of an independent Extractive Industries Review, which urges it to bail out of gas, oil and mining projects and to shift its investments to cleaner renewable energy instead.
The banks form what is called the Equator Principles group—some 20 international investment banks that have adopted the World Bank Safeguard Policies and Sector Guidelines created to help banks manage social and environmental issues related to the financing of development projects. They argue that the review ignores the fact that extractive industries remain critical to global economic growth and poverty reduction and that, in some countries, the sectors generate important revenues that finance government programs. The comments have infuriated environmentalists, who have accused lenders of trying to prevent the World Bank from possibly adopting even higher standards of corporate conduct.
The row is being watched closely by developing nations, many of which rely on natural resources for much-needed income. It is particularly important in Africa, where so many nations’ economies are dependent on revenues from extractive industries.
ADB spokesperson Eric Chinje says it is important to find the middle ground. “We must ensure we protect the environment as much as possible, but we have to have access to these resources,” he says. “On the other hand, there is a critically important economic governance dimension to the problem,” he adds. “The ADB,World Bank and IMF should work to improve that governance and ensure the efficient use of natural resources.”
Friction Over Leadership
There has also been friction in the international aid community over the appointment of a new chief for the International Monetary Fund. Horst Koehler stepped down in March following his nomination for the German presidency, and in keeping with tradition the European members are seeking to fill the post.
One of the two front runners, the president of the European Bank for Reconstruction and Development Jean Lemierre, dropped out of the race at the end of April, leaving the Spanish finance minister Rodrigo Rato as the only candidate under serious consideration.
But the debate has prompted criticism from developing countries, which have argued it lacks transparency and are lobbying for stronger representation themselves. Since the establishment of the World Bank and the IMF more than 50 years ago, the convention has been that the head of the IMF is from Western Europe, with US approval, while America picks the head of the World Bank. Developing countries, while greater in number, still play a marginal role in multilateral and multinational organizations and have very little influence in the selection of the leadership. They are often left out of the decisionmaking process.
Chinje’s response is diplomatic, but he admits there is room for improvement in the amount of input developing countries have. “There is no question that aid in Africa has not been as effective as it could have been,” he says.
Chinje says the ADB should take a lead role in determining the development agenda in Africa. “The result would be greater aid effectiveness and overall improvements in donor intervention in Africa,” he adds.
The African Development Bank— one of only five multilateral development banks in the world—was set up in 1964 to support the economic and social development efforts of African countries. The ADB’s principal objectives are reducing poverty and promoting sustainable economic growth. It does this by granting loans at favorable terms that countries could not obtain on the capital markets.
One of its main objectives is to help member countries achieve the Millennium Development Goals, an ambitious set of targets for reducing poverty and improving lives agreed at the Millennium Summit in September 2000.All 191 United Nation member states have pledged to meet these goals by 2015.
Between 1967 and 2003, the ADB approved a total of $50 billion worth of grants and loans to finance 2,786 operations, including $37 million to finance healthcare development in the Democratic Republic of Congo and $25 million to help rebuild Sierra Leone’s economy after a decade-long conflict that caused its economy to shrink by nearly 43%.
The ADB has also funded projects to combat AIDS in Burkina Faso and supply drinking water to Nouakchott City in Mauritania and gave $30 million to finance the multinational New Rice for Africa dissemination project.
Its main priorities are governance (improving the function of state institutions), infrastructure, regional integration and human development. Its operations cover all major sectors, with particular emphasis on agriculture, public utilities, transport, industry and the social sectors of health and education, as well as concerns cutting across sectors, such as poverty reduction and environmental management.
Membership was initially open only to African states, but in 1979 the bank’s board of governors opened its doors to non-regional countries. Currently the bank has 53 regional and 24 non-regional members.The ADB originally had its headquarters in Abidjan, Côte d’lvoire, but moved to its current temporary office in Tunis in 2003 due to the conflict in Côte d’lvoire.
Mobilizing International Capital
The bank mobilizes resources from global capital markets through its ADB operations and concessional resources through the African Development Fund (ADF) and the Nigeria Trust Fund (NTF). An important part of its work is attracting foreign investment to the continent. Major private sector projects in Africa have included the Azito power plant in the Côte d’lvoire, the MTN telecom tower in Cameroon and the Chad-Cameroon pipeline in Central Africa.
The oil and mining sectors have received the lion’s share of foreign direct investment to Africa, although some countries have begun to attract investment in other sectors, such as cellular telephony, manufacturing and tourism.
The ADB admits that the environment for foreign investment in many African countries needs improvement. Initiatives like the New Partnership for Africa’s Development (Nepad), which is aimed at improving both political and economic systems of governance nationally and regionally, have gone some way in the right direction.
HSBC launched its first sub-Saharan branch in Johannesburg last month, and Barclays has said that, as Africa redevelops itself, opportunities are being created for global banks.
But despite these positive statements and an increase in official aid, the ADB admits that a large number of African countries are unlikely to achieve the Millennium Development Goals by 2015. It says progress toward these goals can be made, but only with a significant increase in foreign aid. As the ADB’s Chinje comments, “A lot has changed over the past 40 years, but in many ways the challenges remain the same.”