Skip to main content

African Development Bank

Volume 470: debated on Wednesday 9 January 2008

This is a timely debate on the African Development Bank, not least because only last month the 11th replenishment took place in London. At the beginning of December, I had the privilege of spending a week at the bank in Tunis on an internship so, before I start, may I thank Dr. Donald Kaberuka, the President of the African Development Bank, who was more than happy for me to visit for the week? It was a wonderful visit, not least because of Dr. Kaberuka’s marvellous staff, particularly Graham Stegmann, a former Department for International Development employee, who acts as his special adviser and facilitated the visit. I praise, too, our representative, Richard Dewdney, who is doing a sterling job on behalf of DFID. I imagine that, all too often when being sent to such places for three years, people think that nobody is watching, but in the week that I witnessed Richard in action he did a fantastic job, and I should like to put that on the record.

I want to cover three main areas in the short time available. First, I shall briefly explain how the bank is set up. Secondly, I shall review the outcomes of the recent replenishment in London. Thirdly, I will outline some of the challenges that the bank faces in the years to come. The ADB has had a turbulent time since its establishment in 1964. The undoubted low point came when it lost its AAA status in the mid-1990s, having got itself into a tremendous financial muddle. However, since then, it has slowly begun to repair its reputation in recent years and is definitely now on the up under the leadership of the current president. The bank has 53 African or regional members and 24 non-regional members, including the United Kingdom. From a financial perspective, apart from the small, specialist Nigeria trust fund, the bank’s organisational group falls into two principal parts: the ADB, which offers hard loans at commercial rates, rather like any other bank, and the African Development Fund, which was established in 1972 and whose stated aim as the soft loan arm is to reduce poverty in regional member countries via concessional loans that are interest free apart from a small service charge. The fund also offers grants for projects, programmes and technical assistance for studies and capacity-building activities. It is vastly over-subscribed by countries that are eligible to receive funds from it, and at the end of the last replenishment it had an excess demand of some $700 million. In that context, attention in London last month focused on the 11th three-year replenishment by donor countries to the fund.

On 11 December 2007, the ADB deputies, joined by representatives of regional member countries and international development institutions, met in London to decide the size, composition, financing and operational priorities of the 11th replenishment for the period from 2008 to 2010. Financially, it was a success. Overall increases rose by 52 per cent. over the actual funding level during the previous replenishment period covering 2005 to 2007, with 75 per cent. of the total for country allocations, 17.5 per cent. for regional operations and 7.5 per cent. for fragile states.

I give credit to the Government for the UK’s contribution, increasing to some £417 million, which was announced by the Secretary of State during his visit to Tanzania a couple of weeks before the replenishment. Although that symbolic act may have been intended to encourage others—I sense that it may have been a bit too late for that, as I doubt whether budgets could have been changed at the last minute—I am none the less pleased that the Government increased their contribution. In financial terms, the increase equated to some 3.54 billion units of account. The unit of account is bizarre and almost unintelligible: it comes from a portfolio of funds and is basically a political measure so that no one is offended, whether dollars, euros or pounds are used. I am intrigued to know what the Under-Secretary’s view is and whether he thinks that we should get rid of this ridiculous measure so that the numbers that the bank uses are at least more understandable. The increase, when combined with internal resources of 2.06 billion units of account, resulted in overall funding of 5.6 units of account for the three-year period from 2008 to 2010. Hon. Members can see what I mean.

In the December meeting, donors agreed to explore the possibility of making additional contributions. It was agreed that the performance-based allocation method for funding projects would be slightly rejigged to fit in with the output rather than input mantra of the ADF. That is a lesson for our Government and a subject to which I shall return shortly. The meeting was one of great hope for the future of Africa, but equally, and unfortunately, there was disappointment about the lack of progress in previous years. Although poor by western standards, Africa’s economic performance is at its best for decades and hopes for greater, wider and more integrated development are abundant. Unfortunately, despite the improvements of Africa’s monetary fortunes, parts of Africa remain in abject poverty, with inadequate infrastructure to deliver peace, democracy and development in post-independence and, in some cases, war-torn states. I hope that the latest replenishment round will provide an improved financial system that can be utilised by African states and other actors to move towards the achievement of the millennium development goals, which at the moment looks far from certain.

In recent years, the ADB has focused on a period of financial consolidation, which is desperately needed if it is to regain the AAA financial rating that it lost in the dark years of the early 1990s. It is clearly attempting to become an effective development organisation, and that is slowly being achieved by operational reform complemented by a reinforced mandate. Simultaneously, the ADB under the leadership of Dr. Donald Kaberuka has shifted its attention to a sharpened strategic focus whereby positive results are more important than inputs: that is, output rather than input is being used as the measure of success. I encourage the Government to do the same, and I hope that the Department will pick the brains of a former DFID employee, Colin Kirk, the operations evaluation director at the ADB, to see what lessons might be learned.

Hopefully, the new country offices, streamlined operational systems and tighter delivery networks will provide the bank with a new lease of life to deliver development to the poorest people on the continent. The reforms are ambitious and I shall come on to them in a moment. I was impressed both by the openness and commitment shown by the president and his staff and by their determination to implement the changes that must be made if the bank is truly to fulfil its potential. Since the last replenishment, demands by RMCs—regional member countries—for loans and grants have vastly surpassed the ADF’s financial abilities. At the same time, a review of the effectiveness of ADF 10 points to three key areas of change needed to maximise the delivery of ADF 11. First, success should be measured via results-based analysis throughout the operational institution. Secondly, the quality of, and the ability to, deliver all ADF projects before they are put into action should be ensured. I shall return to that in more detail in a moment. Thirdly, the organisation should instil a continuous supervision culture to reduce waste and bureaucracy in projects while enhancing accountability through evaluation. Work on all those changes is being achieved by project harmonisation with RMCs, by effective decentralisation and by the creation of country offices.

ADF 11 sets out three operational objectives for its three-year contract, and seeks to improve infrastructure, governance and regional integration. By tackling those key issues along with the deployment of the ADB as an African development institution with vital links to leaders of RMCs, cross-cutting development issues, such as gender, the environment and climate change can be addressed on an integrated regional scale. It is clear that the bank is determined to move to being much more of a development bank, rather than just an aid organisation. That is a commendable goal, and I should be intrigued to know whether the Under-Secretary shares that aim in respect of his Department.

I want to deal with some of the key issues that face the bank, starting with its location. There is continued controversy over the bank’s temporary location in Tunis. It was originally located in Abidjan in the Ivory Coast, but because of problems experienced there it moved to Tunis a few years ago. That location is causing continuing uncertainty, not least among the bank’s staff, as the three buildings occupied by the bank are unsuitable. They are separate buildings—one has to walk from one to the others—as they are former accommodation blocks, built as flats. The temporary location is therefore proving a burden to the bank and causing great unrest.

I should be intrigued to know the Minister’s view. Should the bank move back to Abidjan? Interestingly, a recent BBC report mentioned that peace moves have been made in Abidjan and that the rebels have come together to form a unity Government. Perhaps that could be the start of the bank’s relocation. Issues have also arisen between Anglophones and Francophones, and there is a great debate about where the bank should go. Do we have a view? If not, does the Minister at least accept that it must be decided whether the bank will stay in Tunis or move? The continuing uncertainty is not helping the bank at all.

Another issue on which I should like the Minister’s view is the role of the board of executive directors. It is an 18-member board, consisting of 12 African or regional directors and 6 non-regional directors, the UK sharing a constituency with Portugal, the Netherlands and Germany. Richard Dewdney is carrying out that role for us, and doing it well. The directors play a hands-on role, but there is concern in the bank that 10 per cent. of its administrative costs and efforts are geared towards helping the board. It has been suggested that the board should be more hands-off and trust the president, his vice-presidents and the bank’s senior management team to get on with their job, rather than micro-managing them as it seems to be doing. The directors are proficient at what they do, but I am not convinced that what they do is actually necessary. Perhaps we should move towards a non-executive board, but as the UK is a major donor, I should be intrigued to know the Minister’s view.

The African Development Bank is much smaller than the African section of the World Bank, and its lack of capacity continues to prove a major hurdle in most of the work that it is trying to do. As I mentioned, there was $700 million in excess demand from projects that had sought funding and been approved but simply could not get the money from the fund. One reason why such projects have not been implemented is the bank’s lack of capacity. All too often, money is spent where it is easiest to spend it. When we went to Tunis, for example, we visited some wonderful projects being built right outside the bank’s door, including a new road along the tourist coast, because it is relatively easy to spend money there—it is just down the road from the bank. I am not convinced—and I should like to know the Minister’s view—that that is the best place to spend money from the fund or the bank.

I realise that there are limits by country on how much can be spent, but surely much of the bank’s and the fund’s effort should be directed at the countries that need it most, not necessarily the countries where it is most convenient or easiest to spend money because of the bank’s lack of capacity. There will be no budget increase for the bank’s administrative side in the next year. In fact, it sounds remarkably like the Department for International Development, which will get an awful lot more money to spend on projects, but not necessarily the staff to deliver that greater budget. I am intrigued to know the Minister’s view.

One of the problems with the fund is that we can replenish it only every three years. The only other way for the bank to put money into the fund is to use some of its loan repayments. It is trying to secure greater private sector involvement, but under the current rules, that is limited to 20 per cent. of the capital available. The bank reckons that it will reach that limit within two years. Will the Minister support the bank in raising that limit? Does he support in principle a greater use of the private sector in delivering funds, or does he think that the African Development Bank’s role is not so much to engage with the private sector as to form the glue between sums of private sector money and offer the reassurance that projects will go ahead?

On decentralisation, one of the bank’s big problems is that it is incredibly slow to deliver. Although African countries regard the ADB as their bank and want to use it, they turn to other multilaterals simply because the bank performs too slowly to provide them with funds in time to deliver their projects. The bank is trying to decentralise by setting up country offices—I think that 22 have been set up—but that has caused friction. It will take the political will of the bank’s leadership to ensure that the country offices are empowered. The leadership certainly have the will, but at the moment there is a 20 per cent. staff shortage in the country offices. Once again, it is tempting to set up offices in countries where it is relatively easy to do so, but they are not necessarily the countries that need country offices in the first place.

My hon. Friend mentioned the move from Tunis and the fact that accommodation there was not particularly good. Having visited the African Development Bank a number of times when it was based in Abidjan, I can say that accommodation was equally inadequate there. Given his points about decentralisation, should we not take the opportunity to say that we do not want another big-building headquarters? We want to decentralise, but we want to do so into those countries where development is most needed.

My hon. Friend makes a valuable point. My personal view is that it is not for the UK to impose its values on the bank; it is for the bank to make up its own mind about exactly where it wants to be. However, I support the bank in its ambition to decentralise and speed up the process, and it can do so only by setting up country offices. It is pretty clear from my visit, however, that there is a small amount of resistance within the bank. As it begins to specialise—I shall come on to that in a moment—some parts of the bank may feel pressured that their roles will be diminished by the establishment of country offices.

I shall touch on infrastructure before I hand over to the Minister. The bank has identified infrastructure as its comparative advantage. When I spoke to the president, he was clear in his mind that that was where he wanted to specialise, but the bank has yet to make a formal decision. There would be great advantages in such specialisation. The bank has a clear role in bringing Governments together. With some 15 landlocked countries in Africa relying entirely on interconnectedness between countries, the bank can play a strong role in building cross-regional and cross-border infrastructure. It is a key way for the bank to make a major contribution. It has chosen infrastructure because many of its projects have been based on it.

The Minister may recall that at Gleneagles, the UK pledged that 0.56 per cent. of the budget by 2010—or $25 billion—would be spent on infrastructure, yet it was made clear to us in Tunis that to date, organisations such as the infrastructure consortium have been given no idea by DFID how that will be delivered. The year 2010 is not far away, yet detailed plans for how exactly the money will be delivered, in which sectors it will be spent and how it will be accessed have yet to be issued by the Department. I should be grateful if he added some meat to those bones. Not only am I interested to know the answer, but I know that the infrastructure consortium at the African Development Bank would be pleased if he clarified the Department’s position.

I congratulate the hon. Member for North-East Milton Keynes (Mr. Lancaster) on securing this debate. It is timely; the latest financing discussions for the African Development Fund concluded in London on 11 December last year. Before that, on 27 November, my right hon. Friend, the Secretary of State for International Development, announced a doubling of the United Kingdom’s contribution to the ADF to some £470 million over the next three years. That demonstrates the Government’s determination to fulfil our 2005 Gleneagles promises to double aid to Africa by 2010, and to build African institutions.

I acknowledge the dedication of the hon. Member for North-East Milton Keynes to his role. He spent a week at the African Development Bank headquarters in Tunis to get a better understanding of the institution—its strengths, its potential and its challenges. That dedication came over in his contribution.

The ADB has a unique role as a pan-African development institution engaged across the continent. African countries own the majority of its shares, and they play a leading role in managing and guiding the institution. The bank works with other key African institutions, such as the African Union and the United Nations Economic Commission for Africa. It has been given mandates in corporate governance and in infrastructure by the New Partnership for Africa’s Development.

During the 1980s, through mismanagement, the bank’s relationships with its members and donors came under substantial strain. Resources were reduced and the ADB lost its position as a premier financing institution. Since then, the bank’s president has pursued a strong reform agenda, initially focusing on financial issues and more recently on improving the contribution that the bank makes to development in Africa.

The hon. Gentleman asked for the Department’s perspective on the bank with respect to infrastructure and development. In our opinion, the institution ought to be the premier financing and development institution for Africa. The UK is a strong supporter of President Donald Kaberuka and his efforts to transform the bank. Pledges for the ADF replenishment from us and other donors recognise the success of its reform efforts and provide a foundation for the future. The president has described his objective for the reform programme as moving the bank from being a centralised, process-driven and hierarchical organisation to one that is dynamic, flexible and able to respond better and more quickly to the diverse needs of its clients.

The ADB has made many changes to its systems and processes to increase the number and calibre of its staff and to open country offices, of which there are currently 23. The hon. Gentleman is right to say that there is still much room for improvement, particularly in ensuring a stronger focus on results. However, there are good grounds for believing that the bank can make a much stronger contribution to tackling poverty in Africa in the coming years. Work is already in hand, and the bank has made a serious effort to articulate results of the aid that it provides to the poorest African countries.

Over the past three years, ADF projects have had a real impact across Africa. Almost 6 million people now have improved access to health services, and more than 40,000 jobs have been created. In the energy sector, ADF projects were able to leverage three times their own resources in co-financing. Overall, more than 700,000 households across Africa have been provided with new or improved access to electricity.

The second electricity project in Mozambique expanded the national grid to rural and peri-urban areas. It provided electricity to nearly 5,000 rural families and to village schools, health clinics and community centres, and it contributed to a fivefold increase in the number of tourist lodges.

The hon. Gentleman spoke about some of the developments in Tunis and of the notion that money may have been spent in the easiest areas. Money is spent according to performance-based allocation mechanisms, which are set out at the beginning of each financial year. It is not actually spent in the easiest way.

The hon. Gentleman asked about the unit of account. I share his perception that it can cause confusion—it certainly does to non-bankers like us. However, the unit of account is based on a basket of the currencies of all member countries of the ADB. All multinational development banks use that mechanism so that financial issues in one country—for example, depreciation of the US dollar—do not affect the financial balance sheet of the bank, as might be the case if it was based on one currency.

I turn to some of the comparative advantages of the ADB. The bank is concentrating its efforts on assisting countries and supporting regional growth. Infrastructure is the key; indeed, the hon. Gentleman focused on it. The UN Economic Commission for Africa estimated that Africa needs to spend an additional $20 million a year on infrastructure between now and 2015. Given the scale of the challenge, it is essential that the bank works with other development partners to help African countries and regions to prioritise infrastructure projects that will unlock and sustain growth.

Africa’s future economic growth will depend on linking its internal markets to create more sustainable regional markets, as well as connecting to the global economy. Regional integration is the only way forward for Africa’s domestic markets, limited as most are by small populations and low incomes. Regional integration provides economies of scale, stronger competition and more domestic and foreign investment. I believe that the ADB is well placed to help connect and increase Africa’s markets.

I was pleased that it was agreed that regional integration should be a key factor over the next three years, with extra resources being allocated. About a quarter of the resources for the next three years will be used in that way. More generally, the ADF 11 negotiations that were concluded in December were positive for the bank. Donors agreed to provide a record level of support. Over the next three years, the total resources available to the bank will reach $8.9 billion, an increase of more than 50 per cent. over the previous period.

The new resources will help to fund important innovations, most significantly a new fragile states facility. Of total resources, 7.5 per cent.—$665 million—will be provided to post-conflict countries, including for assistance in arrears clearance. We all know of the special challenges of fragile states—weak institutions, dysfunctional governance structures, poor policies and the inability to provide basic services. They undermine economic growth, deepen poverty and make countries vulnerable to natural disasters. The allocation of 75 per cent. of resources—about $6.7 billion—will be based on the performance of African countries, to ensure that the resources are used effectively and to encourage good performance and accountability in each country. The replenishment also agreed that the bank would place more emphasis on critical cross-cutting objectives, including the promotion of gender equity, environmental sustainability, climate change adaptation and private sector development.

Having worked opposite the African Development Bank for a year, I am less convinced of its efficiencies. The outputs—the millennium development goals—are rightly the concern of the Minister’s Department. How, roughly, would he attribute the input from the bank to the outputs? Is the bank’s input 10 per cent., or is it nearer 50 per cent.? How important is what he has called a premier institution in that mix, when delivering the millennium development goals?

We want the bank to become a premier institution. I shall speak about the millennium development goals a little later; the bank has a crucial role in helping to achieve them.

As we heard, in February 2003 the bank was temporarily relocated to Tunis, following the war in Côte d’Ivoire. Discussions are under way for the bank to return to Abidjan, but that will not happen without substantial improvements in security and the physical conditions required for a functioning bank. At the bank’s annual meeting in May, a review will take place of how far forward the situation has moved in Abidjan, with a view to considering relocation.

I turn to the board of directors. In the past, the board—it is a resident board—has not worked as effectively as it might. Several shareholders have considered the option of moving to a non-resident board. That is certainly something to consider in the longer term. A non-resident board would reduce the problems of micro-management and the costs of running the board. In the immediate short term, we need to ensure that the board continues to add value and not to micro-manage. The recent performance of the new board, mostly appointed in 2007, has been encouraging.

There are two other critical areas—climate change and the capital situation of the bank. Although Africa bears little blame for climate change, it will be the first to suffer its effects. The bank’s board is considering the problem, with our encouragement. On capital, we have been in discussions with the bank about how it can make better use of its resources for development purposes. At the 2007 annual meetings in Shanghai the president committed the bank to reviewing its capital position in time to put recommendations to governors at the 2008 annual meetings.

Sitting suspended until half-past Two o’clock.