Rebirth of a bank

16/05/2007 | Patrick Smith

 Donald Kaberuka has made some tough decisions on strategy in his time as president of the African Development Bank. But a faltering in support for the World Bank following the Wolfowitz scandal could impact the African multilateral, as well as most development institutions on the continent. The Bank’s “African-ness” could yet be its saviour


Africa was notable for being the region most ready to stand by Paul Wolfowitz, as criticism of the World Bank President reached a climax at the mid-April IMF/ World Bank spring meetings – in the process drowning out the former US assistant defence secretary’s heartfelt calls for donors to keep a focus on the big priorities, led by Africa.

Prominent among those now shaping the contemporary African economy and backing Wolfowitz was African Development Bank president Donald Kaberuka, who flew to Washington to stand shoulder to shoulder with the beleaguered World Bank head. An accomplished diplomat, Kaberuka has been energetic in flying the AfDB flag at a time when several rich nations are reneging on their pledged contributions to meet a $50 billion increase in aid to developing countries by 2010. According to the Paris-based OECD, aid to Africa (excluding debt relief) fell by 5% in 2006 despite the widely trumpeted “big push” for the continent.

Kaberuka met Wolfowitz and European Union development commissioner Louis Michel to rally the donor troops in Washington. As Wolfowitz and Michel spoke of Africa reaching a “turning point”, Kaberuka added: “Africa is making progress; we would like to maintain the momentum, and it’s time to redouble our efforts.”
Other Africans chipped in, with Liberia’s finance minister, Antoinette Sayeh, briefing journalists on Wolfowitz’s “visionary leadership”, while her Zambian counterpart, N’gandu Magande, gave full backing to the World Bank’s anti-corruption campaign.

Kaberuka took over the AfDB presidency in 2005, the same year as Wolfowitz moved to the World Bank. The two have worked together closely to maximize the benefits for Africa from the big aid push for Africa announced at the G8 summit in Gleneagles in July 2005.

Behind the outward shows of bonhomie, Kaberuka has to make some tough decisions on strategy. However the World Bank leadership crisis plays out, the institution will be weakened in the short term and its work in Africa could suffer. That partly accounts for the African caucus’ strong support for Wolfowitz. A weaker World Bank doesn’t translate into a stronger AfDB.

Under Kaberuka’s pres-idency, the AfDB’s work has been more tightly focused – he says “putting particular emphasis... on water, health and education, issues of energy, roads, technical training, water manage-ment and the role of governance and institution building”.

Both the AfDB and World Bank are raising money this year for their soft loan affiliates. The African Development Fund is negotiating its eleventh replenishment and wants a “substantial boost” to the previous $5.4 billion. The World Bank hopes for more than the $33 billion raised in its International Development Association 14 replenishment; about half of IDA funds go to Africa.

The AfDB is going into this process in a stronger position than the Bank. It has stepped up operations sharply over the past two years and has strong support from its African and non-regional shareholders to increase the tempo of its operations further over the next three years.

By contrast there are mounting concerns that the World Bank’s efforts to raise funds for IDA will become a “proxy battleground” for divisions among the Bank’s shareholders over Wolfowitz’s leadership. Some donors might use it as an excuse to scale back contributions.

CROWDED MARKETPLACE

AfDB director for country programmes and policy Joseph Eichenberger says the African bank is in a “radically different place” to its position a decade ago. Africa’s best sustained growth rates for more than 20 years have created “a moment of confidence for the organization and for the continent.”

Eichenberger says the AfDB will have to make its case robustly in an ever more crowded marketplace: competing alongside the multi-laterals are increasingly significant private sector charities such as the Gates Foundation and the myriad “vertical” or specialist agencies dealing exclusively with such issues as HIV/Aids.

The AfDB “is a high-performing institution,” Eichenberger tells Emerging Markets: “I believe [its] greater selectivity, the improved quality and the new management team can help make a case to the donor countries.”
The replenishment’s success is vital to maintain record growth levels. Lending activities reached $3.4 billion in 2006, a 32% increase over 2005; of this, $2 billion was lent through the concessional AfDF window. Kaberuka stresses the importance of boosting both wings of the institution simultaneously: he’s particularly enthusiastic about the AfDB’s loan of some $500 million to support Egypt’s financial restructuring.

Also growing fast are private sector operations, which doubled to $412 million in 2006. Eichenberger predicts these could easily double to $1 billion and bring private financiers into the picture. The AfDB “has never worked actively on the private sector. The climate has changed and now the door is open,” he argues.

GIVING TO THE WEAK

Drawing on his experience as finance minister of post-genocide Rwanda, Kaberuka is determined the AfDB should do much more to work with post-conflict and fragile states. “We have a programme to help those countries clear their debt arrears so they can engage with the international financial community. Now we are working towards the next stage, kick-starting the economy, creating institutions and getting growth rates up again.” This can help tackle regional “contagion”, Kaberuka says: “Conflicts do not simply affect countries in which the conflicts take place, they have huge spill-over effects in the neighbourhood.”

The AfDB is set to play a leading international role: “We have got to come up with a framework with the other partners, for countries like Liberia, Sierra Leone, the Democratic Republic of Congo and others,” Kaberuka says. “My modest experience in Rwanda... has shown me that it can be done.”

Having finally got its own house in order, the AfDB’s “African-ness” can work to its advantage. Kaberuka says: “We have comparative advantages as an African institution. We know Africa better. We want to bring another perspective to the same issues on the table – such as development and regional integration.”

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