IFIs in Africa News Briefing

Issue #29

Tuesday, February 19, 2008

In this issue:


  • Zoellick reiterates Bank's backing for agriculture at African Union summit
  • Bank President pledges support for post-conflict countries during Liberia visit
  • Zambia to revise “unfair and unbalanced” mining tax rates set by World Bank
  • AfDB commits 60 percent of resources toward ambitious infrastructure scheme
  • High-level panel issues report on prospects for African Development Bank
  • Additional Articles

Zoellick reiterates Bank's backing for agriculture at African Union summit

During his first tour of Africa since becoming World Bank President, Robert Zoellick attended the African Union (AU) summit in Addis Ababa, Ethiopia, marking the first time a World Bank head has addressed the pan-African body. Reuters reports that a main focus of his remarks was funding for agriculture. Following up on pledges made in October, at the time of the release of “Agriculture for Development,” the 2008 edition of the World Bank’s flagship World Development Report (WDR), Zoellick signaled to the AU his institution’s desire to significantly increase its commitment to the sector in Africa.

Drawing on studies completed after the release of the WDR, Zoellick focused on increased global food prices as an argument for increased spending on agriculture. Reuters notes that “in the past two years, global prices of maize have risen 75 percent, while wheat and rice prices have nearly doubled, pressuring African nations that import most of their food and citizens who spend half their disposable income on it.” Zoellick is reported to have said he wanted to “expand the Bank’s efforts to help countries produce their own food, instead of relying on imports.”

This would represent a reversal of course for the World Bank, which has spent much of the last 25 years encouraging countries in Africa and elsewhere to devote more of their land and resources to growing commodities like cotton, coffee, tea, cocoa, and flowers for export, and to rely on international markets to purchase the food they were no longer growing. Indeed, this shift from self-sufficiency to dependence on international trade is the foundation of the contemporary model of globalization that has been so heavily, and effectively, promoted around the world.

The Reuters report says that “Africa’s agriculture has long been neglected by international agencies like the World Bank.” In fact, agricultural reforms were among the Bank’s main foci throughout the 1980s and 1990s in Africa, with great efforts made to liberalize markets, reduce and eliminate subsidies, and restructure or do away with state marketing boards. As a report by the Bank’s internal watchdog, the Independent Evaluation Group (IEG), released just before the WDR in September 2007 makes clear, the World Bank’s agriculture policy impositions had a dubious track record at best in Africa.

Meanwhile, the Mozambique Information Agency (AIM) reported in advance of Zoellick's visit to the country that the Bank launched a new study entitled "Beating the Odds: Sustaining Inclusion in Mozambique's Growing Economy," which praised the country’s reduction in rural poverty as “one of the greatest success stories anywhere in the world.” The AIM article remarks, however, that Mozambique was able to sustain growth in spite of the World Bank's interventions. In the 1990's, it notes, the Bank "promoted the deliberate destruction of Mozambique's best known labour intensive export industry - the cashew processing industry." In insisting on local processing of cashews instead of exporting them raw, the government "offended the World Bank's free trade dogma of the time," and was warned to liberalize the cashew trade "or the country would lose 400 million dollars of World Bank loans."

At the AU, Zoellick also spoke of the controversial “Green Revolution” for Africa - the Alliance for a Green Revolution in Africa (AGRA) - supported most visibly by an initiative of the Gates and Rockefeller Foundations, which aims to replicate programs in Asia and Latin America in the 1960s and 1970s that increased crop yields. Those earlier programs’ successes were offset, however, by environmental damage and crowding out of small farmers who could not afford the expensive inputs (pesticides, fertilizers, water) demanded by the high-tech Green Revolution methods. AGRA has sparked an outcry from African civil society organizations who fear it will damage small farmers’ livelihoods and serve as a vehicle for introducing genetically-engineered seeds on the continent. Reuters reports that Zoellick said an African Green Revolution “would need to be different from that of Asia,” but provides few other details.

In other remarks at the AU meeting, Zoellick said, “Higher commodity prices have created opportunities to expand global efforts to encourage more transparency in oil and mining sectors in developing countries.” He pledged the Bank’s assistance in negotiating better contracts and setting up better public expenditure management systems. It was not clear from the reports if Zoellick specified why it would be easier to encourage transparency as revenue flows increased.

Zoellick also commented on the crisis in Kenya, saying that World Bank programs in the country, worth about $1 billion, may have to be curtailed. He was at pains, however, to say that any such move would be on the grounds of safety and effectiveness of the programs, not as a political measure. The Associated Press quoted him as saying, “We don't want to, in a sense, leverage the livelihood and health of the people of Kenya to try to press their leaders. We're trying to press their leaders by pointing out the fact, as others have, that destruction and death doesn't help a country advance.”



Bank President pledges support for post-conflict countries during Liberia visit

During his recent visit to Liberia, World Bank President Robert Zoellick announced that the Bank would seek to reengage with and provide financing more quickly to post-conflict countries. According to Reuters, Zoellick also spoke of the need to “speed up the process of clearing the arrears of countries that have fallen behind in payments to multilateral lenders.”

In November 2007, the World Bank facilitated the clearance of over $1.5 billion of Liberia’s back payments to the World Bank, International Monetary Fund (IMF) and African Development Bank. Groups such as Eurodad contend that the arrears should have been erased long before, particularly since “many of the credits extended to previous authoritarian governments in Liberia could easily be described as dubious or illegitimate.”

Liberian President Ellen Johnson-Sirleaf, a former World Bank employee, has enjoyed unwavering support from the World Bank, IMF and many Western governments since she was elected in 2005.

Meanwhile, the IMF announced that it is close to reaching an agreement on a three-year loan program with the Government of Liberia worth $920 million. According to the IMF, it will make most of the funds available to clear the country's arrears to the Fund, which amount to nearly $800 million, and then provide debt relief on that amount. New funds will amount to roughly $60 million over the three-year period.

While the documents outlining the loan agreement are not yet public, Eurodad and other observers are concerned that conditionalities within the new IMF program could be detrimental to Liberia’s recovery. Eurodad adds that any new funds from the IMF will "not be eligible for debt cancellation since international debt cancellation agreements only cover debts accumulated until end-2004."

Some critics also question the recent push by multilateral lenders such as the Bank and Fund to step up engagement in post-conflict countries, and fear that these institutions might exert undue leverage in these sensitive contexts or pursue inappropriate funding priorities.



Zambia to revise “unfair and unbalanced” mining tax rates set by World Bank

Agence-France Presse (AFP) reports that during an address to Zambia’s parliament last month, President Levy Mwanawasa announced the cancellation of tax breaks for mining companies operating in the country’s lucrative copper sector. Calling the present rates “unfair and unbalanced,” the president proposed a new tax regime “in order to bring about equitable distribution of the mineral wealth.” While Zambia’s major copper companies have expressed their dissatisfaction with the new tax regime, AFP reports that the new corporate tax rate is “still lower than the level in other copper producing countries.”

This is not the first time Zambia has attempted to get a fair share of copper revenues. In March 2007 the European Parliament denied an appeal by Zambian civil society and the government for a modest royalty increase from the abysmally low 0.6 percent on copper projects backed by the European Investment Bank (EIB). However, Zambia’s finance minister announced last month that the royalties will finally be raised to three percent effective April 1.

Meanwhile, the World Bank has expressed its support for the move. In an interview with Reuters, the Bank’s country manager for Zambia, Kapil Kapoor, hailed the proposed increase, adding that “the expected revenue would create opportunities to invest in infrastructure, particularly in poor rural areas.”

Many observers, however, have criticized the Bank and the International Monetary Fund (IMF) for pushing Zambia to introduce investor-friendly measures to increase investment in the sector in the late 1990’s. A recent report by Action for Southern Africa (ACTSA) and Christian Aid details how the Bretton Woods Institutions required Zambia to privatize its copper mining company in 1999 as a condition for accessing much-needed debt cancellation.

The Bank’s insistence on making Zambia more “competitive” by offering generous incentives to mining companies, like the low tax rates Mwanawasa has now terminated, has resulted in millions of dollars worth of lost revenue over the past seven years, during which the price of copper more than quadrupled. Observers such as Third World Network’s Thomas Akabzaa point to a “race to the bottom” instigated by the Bank, where African governments compete for foreign investment by adopting increasingly loose tax policies. In the case of Zambia, the country’s mining code was revised as part of a World Bank reform program to offer better terms than Ghana. Zambia’s program, in turn, was used as justification to lower mining taxes even further in Ghana.

The World Bank’s backing of Zambia’s revised tax regime comes as the price of copper has dropped for the first time since 2001, in response to the pronounced slump in the U.S. housing market, China reining in its economy, and other producers such as the Democratic Republic of Congo increasing supply.

The mining industry in Zambia is also being heavily criticized for its lax safety practices, which have resulted in the repeated poisoning of water supplies in the country’s heavily-populated Copperbelt region. The UN news agency IRIN reports that during the first week of 2008, a pump malfunction at the European Investment Bank (EIB)-backed Mopani Copper Mine caused the release of untreated water; almost a thousand residents of Mufulira town sought medical attention after being poisoned. While no one was killed, the incident prompted demonstrations, which were suppressed by police. Similar recent incidents at nearby mines have poisoned fish and crops.

Because of the importance of mining to the national economy – even at the low royalty rates, it provided 80 percent of Zambia’s foreign exchange -- the government has been reluctant to crack down on safety violations. Such failures are evident in the finding that the Copperbelt city of Kabwe, home to 300,000 people, is ranked the most polluted city in Africa and the fourth most polluted site in the entire world. But the Mufulira poisoning prompted the government’s environmental agency to pledge that “we will now be forcing all mining companies to follow the law to the letter.” 



AfDB commits 60 percent of resources toward ambitious infrastructure scheme

According to Reuters, the African Development Bank (AfDB) has announced that 60 percent of its funds for low-income countries will go to support infrastructure such as roads, dams, and bridges over the next three years. The announcement was made during a recent conference on African infrastructure held in Senegal, which brought together donors, government ministers, and representatives of regional bodies such as the African Union and its intergovernmental development initiative, NEPAD.

An AfDB press release notes that the promised funds will come from the Bank’s low-interest lending window, the African Development Fund (ADF). In December, the Bank secured commitments from donors to contribute a record $8.9 billion to replenish the ADF for the next three years.

Reuters reports that most of the loans will finance regional infrastructure projects, including the construction of “a number of major road and rail projects aimed at crisscrossing the continent with transport corridors.” Some of the more ambitious proposed projects include the construction of “trans-African highway projects to connect Beira in Mozambique to Lobito in Angola, Dakar in Senegal to Lagos in Nigeria, and Lagos to Mombasa in Kenya.”

While Africa suffers from an acute lack of infrastructure, it is important to consider what type of infrastructure is most needed to help alleviate poverty on the continent. By and large, transcontinental highways and railroads will require a huge outpouring of money and serve to benefit exporters and, by extension, transnational companies that profit the most from Africa’s commodities. Roads and high-quality railroads are indeed necessary to move goods to and from land-locked countries such as Uganda. The sheer scale of transcontinental projects, however, could distract effort and funds from these more manageable projects, and in the end the more grandiose projects have a higher likelihood of being abandoned because of unmet expectations. At the same time, Africa’s poor will likely remain cut off by the lack of basic local road networks and adversely affected by the intense footprint that such large-scale physical infrastructure projects often entail.

A recent study by International Rivers and Environmental Defense also shows that large, capital-intensive infrastructure projects such as these tend to be the most prone to corruption. Questions also remain as to whether the AfDB has the requisite experience to identify and mitigate the serious potential impacts of these projects, and whether it wields sufficient leverage to ensure that its social and environmental safeguards, which are strong on paper, are enforced.

Since it resumed regular operations after facing a financial crisis in the early 1990s, the AfDB has sought to define itself as a lender with special expertise on infrastructure in Africa. It has consistently allocated a significant portion of its lending to the sector, and was chosen to coordinate regional infrastructure initiatives, such as NEPAD’s Infrastructure Action Plan and the Infrastructure Consortium for Africa (ICA). However, the AfDB has made limited progress in its convening role, and few of its ambitious plans to create regional energy, transportation, and water initiatives under NEPAD have come to fruition.

While African governments appear keen to benefit from this and other regional infrastructure schemes, it remains unclear the extent to which this latest initiative is demand-driven or being pursued at the behest of donors. The lion’s share of new donor commitments at the AfDB have been earmarked for infrastructure, while a new high-level panel (see below) on the Bank recognizes that the board of the ADF is disproportionately influenced by its donors. A recent Financial Times article suggests that AfDB President Donald Kaberuka “is facing dissent from some African staff concerned that efforts to carve out an independent role for the AfDB are being undermined by some western donors.”



High-level panel issues report on prospects for African Development Bank

On January 22, a “high-level panel” convened by African Development Bank President Donald Kaberuka in 2006 released a report entitled “Investing in Africa’s Future: The ADB in the 21st Century.” [Note that the acronym usually used for the African Development Bank is AfDB, to distinguish it from the Asian Development Bank; in this article we stick with the report’s use of “ADB” to avoid confusion.] The panel was chaired by Joachim Chissano, former President of Mozambique, and Paul Martin, former Prime Minister of Canada.

The “headlines” coming out of the report are that the panel believes the ADB should become Africa’s premier public financial institution, and that its donors and regional member states should put more confidence and resources into it. The Bank is currently only the seventh largest source of external assistance, behind even the Dutch government; the panel calls for this to change.

Much emphasis is put on the ADB as a uniquely African institution: the report endorses what it was told by the Africans it interviewed, namely that the greatest value the ADB can offer is as a trusted source of finance, knowledge, and analysis that Africans feel they control. “The ADB,” says the report, “should become the recognized authority on African development, the hub of a network for African policy and research, building understanding of what works in Africa and why—of how policies and investments translate into outcomes.”

The report suffers from the usual problems with such documents – platitudes, generalities, and repetition – but also manages to make a few provocative points well worth considering.

The most significant practical recommendation is for the softening or elimination of the division between the Bank’s two main divisions: the African Development Fund (ADF) and the main African Development Bank, and for the merging of the two boards. The ADF is the Bank’s facility for low-income countries. It lends at heavily-subsidized rates, but has fewer resources. Only 15 countries are eligible for the larger loans available from the ADB; fully 39 deal solely with the ADF. (The ADF is comparable to the International Development Association [IDA] at the World Bank.)

As the panel points out, “the ADF is the point of reference for the majority of the continent, but its board is dominated by the non-African members that give most to the Fund” – a point curiously reserved until the report’s final paragraph. In that concluding paragraph, the panel comes out for eliminating the two-board structure: “In line with our belief that there should be a single bank, we also believe that should be a single board. […] The Bank needs one board where all shareholders are represented and important decisions are made together. This would reinforce African representation and avoid marginalization of the African voice of the Bank.”

The reference to a “single bank” refers to the report’s earlier proposal to revamp the distinction between the two facilities. “The ADB has excess capacity, while the ADF has excess demand. To overcome this mismatch, the ADB should increasingly be managed as one bank, with one set of strategic objectives. It should bring together its concessional and non-concessional windows, its sovereign and non-sovereign operations into a coherent whole.” Blended lending rates would make more sense than the stark choice between ADF and ADB rates it now employs.

Instead of using per capita income to determine whether a country should borrow at concessional or non-concessional rates, the panel suggests that human development indicators might be a less restrictive way to determine the appropriate lending instrument. Another possibility would be to make the type of project, rather than the borrower’s indicators, the determinant of the lending instrument. The panel notes that these alternatives “could increase the number of countries with access to both” windows, the ADF and the ADB. The latter method would also reduce the chances of regional, multi-country projects from facing disapproval because of the profile of just one of the countries involved.

Other suggestions made by the panel include:

  • the creation of a “solidarity fund wholly focused on promoting economic integration, especially through cross-border infrastructure, driven by continental and regional priorities.” The panel notes that African countries have more than $300 billion in currency reserves, some of which could be put to work toward this goal. The ADB itself could devote some of its annual income of $300 million to the fund.
  • assistance to African countries to implement the guidelines of the Extractive Industries Transparency Initiative (EITI). Towards that end, the Bank should deepen its expertise regarding licensing, managing, and auditing concessions and develop a network of experts with both financial and legal capacity. The panel notes also that the Bank should be sparing in its direct funding for extractive industry projects, since those that are commercially viable should be able to attract financing from other sources.
  • the establishment of local equity funds to invest in small and medium-sized enterprises (SMEs).
  • assistance to African banks to reduce the costs borne by overseas workers remitting money to Africa, and programs to “harness these huge flows for development.”
  • elimination of the ADB’s performance-based allocation (PBA) system. The PBA is the ADB’s version of the World Bank’s “report card,” the Country Policy and Institutional Assessment (CPIA), a complex ranking of governance and economic performance indicators that determines the portion of the Bank’s available capital that will go to each specific country. The panel questions the assumption that some indicators are universally applicable, saying it “leaves little room for country-owned development strategies or continental diversity.” It criticizes the PBA’s needs indicators as too narrow, and says “much of the assessment is essentially subjective and backward-looking,” measuring certain policy choices rather than results. Finally, the panel says that doing annual PBA assessments introduces an unconstructive element of uncertainty into the planning and management process for both borrowers and the Bank itself.
  • consideration of “counter-cyclical” financing instruments which would reduce “vulnerability to debt stress by insulating loan repayment from outside shocks.” If a country is heavily dependent on cotton exports, for example, loan servicing costs could be reduced if the international price of cotton declines.
  • the restructuring of its partnership with the World Bank that provides a clearer division of labor.

In addition to Chissano and Martin, the panel included Joseph Stiglitz, the Nobel Prize-winning U.S. economist who served as Chief Economist of the World Bank (1997-2000) and has become known for his hard-edged critiques of the IMF; Wiseman Nkuhlu, the South African who headed the New Economic Partnership for Africa’s Development (NEPAD), the controversial development initiative created in 2002 by the G-8 industrialized nations and five African heads of state; and Jean-Michel Severino, a former high-level World Bank official who now heads the French Development Agency, and Soumalia Cissé, the head of the West African monetary zone (UEMOA). Other panelists were the head of the Rockefeller Foundation, the CEO of the Nigerian stock exchange, Uganda’s central bank governor, a former EU commissioner for development, a Belgian legislator, and former officials of the Thatcher and Mobutu governments. The technical team included another former high-level World Bank official, Callisto Madavo, and former Ghanaian government official Kwesi Bothchwey, himself a frequent fixture in similar panels.



Additional articles


Note: The text of the IFIs in Africa News Briefing may be freely used providing the source is credited.

The Bank Information Center (BIC) partners with civil society in developing and transition countries to influence the World Bank and other international financial institutions (IFIs) to promote social and economic justice and ecological sustainability. BIC is an independent, non-profit, non-governmental organization that advocates for the protection of rights, participation, transparency, and public accountability in the governance and operations of the World Bank, regional development banks, and IMF.

BIC is supported by private foundations and organizations that work in the fields of environment and development. BIC is not affiliated with any of the Multilateral Development Banks, nor does it receive any funding from them.


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