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Session 2002 - 03
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Delegated Legislation Committee Debates

Draft African Development Fund (Ninth Replenishment) Order 2003

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First Standing Committee

on Delegated Legislation

Monday 17 March 2003

[Mr. Joe Benton in the Chair]

Draft African Development Fund

(Ninth Replenishment) Order 2003

4.30 pm

The Parliamentary Under-Secretary of State for International Development (Ms Sally Keeble): I beg to move,

    That the Committee has considered the draft African Development Fund (Ninth Replenishment) Order 2003.

The Chairman: With this it will be convenient to consider the draft International Fund for Agricultural Development (Fifth Replenishment) Order 2003.

Ms Keeble: It is a great pleasure to serve under your chairmanship, Mr. Benton. I am sure that we will deal with the orders efficiently but also give them due consideration, because they are important for developing countries. I suspect, however, that our proceedings will be somewhat overshadowed by other events in the House this afternoon.

The African development fund and the international fund for agricultural development focus in particular on the poorest countries in Africa. Their mission statements make it clear that their mandate is to reduce the number of people living in poverty. The orders are important to the Government's overall mission to combat global poverty.

The ADF is the concessional lending arm of the African Development Bank. Created in 1973 with the objective of reducing poverty in regional member countries, the ADF provides about $1 billion a year of development assistance to 39 of the poorest African countries that are not creditworthy for ADB loans. The fund is largely financed by donor contributions. As loans are interest-free and have long maturity periods, income is low. Consequently, if the fund is to continue to lend, it must be replenished regularly—usually every three years.

Negotiations on the ninth replenishment started in June 2001, but were suspended pending resolution of the grants issue in the parallel IDA 13 negotiations, which had implications for this replenishment. As commitment capacity for new ADF lending was almost exhausted, donors agreed in April 2002 to establish an interim facility worth about $525 million to tide the ADF over. In July 2002, this Committee approved a contribution of £40 million to the interim facility—about 11 per cent. of the total. We debated the issues at some length. The United Kingdom deposited a promissory note for £40 million in October 2002.

Negotiations on ADF-IX finally concluded in September 2002. Total resources, including internally generated bank or fund resources, are expected to be about $3.5 billion. Of that, donors will provide about $2.4 billion. The UK has pledged a total of

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£121.3 million, including our £40 million contribution to the interim facility.

The replenishment negotiations provide an important opportunity for donors to set the priorities, policy and operational agenda for fund activities for the next three years. The donors' report contains various actions and targets against which progress on the implementation of the replenishment will be monitored. Copies of the report are available in the Library. Donors agreed that, under ADF-IX, poverty reduction remains the overarching objective of fund operations, which are required to have greater selectivity and focus, with an increased allocation of resources to agriculture and rural development, health and education, governance, private-sector development and regional integration. Links between lending and country performance will be improved, including a stronger link among country-owned poverty reduction strategies and the bank's country strategy papers. Emphasis is to be given to enhancing the fund's development effectiveness through a single action plan, against which the fund will report annually. Donors have also asked the bank's management to undertake an independent evaluation of the fund's performance in implementing the seventh and eighth replenishment, and to report on that before the end of this round—the ADF-IX period—in 2004.

Following the example set in IDA 13, donors agreed to increase the concessionality of ADF resources during the period of ADF-IX by making 18 to 21 per cent. of resources available as grants. We discussed that at some length when we last talked about the fund. Those grants will be allocated mainly to the poorest African countries with per capita income of below $360, in line with their poverty reduction strategy, using the ADF's country performance allocation system to determine the volume of resources.

The major areas for grants are: post-conflict reconstruction; health, including HIV/AIDS; education; and water. A final decision on how to finance the long-term cost of grants in ADF-IX will be taken by donors at the mid-term review. Subject to parliamentary approval, the balance of the United Kingdom contribution of some £81.2 million will be made by the deposit of two promissory notes—one for £37.4 million in financial year 2003–04, and one for £43.8 million in financial year 2004–05. The notes will be drawn down over 10 years on the basis of an agreed encashment schedule.

As the Committee may be aware, Côte d'lvoire, where the African Development Bank has its headquarters, has been in crisis for the past six months. Following the decision by the United Nations on 5 February to declare a phase 4 alert—evacuation of dependents and all non-essential personnel—for the whole of Côte d'lvoire, the ADB decided on 7 February to evacuate its staff. Some 100 core staff were immediately moved to the bank's emergency back-up facility in Paris. Governors of the ADB subsequently met in Accra on 17 and 18 February and agreed temporarily to relocate the whole of the bank's operations to its temporary relocation agency in Tunis, together with the board

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of directors. That move will be reviewed after no more than six months to assess whether the conditions exist for a return to Côte d'lvoire.

Over the next two or three months, it is inevitable that bank operations will be subject to disruption while the move is taking place. However, the bank's management hopes that the move will be completed by May, and that normal operations will resume shortly thereafter. We will monitor the situation closely.

The International Fund for Agricultural Development is a specialised agency of the United Nations. It was established in 1977 as one of the major outcomes of the 1974 world food conference, and is based in Rome. It was created to mobilise resources on concessional terms for programmes that alleviate rural poverty and improve nutrition. It has a specific mandate to combat hunger and rural poverty in developing countries.

Although IFAD is no longer the only multilateral agency mandated to fight rural poverty, it occupies a unique niche in focussing on the poorest in rural areas, including the landless, and has particular strengths in supporting poor people's associations. No other organisations have the same experience with, and commitment to, the ultra-poor of the world.

In line with the fund's special focus on the alleviation of rural poverty in developing countries, 83 per cent. of its loans are made available to low-income countries on highly concessional terms. Africa receives almost 90 per cent. of its loans on those terms. Other loans are made on intermediate and ordinary terms. The fund is also mandated to spend up to 12.5 per cent. of its annual budget as grants.

The fund's operations have been financed in roughly equal parts through replenishment, investment income and loan reflows, although more recently the investment income proportion has fallen. Its annual commitment level is about $450 million in loans and grants. It began its operations with initial contributions of $899 million in 1977. About two thirds of contributions have been provided by industrialised member states, and one third by developing member states. The fifth round of the fund became effective for a total of $451.5 million in September 2001, and the UK has contributed a total of just over £65 million to the initial funding and subsequent replenishments.

The fund has four major roles that enable it to maintain its identity in rural poverty alleviation: as an innovator, a knowledge institution, a catalyst and a leader. As a main requirement of the negotiation, the fund drew up a programme of work to help it to strengthen those key roles, which has been developed as a detailed plan of action around four key themes: policy and participation, performance and impact, innovation and knowledge management, and partnership building.

Subject to parliamentary approval, the UK contribution to the fifth replenishment will be some £18.5 million, which is equivalent to $30 million. Payments will be made in five instalments in the form of non-negotiable, non-interest-bearing promissory notes expressed in pounds sterling, which may be

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cashed on demand. The first instalment of £1.5 million will be paid in financial year 2003–04, the second of £3.6 million in 2004–05, the third of £3.6 million in 2005–06, the fourth of £6 million in 2006–07 and the fifth and final balance of some £3.8 million in 2007–08.

The fifth replenishment became operational in September 2001, and since then negotiations for the sixth round have also been completed. The delay in seeking approval for the fifth round has arisen from a change in the fund's draw down policy, which was designed to allow faster payments. That had implications for my Department's aid framework, but it did not impede the fund's operation because it has an advance commitment authority that allows it to borrow against future loan repayments. The fund will now benefit, as we are in a position to make significantly faster payments to them, and we shall seek approval for the sixth replenishment later this year.

We are pleased to continue the support of successive British Governments to such important institutions dedicated to working for the elimination of poverty in some of the poorest parts and sectors of the world. All Committee members have a keen interest in those areas. The funds are also committed to sustainable development. I commend both orders to the Committee.

4.42 pm


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