Select Committee on International Development Seventh Report

1  Introduction

1. As the Committee said in its recent report, 'DFID and the World Bank', DFID is channelling increasing amounts of its budget—over 40%—through multilateral institutions.[1] Regional Development Banks (RDBs) have been beneficiaries from this rise. The UK is a shareholder and contributor to the African, Asian, Caribbean and Inter-American Development Banks and DFID is responsible for the oversight of UK policy towards these institutions. The UK contribution to the African Development Fund (ADF)—the 'development arm' of the African Development Bank (AfDB)—doubled in the latest replenishment in November 2007 from approximately £200 million for 2005-07 to £417 million for 2008-2010.[2] This increase will make the UK the largest single contributor to the AfDB, overtaking France for the first time.

2. We decided to focus on the AfDB under the second phase of the Committee's assessment of DFID's work with multilateral institutions.[3] The AfDB receives more than double the amount from DFID which any of the other RDBs receives.[4]

3. The AfDB's primary aim is to support economic and social progress within its regional member countries and to assist African countries in achieving the Millennium Development Goals (MDGs). The AfDB has three arms:

• The Bank itself, a 'hard' lender, which provides non-concessional resources lent at market rates;
• The African Development Fund (ADF), a 'soft' lender, which offers concessional loans and grants to low income countries, as well as technical assistance such as macro-economic advice (the ADF is comparable to the International Development Association, IDA, at the World Bank); and
• The Nigeria Trust Fund, financed by the Nigerian Government, which makes limited financial resources available at below-market rates.

Demand for the ADF is very high because most African countries are not eligible to borrow from the AfDB because of their economic status and must therefore share the pool of limited ADF concessional funds.

The 11^th Replenishment of the African Development Fund

4. The Bank was established in 1964, modelled in many respects on the World Bank but becoming the only Bank focused entirely on the development of Africa. The Bank Group's spend is relatively modest: the ADF is only the seventh largest source of aid for Africa, behind donors such as the Netherlands. Its current three-year donor replenishment round (its eleventh, ADF 11) amounts to half of the World Bank's current IDA replenishment round spend in Africa (IDA 15, totalling approximately $20 billion across the continent).

5. However, ADF 11, concluded in December 2007, saw record donor support. The UK's doubling of funds was emulated by the other members of its constituency: Germany increased its contribution by nearly 80% and the Netherlands and Portugal by 50%.[5] The constituency's total contribution now represents one-third of all donor funds to ADF 11. The replenishment, worth £4.5 billion—a 52% increase compared with ADF 10—will assist the AfDB in raising its profile over the next three years. At the ADF 11 negotiations in London, donors were agreed that priority areas for ADF 11 should be infrastructure, governance and regional integration. These areas of focus, along with other major issues for the Bank such as climate change, will be explored in Chapter 2.

A 'Bank for Africa'

6. Since the early 1980s, the AfDB has been run as a 'Bank for Africa' rather than an African Bank owned solely by African Governments. Current shareholders include 53 African and 24 non-African countries. As well as owning the majority of shares, African countries play a leading role in managing the institution: for example, the Bank's President is always African. The UK has been a member of the AfDB since 1983 and has 1.676% of the capital, placing it in the sixth position among non-regional shareholders.

7. In the mid-1990s, the Bank came close to collapse due to poor management and a loss of confidence from both borrowers and donors. In 1995 the AfDB became the first international financial institution to lose its triple-A credit rating.[6] President Donald Kaberuka, elected to lead the Bank in 2005, is thus overseeing an institution in the process of renewal. Major structural and operational changes have been put in place over the past few years including decentralisation of activity to 23 new field offices, a restructuring of key departments including expanded divisions working on governance and the private sector, the implementation of a new human resources strategy bringing in substantially more staff and a narrowing of focus in order to pursue a tighter selection of issues within African development.

Structure of this report

8. In 2007, a report was published by the High Level Panel (HLP) appointed by President Kaberuka to provide a 'roadmap' for the Bank's reform.[7] Both this and a 2006 report from the Center for Global Development (CGD) concluded that the AfDB has the potential to play a leading role in Africa's development—but that this potential will only be fully realised if certain changes are made in the way the Bank operates.[8]

9. We broadly agree with this conclusion and were generally impressed with what we saw of the Bank's operations in Tunis and with what we heard in evidence. We do not intend in this report to repeat what has been said so well in the HLP and CGD publications. Our intention is to cast the spotlight very narrowly on the UK Department for International Development (DFID) and its relationship with the AfDB. We will focus on how external shareholders such as DFID can best assist the AfDB to achieve its potential as a lender and explore to what extent AfDB development objectives match those of the UK.

10. Chapter 2 will look at how effectively the Bank is spending donor funds to support Africa's development and the achievement of the Millennium Development Goals (MDGs) across a range of key issues including infrastructure, governance, private sector development and climate change. Chapter 3 will look directly at the DFID-AfDB relationship and explore how the Bank's structure and administration facilitate sustainable development in line with DFID's own priorities.

Evidence and acknowledgements

11. We held two oral evidence sessions for this inquiry at Westminster: with Joseph Eichenberger, the AfDB's Vice President for Operations (Country & Regional Programmes and Policy) and with Gillian Merron MP, Parliamentary Under-Secretary of State for International Development and DFID officials. We received written evidence from: DFID; Transparency International; and the Institution of Civil Engineers and Engineers Against Poverty.

12. We visited the AfDB's headquarters in Tunis from 2-3 April 2008 for discussions with President Kaberuka and other Bank staff. We are grateful to the UK Executive Director at the AfDB, Richard Dewdney, other DFID staff and AfDB officials for making the visit a successful one. We would also like to thank all those who contributed to the inquiry.

13. The HLP Report set out a vision for the AfDB whereby it "can and must become the premier development institution in Africa."[9] The Bank's structure and administration promote a strong role for African Governments within the institution, especially when compared with the way the World Bank is run.[10] DFID's recent doubling of support demonstrates confidence that the AfDB can fulfil the HLP's vision of leading pro-poor growth and sustainable human development across Africa. Our report will explore how well-placed this confidence is and how DFID can help ensure that UK funds are used as effectively as possible by this growing development actor.

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1   DFID, Statistics on International Development 2002/03-2006/07, 2007, p.10 Back

2   DFID Press Release, 26 November 2007, 'Douglas Alexander announces doubling of UK support for African Development Fund' Back

3   The first phase of this assessment was published in February 2008 as the Sixth Report of Session 2007-08, DFID and the World Bank, HC 67 Back

4   DFID, Statistics on International Development 2002/03-2006/07, 2007, p.117 Back

5   2007-2008 Constituency Report, AfDB Constituency representing Germany, the Netherlands, Portugal and the UK, p.3. 'Constituency' refers to the practice of sharing the 18 seats on the AfDB Board between several members. The UK shares a constituency with Germany, the Netherlands and Portugal (see Paragraph 55 for more details).  Back

6   Credit rating agencies use letter designations such as AAA, B and C as a financial indicator to assess the credit worthiness of a corporation's debt issues.  Back

7 7   'Investing in Africa's Future: The ADB in the 21st Century': Report of the High Level Panel for the African Development Bank (2007) Back

8   Center for Global Development, 'Building Africa's Development Bank: Six Recommendations for the AfDB and its Shareholders' (2006), p.12

 Back

9   Foreword to the High Level Panel Report (2007), p.V Back

10   Ev 34 Back

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Prepared 13 May 2008