House of Commons - International Development

Select Committee on International Development Seventh Report

2 Supporting Africa's development and the MDGs

Infrastructure and regional integration

14. Building infrastructure—both 'hard' infrastructure such as roads, water pipes and irrigation systems and 'soft' infrastructure such as effective border controls and customs procedures—opens up markets for poor people and boosts economic growth in multiple ways. In Asia, countries with high levels of infrastructure spending—especially those aspects which support agriculture such as irrigation—saw high growth rates during the 1990s. Vietnam targeted infrastructure investments in regions with high poverty levels and prioritised large infrastructure investments in an effort to maximize growth, which enabled it to halve its poverty rate between 1993 and 2002.[11]

15. Improving infrastructure in African countries has been identified as a priority area for ADF 11. Over 60% of the latest replenishment's resources will be spent on building and upgrading infrastructure. The 2007 High Level Panel Report recommended increased specialisation on infrastructure by the AfDB which it believed would assist the economic integration of African countries. It stated:

"Operating as 53 fragmented economies, Africa will never be able to trade competitively—it needs to be more integrated, with larger economic spaces. Goods and services must move more easily; infrastructure must facilitate not frustrate trade; institutions must be supportive and effective."[12]

The AfDB has been given a mandate by the New Partnership for Africa's Development (NEPAD) to lead the NEPAD agenda for regional integration.[13]

16. During our visit to Tunis, staff told us that being a 'Bank for Africa' with African staff who understood country contexts gave the AfDB a comparative advantage in infrastructure work. The AfDB hosts the secretariats of the Infrastructure Consortium for Africa and of the African Water Facility on behalf of the international community and is well-linked to regional organisations, making it an ideal 'hub' for African infrastructure activity. Reinforcing the Bank's contribution to African infrastructure is one of DFID's four objectives for the AfDB set out in its 2006 joint constituency strategy paper.[14] DFID support to the Bank's work on infrastructure includes its five-year Technical Cooperation Agreement (£13 million from 2007), a staff secondment to the Infrastructure Consortium Secretariat and the provision of resources for the Africa Water Facility to recruit a financial management expert.[15] We welcome the priority given to infrastructure in ADF 11, especially the focus on regional integration, a crucial factor in boosting economic growth in Africa. The AfDB is in a good position to co-ordinate international efforts in infrastructure due to its hosting of the Infrastructure Consortium for Africa and the African Water Facility, and its mandate to lead the New Partnership for Africa's Development (NEPAD) agenda for regional integration. We recommend that DFID do all it can to support the AfDB in using the current replenishment to secure real progress in building both 'hard' and 'soft' infrastructure that opens up markets within and between African countries.

SECURING PRO-POOR OUTCOMES THROUGH CONSULTATION

17. Evidence submitted jointly by the Institution of Civil Engineers (ICE) and Engineers Against Poverty (EAP) identified a number of shortcomings in the AfDB's attempts to address Africa's infrastructure needs. One problem, they highlighted, is an over-emphasis on large-scale construction projects rather than smaller initiatives that benefit poor communities. The submission suggested that it would be possible for the AfDB to increase the developmental impact of both large and small scale projects through increased consultation (including formal user surveys) with communities so that projects are tailored to local circumstances.[16]This objective was supported by Transparency International's (TI) evidence. TI said that including citizens in the process of designing and implementing infrastructure projects would help to reduce corruption. The organisation believed that lessons could be learned from the water sector, where an inclusive approach has helped to give ownership and improve sustainability because local people understand more about the operation and maintenance of facilities.[17]

18. We highlighted the importance of capacity-building in water infrastructure projects in our 2007 report on Sanitation and Water with reference to one particular AfDB investment, the US$14 billion Rural Water Supply and Sanitation Initiative (RWSSI). DFID committed £6 million to a technical assistance project to support the RWSSI, which focuses on water provision in rural areas with a target of reaching 32 million rural dwellers by 2015 (an 80% access rate). We recommended that, in order to maximise its investment in the RWSSI, DFID should engage with the Bank to ensure that capacity-building of rural local government bodies is a major priority for the Initiative, so that communities are able to maintain water and sanitation facilities once they are built. We also recommended that DFID support the AfDB's own capacity to target and spend funds for the RWSSI effectively.[18] The UK's joint constituency report for 2007-08 was cautiously optimistic about the RWSSI's implementation, saying that so far the Initiative has helped over one million people gain access to drinking water, and over half a million people gain access to sanitation, but that this remained "a relatively small contribution to the enormous need."[19] We reiterate our recommendation from our 2007 Sanitation and Water report that consultation and capacity-building of local communities should form a vital part of AfDB-supported infrastructure projects, especially within the water sector where local operation and maintenance knowledge are crucial to sustainable usage of facilities. DFID should engage with the AfDB to ensure that current major investments of its funds—notably the Rural Water Supply and Sanitation Initiative—adhere to principles of consultation and inclusivity, so that their outcomes benefit poor communities.

LOCAL PROCUREMENT OF GOODS AND SERVICES

19. Another aspect of AfDB support to infrastructure highlighted in evidence was the need to encourage the development of local construction and operation industries in African countries. ICE and EAP highlighted that much of the funding invested in African infrastructure flows straight out of the continent via contracts awarded to foreign contractors and suppliers. Procuring goods and services locally to support infrastructure projects is far more sustainable: it generates income and employment and reduces the reliance on foreign enterprises to maintain existing assets.[20] ICE and EAP's evidence states that the use of foreign contractors is no guarantee of quality and that implementation of infrastructure projects in African countries is often poor: "There is still too much emphasis on the quantity of loans and grants disbursed and too little on the outcomes of a project."[21]

20. The AfDB has recently reviewed and updated its procurement policies to harmonise them under the Paris Declaration on Aid Effectiveness.[22] There has been a specific effort to harmonise with World Bank procurement processes.[23] These newly standardised procedures generally use the World Bank-supported International Competitive Bidding (ICB) procurement system. Under this system the ICE and EAP say that, in practice, the lowest price usually wins, making the "focus on competition at the expense of development objectives".[24] This evidence also expressed the concern that "social policies are not carried forward into tender and contract documents and as a consequence are not implemented."[25] They suggested that AfDB change its approach to focus on 'best value' rather than 'lower price' by placing a higher emphasis on quality in the evaluation of bids.[26]

21. We discussed the issue of local procurement with AfDB staff during our visit to Tunis, who said there was some scope to use contracts to make AfDB funding conditional on the use of local producers and suppliers. A preference for African businesses was built into the system so that, all else being equal, African businesses that fell within a 10-15% margin of competitor bids would be successful. However, staff emphasised that the Bank had to work on the basis of competitive tender (as described above) and the over-riding concern had to be the quality of the work undertaken. Further, ensuring that companies could prove they were entirely locally-based was not straightforward.[27] We believe that procuring goods and services to support infrastructure locally creates more sustainable outcomes and helps generate skills, income and employment. The use of foreign contractors is no guarantee of quality and militates against the development of local construction and operation industries. We recommend that the Bank should look again at its systems for procurement and ensure it is doing all it can to promote the use of local producers and suppliers for infrastructure projects in African countries, whilst continuing to harmonise its procurement processes with other donors in line with the Paris Declaration on Aid Effectiveness.

AGRICULTURE

22. Whilst we did not receive significant evidence on infrastructure that supports agriculture, we wished to record our brief discussion with DFID's Parliamentary Under Secretary of State, Gillian Merron MP, about the AfDB's role in this area. In light of recent increases in food prices and growing international concern about food insecurity, and of the central role agriculture plays in Africa's GDP and employment, we asked whether DFID was asking the AfDB to increase its support to agriculture. Historically the AfDB's inputs in this area have focused on agricultural "hardware": infrastructure such as irrigation, crop storage and rural road-building. The Minister said that, even given the current food price crisis, the AfDB should play to its strengths and retain this focus, whilst working in close partnership with key partners such as the UN International Fund for Agricultural Development (IFAD).[28] We agree that, in a climate of growing international concern over rising food prices, it is vital that multilateral agencies play to their individual strengths and co-ordinate carefully—especially in rural Africa where price rises are likely to hit the hardest. Accordingly we recommend that the AfDB should continue to centre its efforts on infrastructure to support agriculture such as irrigation, crop storage and rural road-building. At the same time it should liaise closely with other multilateral agencies working on agriculture in Africa to ensure issues such as crop yields are addressed through appropriate technical assistance and implementation of research findings.

Governance and transparency

23. Joseph Eichenberger, AfDB Vice President for Operations told the Committee that "governance and the issue of functioning institutions is possibly the toughest issue [we are facing]".[29] Governance is one of the priority areas for ADF 11: the Bank will focus on strengthening transparency and accountability in the management of public resources, with particular attention to fragile states and natural resources management.[30] One of the reforms instituted under President Kaberuka has been the creation of a free-standing governance department and new governance initiatives, including the Fragile States Facility.

THE FRAGILE STATES FACILITY

24. Mr Eichenberger told us that DFID had been at the forefront of driving the creation of a new governance initiative for ADF 11, the Fragile States Facility, with a budget of US$665 million (£330 million for 2008-2010).[31] The High Level Panel recommended increasing the Bank's engagement in fragile and post-conflict states, seeing "flexible, fast [...] consistent, well-coordinated" assistance as "an imperative, not an option".[32] The Fragile States Facility aims to: provide fragile states with additional resources for rebuilding infrastructure and basic services; support capacity-building; and help countries clear their arrears and begin the route to debt relief. Mr Eichenberger explained that eligibility criteria had been used to identify nine fragile states which would receive assistance under the Facility. They are all post-conflict countries that have signed peace agreements, have experienced a significant decline in real GNP since 1990 and are in the lowest quintile of the UN Development Programme's Human Development Index.[33] In addition, the Facility will provide support for capacity building across the full range of fragile countries in Africa. The Minister welcomed the Facility. She said that "the fragile states work of the Bank is absolutely crucial to us" and that the AfDB was in a position to move quickly in post-conflict and post-crisis situations in Africa.[34] We believe that DFID deserves credit for its leading role in securing the creation of the Fragile States Facility. The initiative presents the opportunity for the AfDB to offer rapid, comprehensive assistance to the large number of fragile states in Africa. We look forward to following the progress of the initiative and recommend DFID monitor its implementation closely.

TRANSPARENCY

25. Improving transparency in Africa's large natural resources sector is a particular area of focus for ADF 11. The High Level Panel (HLP) Report commented that the AfDB could help secure more open, accountable dealings between natural resource extraction companies and African governments by raising its own profile within the Extractive Industries Transparency Initiative (EITI). The EITI is a partnership of oil, gas and mining companies, NGOs and producer/consumer countries which was launched by Prime Minister Tony Blair in 2002. By increasing public knowledge of revenue levels, the Initiative aims to empower citizens and institutions to hold governments and companies to account. The AfDB endorsed the EITI in 2006. In April 2008 the World Bank proposed that the EITI be extended across the entire chain of managing natural resources—from awarding contracts to collecting taxes, improving resource extraction to spending resources effectively—through a new initiative called 'EITI Plus Plus'.[35] President Kaberuka endorsed the launch in Washington and formally committed the AfDB to playing their appropriate role in the Initiative.[36]

26. Joseph Eichenberger of the AfDB told us that DFID has "played a strong advocacy and convening role on issues around [...] the EITI, pushing to get the bank, not just engaged in it, but enthusiastic about it going on."[37] The HLP Report said that the Bank should assist the 13 African countries which have now endorsed the EITI principles with implementing it, and pursue the longer term objective of supporting all regional member countries to endorse the Initiative.[38] Further, the Report recommended that adhering to the EITI principles should be made a pre-requisite for any Bank private sector financing.[39] Evidence from Transparency International supported this need for the AfDB to encourage its RMCs to adhere to EITI benchmarks.[40]

27. When we asked the Minister and officials whether EITI compliance should be a pre-requisite for AfDB financing for extractive projects they were hesitant about endorsing what they considered might amount to attaching "conditionality" to AfDB funding.[41] When we pointed out that only 13 of the total 53 African countries had signed up to EITI, and that potentially a large range of companies and countries who had not endorsed EITI may be coming to the AfDB for support for extractive industry projects, DFID was vague about processes employed by the Bank in such circumstances.[42] This vague and somewhat lackadaisical approach surprised us, given the UK leadership on the issue of transparency in resource-rich countries. We believe that DFID deserves credit for helping build commitment within the AfDB to the Extractive Industries Transparency Initiative (EITI). However we were surprised that DFID was vague about the need for EITI compliance to be a pre-requisite for AfDB financing for extractive projects. It would be highly unsatisfactory for AfDB funds to which DFID has contributed so generously to undermine a transparency initiative spearheaded by the UK. We believe that DFID should push for the AfDB to implement the High Level Panel's suggestion that adhering to EITI principles should be a pre-requisite for any Bank private sector financing. The Department should encourage the AfDB actively to support the 13 African countries which have endorsed the EITI principles to implement it, and to advocate for all regional member countries to endorse the Initiative.

28. Another recommendation made to us by Transparency International (TI) was that the AfDB, in its role as a regional bank led mainly by regional member countries, could "directly support the capacity of parliaments to undertake effective budget oversight and report back to the public on the use of public resources."[43] TI thought that this should go beyond natural resource revenues to include all national receipts and private sector investments. Part of improving transparency, TI said, was also about empowering citizens. Supporting citizens to engage with the work of development institutions and the AfDB itself could only improve the AfDB's own operations, particularly as a decentralisation process was under way that offered the opportunity to reach out to local communities.[44] AfDB staff in Tunis agreed with us that parliaments had a key role to play in supporting good financial governance and public financial management.[45] We recommend that the AfDB should help improve transparency by empowering parliaments and citizens to hold governments and development institutions, including the Bank itself, to account. Supporting good public financial management of natural resource and other revenue sources is directly linked to boosting growth rates in African countries and should remain a major priority for the Bank.

Private sector development

29. Private sector development (PSD) is a growth area for the Bank: lending to private companies began in 1991 but has grown seven-fold since 2004. It is also a priority area for ADF 11 and activity is set to increase. The Bank's current contributions to PSD can be divided into three areas:

'Investment climate improvements'—making countries easier to invest in by addressing, for example, macro-economic policies, weak regulation and unwieldy bureaucracy;

Improving private sector competitiveness in African countries through building and upgrading infrastructure and thereby facilitating trade and investment; and

Lending to private sector companies and leveraging Public-Private Partnerships (PPPs).[46]

Staff in Tunis told us that the AfDB's competitive edge regarding private sector work lay in its 60% ownership by African Governments. This ensured that the Bank was seen as "one of them", an honest broker that also had the financial muscle of an international institution.[47]

30. The High Level Panel Report supported the AfDB's role as a private sector lender, although it qualified this by saying that lending should only be offered where the Bank can clearly "add value", for example in addressing market failures or mitigating risk and that it should not "crowd out or substitute for private financing, but should play a catalytic role by mobilizing finance for deserving private sector projects that build productive capacity and create economic growth."[48] The Minister agreed that the Bank needed to prioritise private sector lending "in a way that ensures they are adding value, not simply replicating what is likely to be done elsewhere." She gave the example of AfDB funding to the Eskom power supply project in South Africa, a US$500 million initiative that supports the country's large-scale electrification programme. Gillian Merron said this was "an example of where the Bank is not just a regular bank, but actually adds something in terms of technical expertise, and also ensures that environmental considerations are not just an addition but are crucial to [the project]."[49] The AfDB is an important lender to the private sector, but it must ensure that its lending always 'adds value'—whether in the form of technical assistance, social and environmental safeguards or mitigating risks that the private sector itself may not be able to take on single-handedly—compared to the lending which standard private sector lenders can offer.

GENDER ISSUES

31. During our evidence session with Joseph Eichenberger of the AfDB, we heard that the Bank is increasing its focus on gender. Mr Eichenberger recognised that the Bank needed to scale up its work on addressing gender inequalities in African countries:

"The gender piece of the African development poverty challenge is huge, it has been under-emphasised for far too long and it is something that our institution needs to do much more [of]. [...] We have gender specialists whose purpose is in part to ensure, for example, that that water project or that road project explicitly builds in the inevitably important gender dimensions [...] [and] we have too few of these provisions, but the President is absolutely committed to deepening our work on this."[50]

The view that there are too few gender specialists employed by the Bank was emphasised to us during our visit to Tunis.[51]

32. Gender was identified as one of three cross-cutting objectives being given renewed emphasis under ADF 11.[52] Specific measures set out in what is known as the 'Deputies' report prepared for the ADF 11 negotiations included: promoting and mainstreaming gender-related issues amongst staff; enhancing specialised staff capacity; building capacity to produce gender-disaggregated data collection, including within AfDB project completion reports; and ensuring more systematic inclusion of gender issues in project design.[53] The Bank produced a Gender Plan of Action under ADF 10 and this is due to be updated.[54]

33. This list of activities is impressive but omits to highlight the importance of addressing the close links between women's empowerment and private sector development. Empowering women to participate in markets and the private sector is mutually beneficial to countries, private sector enterprises and to women and their families: as DFID's Gender Equality Action Plan states, "economically empowered women play a more active role in household decision-making, with greater bargaining power to increase spending on education and health."[55] We welcome the fact that gender will be one of three cross-cutting objectives for ADF 11. We were pleased to see that the objectives set out in the ADF 11 'Deputies' Report include provision to employ more gender specialists within the AfDB. We urge DFID to monitor the achievement of this objective to ensure that the Bank is properly equipped to mainstream gender issues across its projects and investments. We were concerned that the objectives in the Deputies Report omit any measures addressing the need to empower women to participate in private sector development. Women are the driving force of many aspects of local markets yet remain economically disempowered in many African countries. We recommend that DFID support the Bank to acknowledge and promote the close links between women's empowerment and private sector development in the updated AfDB Gender Plan of Action.

Climate change

34. Climate change has been identified as one of three cross-cutting objectives for ADF 11. Joseph Eichenberger of the AfDB highlighted three areas of Bank activity on climate change: investment in clean energy; building in climate change adaptation as a cross-cutting objective for all Bank operations; and supporting natural resource, water resource and forestry management (for example, the Bank is supporting an initiative focused on the sustainable management of forest ecosystems in the Congo Basin).[56] Together with the World Bank and other RDBs, the AfDB was tasked at the Gleneagles G8 Summit in 2005 to develop a Clean Energy Investment Framework (CEIF) to accelerate investment in clean energy and energy efficiency and to develop new approaches for climate change adaptation.[57] The Minister told us that the CEIF had been agreed in March 2008 and that having the Framework was useful as it allowed the Bank "to have something to build on in terms of preparing an action plan."[58]

35. DFID is supporting the Bank's climate change and clean energy work as part of a Technical Cooperation Arrangement providing assistance for six priority sectors with funding of up to £13 million over five years from 2007.[59] This is the first such agreement with any donor. DFID is also funding three staff members to support the Bank's work on climate change.[60] DFID's submission states:

"The AfDB has the potential to provide leadership and an African voice in international debates on climate change. In its programmes, it will focus on clean energy investments, adaptation and climate proofing Bank investments, and better management of Africa's lake, forests and river basins."[61]

However, this projected role for the AfDB as a leader on climate change issues on the continent appeared to be at odds with the Bank's own vision of its work in this area. Joseph Eichenberger envisaged the Bank more as a partner than a leader in efforts on climate change in Africa:

"I do not believe that the institution is ever going to be an intellectual leader in the climate change debate and, in fact, I would argue that is probably not where we should be. There are a lot of players in the game; we have very good integration with the World Bank and with others on this issue; so we see our role going forward as increased emphasis on the design element of our basic business, increasingly looking for opportunities to bring a new approach to things like natural resource management, risk mitigation, and the like, and effective partnerships with others."[62]

36. During our visit to Tunis, this message was reinforced. Zeinab al Bakri, Vice-President for Sector Operations, told us that, due to resource constraints, the AfDB could not currently support "stand alone" climate change projects and that any such work would have to be integrated into other activities. The Bank's role would therefore be in terms of advocacy and capacity-building regarding climate change rather than providing additional resources.[63]When we asked the Minister about this apparent divergence between DFID's and the AfDB's conception of the appropriate AfDB role regarding climate change, she told us that it was less important for the Bank to be an intellectual leader than to implement practical change and build capacity on climate change in-country.[64]

37. The Prime Minister has said that the World Bank should become "a bank for the environment."[65] In our report on 'DFID and the World Bank', published in February 2008, we agreed that the World Bank (WB) should integrate climate change into its overall programme of work, but cautioned against compromising the WB's overriding poverty reduction objectives. We recommended that if the WB was to adopt an additional role as an environment bank it must raise additional funds for this purpose.[66]

38. We welcome DFID's Technical Cooperation Arrangement with the AfDB under which support on climate change work will be provided over the next four years. However, we are concerned that DFID and the AfDB have divergent conceptions of the role the AfDB should play in international climate change efforts. DFID needs to be clear on whether it expects the Bank to play a leadership or partnership role, given the large amount of funds it is channelling through the institution. If DFID does envisage the AfDB becoming a leader for the African continent on climate change, additional funds need to be identified so that additional human and other resources can be deployed. We reiterate the recommendation we made in our report on DFID and the World Bank that the overriding objective of multilateral development banks must be poverty reduction, and that climate change should be integrated into this objective, rather than risking compromising it by spreading existing resources too thinly.

Debt

39. The AfDB has participated in two major debt relief initiatives in recent years, the Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI). To date 26 African countries have qualified for relief under the HIPC Initiative, with 19 countries completing the process. The remaining seven countries could benefit from HIPC debt relief if they meet the qualifying standards.[67] Under the HIPC initiative, African countries have received in excess of US$53 billion worth of debt relief since 2000.

40. The Multilateral Debt Relief Initiative (MDRI) was agreed by the G8 at Gleneagles in 2005. Since implementation of the MDRI began in 2006, countries that complete HIPC also receive 100% cancellation of their remaining AfDB debts, in addition to cancellation at the IMF and World Bank. Thirty countries have so far had their debt cancelled by the AfDB, worth over $8.3 billion. The MDRI has provided an additional US$33 billion of debt cancellation for African countries (from the AfDB, World Bank and IMF) since 2006.[68]

41. In total, the AfDB has been reimbursed for 85 per cent of the debt it has written off under the two recent initiatives: 100% of the Multilateral Debt Relief Initiative and two-thirds of the HIPC initiative have been reimbursed.[69] DFID told us that the ADF share of the MDRI is currently estimated to cost the UK approximately £433 million over the next 46 years. To date £11.89 million has been provided towards this by DFID.[70] Richard Dewdney, the UK's Executive Director at the AfDB, told us that virtually all donors were currently on track to meet their MDRI commitments.[71]

42. As DFID highlighted, these two recent debt relief initiatives, as well as releasing valuable funds for African governments to spend on poverty reduction, have helped strengthen the AfDB and ADF's balance sheets, cancelling large volumes of debt held by poor countries that could not afford to service them.[72] DFID also highlighted an important role for the AfDB in helping countries avoid future debt problems through the Debt Sustainability Framework (adopted by the AfDB as a way to offer guidance to countries and creditors on prudent levels of borrowing) and the possible creation of a legal support facility for HIPCs to help them deal with aggressive litigation (so-called 'vulture fund' activity) which could otherwise divert the benefits of debt relief away from poverty reduction.[73] We commend the AfDB's participation in two recent debt relief initiatives, the Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI). These initiatives have released much-needed funds that African governments can now direct towards the achievement of the Millennium Development Goals. We believe that DFID deserves credit for its contributions so far towards reimbursing the AfDB and other multilateral banks involved in these initiatives. We agree that the AfDB has an important role to play in helping countries avoid future debt problems and urge DFID to support the Bank in this role.

Lending to low-income countries

43. Boosting development in the world's poorest countries is at the centre of DFID's Public Service Agreement. DFID is committed to a 90:10 split in its funding for countries, with 90% targeted at low-income countries and only 10% available for middle-income countries.

44. The AfDB has a relationship with 53 African countries. Of these, 13 are middle-income countries mainly concentrated in northern Africa. These countries are eligible for AfDB 'hard' lending with the remaining 40 low-income countries eligible for concessional-only lending from the ADF. The AfDB bases its decision on eligibility for concessional or non-concessional lending on per capita income. The HLP Report said this was a narrow measure of needs and that human development indicators, for example, would offer a more comprehensive indicator of poverty and need. The Report said, "Measures other than income could be considered in setting eligibility for the Bank's two windows and could increase the number of countries with access to both."[74] Joseph Eichenberger, AfDB Vice President, told us that 75% of ADF 11 will be devoted to the 40 low-income countries.[75]

45. It is reassuring that three-quarters of ADF 11 will be targeted at the 40 African countries with the lowest income. However, given DFID's commitment to spending just 10% of its budget in middle-income countries, we believe the 25% allocated to the 13 middle-income African counties under ADF 11 is too high. Widening the eligibility criteria for concessional lending beyond the measure of per capita income to encompass human development indicators, as recommended by the High Level Panel, might help ensure that countries which are currently restricted to non-concessional lending—for instance, Equatorial Guinea and Botswana, which have relatively high incomes but also high levels of inequality and considerable development needs—could also access concessional lending.

Partnerships with the World Bank, other donors and development partners in Africa

46. The Bank's recent reforms, particularly the decentralisation process, have led to renewed emphasis on building and strengthening partnerships with development partners. One particular element of "growing the Bank" under President Kaberuka has been the development of knowledge services, and as a result the Bank is in the process of increasing partnerships with academic institutions.[76] AfDB staff in Tunis told us that the Bank was committed to working with African institutions such as the African Union (AU), the New Partnership for Africa's Development (NEPAD) and the Economic Commission for Africa (UNECA). This sub-section will focus on two development actors with increasing influence in Africa, the World Bank and China. The Bank's partnership with DFID will be explored separately in Chapter 3.

THE WORLD BANK

47. The World Bank with its global reach is a far bigger institution than the AfDB. At $41.6 billion, IDA 15 is almost 5 times the size of ADF 11. About half of IDA 15 (about $20 billion) is expected to be spent in Africa, thus making IDA twice the size of ADF 11 in Africa. However, this is not to imply that the AfDB is less effective than the World Bank as a result. AfDB staff to whom we spoke during our visit to Tunis believed the institution to have a competitive edge over the World Bank because it had no 'baggage' of historically strained relations and, being majority African-owned and with mainly African staff, had a better rapport with African countries.[77]

48. AfDB staff said that relations with the World Bank (WB) were strengthening. A memorandum of understanding was signed with the WB in 2000. This was revised in 2002 and 2003 to include a set of action plans that set out the two institutions' planned cooperation across a range of sectors and countries.[78] It was updated again in 2007.[79] A number of programmes are jointly funded and some processes are shared (for instance, Poverty Impact Assessments and—increasingly—procurement). DFID highlighted in its evidence that, as the decentralisation of both institutions increases, more joint working is expected.[80] Under the Paris Declaration on Aid Effectiveness, the AfDB has committed to harmonise its procurement rules, standard bidding documents and practices with those of the World Bank, subject to restrictions related to the rules of origin.[81] We have already commented above on the AfDB's harmonisation of its procurement procedures with the World Bank's and other donors.[82]

49. The High Level Panel Report recommended that the Bank needs "a restructured partnership with the World Bank that provides a clearer division of labour," but did not expand on which areas needed improved co-ordination in this way.[83] It was beyond the scope of this inquiry to examine this issue in depth, or to consult the World Bank about its division of labour with the AfDB. However, it did not strike us that substantial reconfigurations were needed in the two institutions' operations. The Minister said that the UK Government is "constantly working with the organisations to improve the partnership, because it is certainly my view that we are going to benefit by the sum of the individual organisations working together."[84] We welcome the strengthening relationship between the AfDB and the World Bank and the growing harmonisation of procedures. We encourage the Banks, together with the UK Government and other donors, to continue to look for new opportunities for joint working in line with the Paris Declaration on Aid Effectiveness.

CHINA

50. Working with China represents both challenges and opportunities for the AfDB. China is now Africa's third-largest investor and trade partner.[85] As Bank staff told us in Tunis, China is a strongly bilateral player and working closely with multilateral institutions is not yet common practice for this major new investor in Africa. Whilst China has a small shareholding at the AfDB—it comes 15^th in the list of non-regional members with voting rights—it is not substantially engaged in Bank activities. For instance, China is yet to join the Infrastructure Consortium for Africa, although AfDB staff told us that specific efforts were being made to secure its involvement.[86] Informally, staff said that efforts to increase China's involvement in the Bank more generally had not been as productive as hoped.

51. The High Level Panel (HLP) foresaw a strategic role for the AfDB in influencing partnerships between African countries and emerging donors such as China and India to maximise benefits for the continent and ensure its interests are respected. Staff in Tunis reiterated another key message from the HLP Report, namely that increased transparency on the part of China in its investments and aid donations would automatically make engagement with African countries and other donors easier.[87] We believe that the AfDB has a potentially crucial role to play in mediating partnerships between African countries and emerging donors such as China. The Bank, with DFID's support, should do all it can to increase Chinese engagement in AfDB activities. Securing Chinese membership of the Infrastructure Consortium for Africa would be a particularly good starting point given China's huge investments in African infrastructure. We urge the UK Government and DFID to continue to advocate for greater transparency on behalf of China in its engagement in Africa so that development partnerships are easier to form and manage. We will be looking more broadly at China's role in development in our forthcoming inquiry into DFID and China over the next few months.

11 World Bank, 'Pro-Poor Growth in the 1990s' (2005) Back

12 High Level Panel Report (2007), p.1 Back

13 The New Partnership for Africa's Development (NEPAD) is an economic development programme of the African Union and was launched in 2001. Back

14 'Working in Partnership with the African Development Bank: Joint strategic Framework for Partnership with the AfDB', the Governments of Germany, the Netherlands, Portugal and the UK (2006), p.7 Back

15 2007-2008 Constituency Report, AfDB Constituency representing Germany, the Netherlands, Portugal and the UK, p.20 Back

16 Ev 33 Back

17 Ev 36 Back

18 International Development Committee, Sixth Report of 2006-07, Sanitation and Water, HC 126, Paragraphs 78-79 Back

19 Constituency Report 2007-2008, AfDB Constituency representing Germany, the Netherlands, Portugal and the UK p.13 Back

20 Ev 32 Back

21 Ev 32 Back

22 The Paris Declaration was agreed in 2005 by over 100 ministers and aid agencies as a commitment to improve the effectiveness and harmonisation of aid. Back