House of Commons - International Development

Select Committee on International Development Seventh Report

3 DFID's relationship with the AfDB

52. As we set out in the Introduction, DFID has announced a doubling of its contribution to the three-yearly replenishment of the African Development Fund (ADF), pledging £417 million up from £200 million in 2005-07. This makes the UK the largest single contributor to the AfDB. In its submission, DFID said:

"In recent years, we have stepped up our engagement with the AfDB, providing more support to the reform and policy agendas. We play an active role in Board discussions in Tunis, and took a leading role in the replenishment discussions. We expect our engagement to grow."[88]

53. DFID's objectives for the AfDB are set out in a strategy paper published jointly with its other constituency members in 2006. The objectives are:

Improving Bank effectiveness at headquarters level;
Improving Bank effectiveness in-country;
Reinforcing AfDB's contribution to African infrastructure; and
Sharpening AfDB's contribution to good governance in regional member (African) countries.[89]

In this chapter, we explore the nature of DFID's engagement with the Bank and assess, firstly, how coherent the UK's development objectives are with those of the AfDB and, secondly, how DFID can best assist the AfDB to achieve its potential as a lender.

The AfDB's structure and administration

The Boards

The AfDB Board

54. There are separate Boards for the AfDB and the ADF. The AfDB Board has 18 seats, of which 12 represent African member countries, who hold 60% of the votes.In the past it has been suggested that the Boards have micro-managed Bank operations but, following discussions with Board members and other staff during our visit to Tunis, we are satisfied that it now uses a lighter touch. Richard Dewdney, the UK Executive Director at the AfDB, told us that there had been a "quiet revolution" over the last 18 months and the Board now operates very efficiently.[90]

55. Each of the Bank's 18 constituency offices is represented on the AfDB Board by an Executive Director (ED). Each constituency (and therefore ED) represents several countries, with the exception of the USA, which has its own constituency. We believe that the ADF 11 negotiations and the changes in country contributions have two implications for the Board configuration. The first concerns the practice of Board seats being allocated in line with country shareholdings. Under this arrangement, the UK's constituency is providing one-third of the resources for ADF 11 but is the holder of just one of six non-regional seats on the Board. Other non-regional seats, including those held by the USA, Japan and Canada, have been retained by countries that have not increased their contributions to the same extent as the UK. As the UK's Constituency's joint report for 2007-08 states:

"Since donors have provided more than 25 times as much through the ADF as they have in paid-up Bank capital, the constitution of non-regional chairs is beginning to look increasingly anachronistic."[91]

The fact that the UK's constituency provides one-third of ADF 11 resources but is one of six non-regional representatives at the Board table—all of them lower contributors—is unsatisfactory. We believe the AfDB needs to re-visit and reconfigure the process by which non-regional members are represented at the Board so that contributions to the AfDB are taken into account. We recommend that the UK formally raises the configuration of non-regional chairs at the Board as soon as possible, preferably at the 2008 Annual Meetings in Maputo from 14-16 May.

56. Our second concern is that, whilst the USA, Japan and Canada permanently provide the ED within their constituency, within the UK's constituency Germany and the UK rotate EDs on an unequal basis: following a 3-year stint by the UK, Germany will take the ED role for 6 years. This is in line with respective shareholdings at the Bank—Germany's voting powers are 4.090% compared to the UK's 1.680%—but does not factor in contributions.[92] The UK's current ED representative, Richard Dewdney, will finish his term in July 2008 and will be replaced by a German ED. Thus despite being the largest bilateral donor, the UK will not be directly represented on the Board for the next six years. Instead, a UK official will take the role of Senior Adviser within the constituency office.

57. Even given the fact that its shareholding is smaller than Germany's, it surprised us that the UK, as the AfDB's largest bilateral donor, will not be directly represented on the Board for the next six years. The current UK Executive Director, Richard Dewdney, was commended to us by many interlocutors at the Bank as having been an outstanding member of the Board, in terms of influence and effectiveness, which only served to increase our concerns about the potential sudden reduction in UK leverage at the Bank.

58. When we questioned DFID about this, we were told that the arrangement works well: relations with Germany were very strong and the Constituency Office works collaboratively. The Minister said that "things are not set for ever" and that "should there be benefits to this African institution by changing [the current arrangements] then maybe we should look at that" but that "there is not, I sense, a great appetite for that".[93]

59. We were surprised and concerned to learn that the UK, as the AfDB's largest bilateral donor, will rotate its Executive Director (ED) to Germany in July 2008 and will not be directly represented on the Board for the next six years. We believe it is crucial that the UK's leverage regarding the Bank's strategic direction is commensurate with its increasing contributions to the institution. We therefore recommend that the UK discusses with Germany and with the Board a revised approach to rotating EDs within non-regional constituencies that takes into account contribution as well as shareholding. Whilst we appreciate Germany's larger shareholding and do not doubt its strong contribution to the Constituency, we hope a more equitable rotation of the ED role between the UK and Germany can be agreed.

THE ADF BOARD

60. The ADF Board has 12 members: six non-regional representatives in the same way as the AfDB Board, plus six of the 12 African chairs on the AfDB Board who rotate. Voting rights are split 50:50 between the six regional and six non-regional members. The African ADF chairs 'represent the Bank' in the ADF Board and not themselves, despite the fact that the non-regional donors are also now members of the Bank. This is because the arrangement was negotiated between the donors prior to the 1980s when Bank membership was exclusively African.

61. There are moves under way to address this anachronism and to ensure that all African EDs are represented on the ADF Board and that they represent themselves rather than the Bank (this would mean the Bank and Fund Boards had similar compositions). The UK's Constituency said that it had been instrumental in securing attention on this issue.[94] The current 50:50 distribution of voting rights would be maintained. The UK's constituency's 2007-08 report indicates that the next steps towards this new structure being agreed will be the development of a specific proposal for the Board with a view to putting this to Governors at the next Annual Meetings (2009).[95] We welcome the moves that are under way to re-configure the ADF Board to ensure that all African Executive Directors are represented on it and are able to exercise their individual voting rights rather than acting on behalf of the Bank. We encourage DFID to continue to press this issue and to ensure that a concrete proposal is put to the Board at the earliest opportunity.

DECENTRALISATION AND STAFFING ISSUES

62. A central part of the AfDB's reform process is decentralising its operations and restructuring staffing arrangements and capacity. The Bank has opened 23 field offices with 290 staff.[96]Officials in Tunis told us hat the process was proceeding more slowly than hoped but there were now only two remaining field offices to open (in Algeria and Angola). They said that positive impacts of this process were already apparent: for example, the presence of more staff in-country had reduced lead-times for projects by up to a half.[97] However, staff also highlighted a problem in that insufficient responsibility had as yet been delegated to many of the offices, leaving them little authority to make decisions or participate in the policy dialogue between the Bank and the client country.[98] Evidence from the Institution of Civil Engineers and Engineers Against Poverty also highlighted the need for increased delegation of responsibility to field offices, especially in the area of procurement.[99] We welcome the AfDB's decentralisation process and believe it can only enhance the Bank's ability to work in close partnership with its regional member countries and with other donors. However, decentralised offices will operate most efficiently when a system of meaningful delegation from headquarters is in place. We believe that sufficient autonomy and the responsibility to exercise the appropriate decision-making powers in relation to policy, operations and finance should be conferred upon the AfDB field offices as soon as possible.

63. The 2007 High Level Panel's Report considered the Bank to be understaffed:

"We do not think that the ADB currently has the human resources to deliver as it should—a critical deficit. Management should prepare a detailed analysis of the alignment of human resources with strategic orientations while also considering the skill mix required."[100]

The Report highlighted that the ratio of staff to projects approved in 2005 was roughly 11 for the AfDB compared with 20 for the Inter-American Development Bank and 27 for the Asian Development Bank. However, the Bank seems to be turning this round very effectively as part of its reform process. A new Human Resources Strategy was approved by the Board in 2007 and is currently being implemented. Staff numbers are now over 1000 and it has reduced its staff vacancy rate from 20% to less than 5% (of current staffing levels) in the past 18 months.[101] Joseph Eichenberger, AfDB Vice President for Operations, told us that these posts are receiving a high volume of strong applications.[102] Eighty per cent of staff are African.[103] The gender balance of staff is improving: 18% of managers are women, up from 11%, and 25% of professionals (the short-term target is 33%).[104] The implementation of the AfDB's new Human Resources Strategy appears to be going well and we welcome the boost to staff numbers. We encourage the Bank to continue to recruit high quality staff to fill all vacancies, and to do this with urgency so that ADF 11 has the optimal staffing complement from the outset.

LOCATION

64. Until recently, the Bank was headquartered in Abidjan, Côte d'Ivoire but, due to security concerns, it temporarily re-located to Tunis in 2003. Both the Center for Global Development's (CGD) 2006 report on the Bank and the High Level Panel believed the temporary nature of the Bank's location to be a problem. The CGD said: "The temporary status of AfDB headquarters has become a major impediment to its effective recovery and recruiting efforts. As a pre-condition for any long-term rebuilding, the Board must resolve this issue soon."[105] Bank staff in Tunis told us that the current understanding was that the decision on when to return to Abidjan was being reviewed on an annual basis and was dependent on security conditions. As DFID highlighted in their evidence, "clearly the security situation needs to improve and provide the necessary stability as well as the appropriate facilities for the Bank to function effectively before a decision to return to Abidjan is possible."[106] Joseph Eichenberger, AfDB's Vice President for Operations, told us in evidence that, whilst he did not believe that the uncertainty was affecting the Bank's capacity to recruit staff, he hoped more clarity on the issue of location would emerge during the Bank's Annual Meetings in May 2008.[107] Clearly the decision on when to return to the Bank's permanent headquarters in Abidjan will be dependent on the security situation there. But uncertainty is helpful to no-one and having a plan in place for what will happen when conditions have improved is important. We encourage DFID to push for a clear plan of action regarding location at the Bank's Annual Meetings in Maputo on 14-16 May so that all staff are aware of current thinking on the Bank's location.

Monitoring and evaluation

65. During our visit to Tunis, we met with the Operations Evaluations (OPEV) Department. They told us that the Bank had learned from the previous replenishment round, ADF 10, that the quality of monitoring frameworks used by the AfDB needed to improve. The ADF introduced its results measurement framework in 2003. Since then, the framework has been adapted to conform with a harmonised multilateral development bank approach in line with Paris Declaration objectives. The framework for ADF 11 has a much stronger focus on results on the ground, with key aims including:

Ensuring quality at entry for ADF strategies and operations;

Developing a culture of continuous supervision;

Enhancing learning and accountability through evaluation; and

The introduction of more rigorous monitoring and evaluation.[108]

Bank staff admitted that the institution had historically tended to measure results in terms of inputs not outputs, but were committed to changing this during ADF 11. It was intended that the new Results Framework would be supported by the appointment of a 'focal point' within the President's office, probably a Chief Operating Officer.[109]

66. We heard that the emphasis given to results in ADF 11 had been influenced by DFID. When we asked AfDB Vice-President Joseph Eichenberger about DFID's negotiating position for its doubling of support for ADF 11, he told us:

"I think that there was a great deal of congruence between the priorities that DFID was articulating and the priorities that (a) were shared by other member countries and (b) the priorities that were shared by the senior management of the institution. DFID articulated very clearly a set of priorities around the need for the institution to become more selective and more focused [...] the messages from DFID were strong and consistent about results, results, results."[110]

67. Effective monitoring and evaluation of AfDB projects and operations is clearly central to developing a more output-focused, results-driven Bank. In its evidence, DFID credited recent reforms within the Bank in this area, singling out the 2006 organisational re-structuring, increased project supervision ratios, strengthened evaluation systems and the development of a set of Key Performance Indicators as positive developments.[111] However, DFID also noted that there was "still some way to go" to improve both the Bank's internal processes and its focus on results. Specifically, DFID wished to see: appropriate baselines for regular monitoring of progress attached to all strategies and projects; a more direct translation of project evaluations into enhanced learning; and improved results through greater decentralisation and harmonisation. DFID did note that specific measures had been agreed on these objectives that will be adopted over the course of ADF 11.[112] We believe that DFID deserves credit for influencing the strong results focus of ADF 11. Rigorous monitoring and evaluation of AfDB projects and operations will be central to the implementation of a more output-focused approach. We welcome the measures the Bank has put in place to improve monitoring and evaluation but urge the institution to press ahead with their practical implementation during ADF 11. We strongly encourage DFID to maintain its engagement in the results agenda and to assess progress in implementing new monitoring and evaluation measures.

68. Effective monitoring and evaluation of AfDB projects and operations are also crucial to ensuring DFID's own objectives for the Bank are achieved. DFID's objectives for the AfDB are set out in a strategy paper published jointly with its other constituency members in 2006 (see Paragraph 50).[113] The constituency includes an assessment of progress against these objectives in its annual report. The 2007-08 report reveals "satisfactory" progress across the four strategy paper objectives with the greatest improvements being in country effectiveness and infrastructure.[114] Richard Dewdney highlighted that the development of Key Performance Indicators (KPIs) under the new results framework for ADF 11 was an important development as it provided a set of indicators for outcomes at the country level and measures of institutional effectiveness. The Constituency Report includes a table indicating progress against the KPIs for institutional effectiveness.[115] We recommend that DFID continue to monitor its own objectives for the AfDB rigorously. We were encouraged to see that this year's constituency report reveals satisfactory progress against the four objectives set out in the UK's joint constituency strategy paper. We welcome the development of Key Performance Indicators under the new results framework for ADF 11 and the fact that progress against these is included in the UK's constituency's joint annual report.

Ensuring common objectives

Achieving the Millennium Development Goals

69. The overall aim of DFID's Public Service Agreement is "the elimination of poverty in particular through achievement by 2015 of the Millennium Development Goals".[116] The Bank told us that, during the ADF 11 negotiations in 2007, contributing to achieving the MDGs was one of the set of priorities articulated very clearly by DFID.[117] Any analysis of the coherence of DFID and AfDB objectives must therefore focus on the prominence and quality of MDG-focused activity within the organisation's operations and outputs.

70. As DFID said in its submission, some shareholders take the view that the Bank has levels of capital "comfortably in excess of that required to maintain their AAA rating, and that it could use its capital to have a greater development impact without undermining its financial viability."[118] President Kaberuka agreed to carry out a review of the Bank's capital in 2007 and two private investment banks, Goldman Sachs and Citibank, recently undertook independent reviews of how excess capital could best be used. The Minister told us that these reviews encouraged the Bank to be development-focused with its capital.[119] We recommend that the Bank look carefully at whether its capital reserves could be used for additional projects supporting the achievement of the MDGs. We encourage the Bank to draw on the advice issued in the recent reviews of the Bank's capital undertaken by Goldman Sachs and Citibank.

71. In evidence, the Bank highlighted its focus on building and improving infrastructure in Africa as a direct contribution to achieving the MDGs.[120] As we said in our report on Private Sector Development in 2006, whilst only one MDG—Goal 7, the achievement of environmental sustainability—includes an explicit commitment to improving infrastructure, the attainment of all eight goals relies on building and improving infrastructure services throughout the developing world (for instance, achieving universal primary education—Goal 2—relies upon the building of new schools and improved transport links).[121]

72. Against the assessment that MDBs needed to spend $50 billion a year in Africa if the MDGs are to be achieved, the ADF's annual $3 billion is a modest contribution.[122] But the Bank's contribution to the MDGs goes far beyond its direct expenditure of development resources to include a less tangible, but no less significant role as an African leader on development issues. Fulfilling this role effectively will partly depend on the Bank's ability to meet the High Level Panel's recommendation of becoming a repository of knowledge regarding African development.[123] The AfDB's central focus on building and improving infrastructure in African countries makes it a significant contributor towards achieving all eight MDGs. Infrastructure provides the development 'hardware'—roads, schools, clinics, water and sanitation—that acts as the foundation for progress across health, education, conflict prevention and poverty reduction. But as we heard repeatedly during this inquiry, the AfDB's capacity to implement projects and deploy financial resources are just two of its assets: its status as a Bank for Africa is another, possibly more significant, force. The institution's majority African ownership, its leverage with African governments and its ability to be the African "voice" on development all contribute to the Bank's potentially central role in achieving the MDGs.

UNTIED AID

73. During our visit to AfDB headquarters in Tunis, a large number of Bank staff commended DFID's policy of giving largely untied aid.[124] Joseph Eichenberger, AfDB Vice President for Operations, told us that "The UK has been in the forefront of offering only untied funds and is setting an example. That is very positive."[125] We heard informally that a number of others shareholders applied more conditions in how their contributions to the Bank should be spent, and that they wished to track their funds more closely.

74. We were pleased to hear that under the AfDB's reform process there is an increasing use of untied funds. Joseph Eichenberger highlighted, for example, that the Bank had completely reformed its trust fund programme and will now only accept untied trust funds.[126] However we were told in Tunis that Bank conditionality policy largely still followed that of the IMF and World Bank and that a review of Bank practices was overdue.[127] We welcome the trend of moving away from the attachment of conditions to AfDB funding under the Bank's reform process. However we believe the avoidance of using tied aid should be incorporated into general Bank practice. We recommend that a review of Bank conditionality policy is carried out sooner rather than later to explore the options for this.

88 Ev 28 Back

89 '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) Back

90 Q 66 [Richard Dewdney] Back

91 2007-2008 Constituency Report, AfDB Constituency representing Germany, the Netherlands, Portugal and the UK, p.4 Back

92 Official Record of the 42^nd Annual Meeting of the AfDB, 16-17 May 2007 Back

93 Q 65 Back

94 2007-2008 Constituency Report, AfDB Constituency representing Germany, the Netherlands, Portugal and the United Kingdom, p.6 Back

95 2007-2008 Constituency Report, AfDB Constituency representing Germany, the Netherlands, Portugal and the United Kingdom, p.6 Back

96 Ev 26. Of the 290 staff in field offices, 44 are international technical experts, 64 are locally recruited technical experts and 180 are support staff. Back

97 Meetings at the AfDB Headquarters in Tunis held during Committee visit, 2-3 April. Back

98 Meetings at the AfDB Headquarters in Tunis held during Committee visit, 2-3 April. Back

99 Ev 33 Back