Examination of Witnesses (Questions 1-19)
MR JOSEPH
EICHENBERGER
19 MARCH 2008
Q1 Chairman: Good morning, Mr Eichenberger,
and thank you very much for coming to give formal evidence to
us. We will be seeing you on your home patch in a couple of weeks'
time, but we much appreciate the fact that you have come in today
to help us to get this inquiry underway. You may be aware that
we have recently produced a report on the Department for International
Development's relationship with the World Bank, which we are told
has been met with some interest within the Bank.[1]
We also felt, particularly as DFID[2]
has taken a prominent role in supporting the African Development
Bank and is clearly making a significant increase in its contribution,
that it was appropriate for us to look at that relationship, both
in terms of how the Bank is performing, given it has had its problems
in the past, and how the relationship between DFID and the Bank
is likely to develop. Clearly, from our point of view (and I do
not want to put it in any kind of mercenary sense), we are looking
for effectiveness, value for money, but, more to the point, that
the money that is going in is actually going to deliver real benefits
and help the Bank achieve its objectives. Perhaps, just to kick
the session off, it might be helpful if you can give us an indication
of how you think the Bank's reforms have progressed up until now.
What are the key areas that are being examined, what changes are
you making and to what extent have you had an impact and do you
hope to have an impact, if that is a reasonable context to start
with?
Mr Eichenberger: Thank you very
much. Let me express, at the outset, my appreciation and my gratitude
to you for the invitation. It is a privilege and an opportunity
to be here and we greatly appreciate the degree of interest that
the UK taxpayers have shown in our institution and the degree
of support that they have provided. At the largest level maybe
I can talk a little bit about some of these internal reforms that
have been underway. There is, of course, a historical context.
The bank went through some very difficult times in the early and
mid-1990s. I assume that you are basically aware of that. We have
had new management in place now for a couple of years in the context
of which we have moved ahead with a number of, I think, very significant
reforms. There has been a comprehensive restructuring of the Bank:
we have created new regional departments that have been designed
primarily to give us more focus on country operations rather than
on simply delivering projects. We have created new offices, for
example an office that is focusing on governance issues, an office
that is focusing on regional integration and trade issues in Africa.
We have significantly beefed up our private sector department,
because we see that as an emerging area of critical priority for
our engagement in Africa. We have completely revamped our internal
business processes around the imperative of reducing internal
transactions costs, ensuring greater quality at entry in what
we are doing, greater and more systematic monitoring of the performance
of our portfolio and, in particular, its performance in respect
of actually delivering demonstrable results on the ground in the
form of development impact. Our reform has also been focusing
on reducing cross-departmental mis-communication. We have had
a silo problem in the institution, with people focusing more on
doing their own business rather than doing business in a strategic
context, and delivering something of enduring value on the ground
in Africa. We have completely restructured our procurement and
financial management unit and added significant staffing to beef
up our capacity to deliver services promptly and with a high level
of fiduciary control and transparency. We have done a comprehensive
revision of our human resources policies from top to bottom. Probably
35% to 40% of our managers are new in the organisation, recruited
through an open and transparent merit-based recruitment process.
We have a new whistle-blower policy that is regarded as state
of the art among the multi-lateral development institutions. We
have completely reformed our trust fund programme and are no longer
accepting any tied trust funds. All trust funds will be untied.
We have redesigned our key performance indicators in order to
integrate systematic results into everything that we do. That
is, I think, just a sense of the reforms. In terms of what they
are delivering, I think it is still early days, but I will identify
a couple of pieces of emerging evidence from which we take encouragement.
I think the first is shareholder confidence in the institution
has clearly increased. That is evidenced by, among other things,
a very significant replenishment of our concessional fund, a deal
on which we closed in December of last year right here in London.
We had a 52% increase, unprecedented in the history of the institution,
better than IDA,[3]
certainly better than the Asian Bank is going to do, and that
is a powerful vote of confidence. We are also seeing increasingly
that others are actively seeking partnerships with us. The World
Bank is reaching out to us in a way that it never did in the past,
the European Investment Bank, the EC[4]
organisations that for a long time, I think, frankly, had not
paid much attention to the Bank are paying attention and we see
that as confirmation that we are moving in the right direction.
We are seeing an increasing leadership role for the Bank at the
field level, in part because we have opened 23 new field offices,
we have a presence on the ground now giving us voice, impact,
and an intelligence gathering capacity that we did not have in
the past. The balance sheet is stronger than it has ever been,
Triple A is absolutely secure and, in my judgment, we have considerable
room on the balance sheet to ramp up our activities in respect
of our market-based operations rather than our concessional operations.
Quality improvements are being recognised in the board in terms
of the content and quality of the operations that we are doing
and the work that we are producing and, finally, I would say,
and I think it is important, the applications that we are receiving
for vacancies in the institutions have just gone through the ceiling.
We advertise four positions, we get 3,000 applications from advertisements
in The Economist and The Financial Times, for example.
That would not have happened three years ago. So, we see within
the development community a sense that this institution is moving
and we see reinforcement of that everywhere. I hope that addresses
your question.
Q2 Chairman: I have a couple of supplementaries
which I do not think are pre-empting my colleagues before I bring
them in. You mentioned opening the branches, but it has been suggested
to us that the initiatives that the branches can take are somewhat
limited and, conversely to that, that the board does an awful
lot of micro-management which other people have said is inappropriate.
I just wonder whether you can comment on whether that is an issue
that the Bank is addressing. On the last point you made about
recruitment, it has been suggested to us that the location of
the Bank and the uncertainty of that location was actually damaging
recruitment. What you have just said might imply otherwise, but
presumably you have some view on that?
Mr Eichenberger: On the first
issue, on field offices, we got funding to open 25 field offices
and to substantially increase our presence in the field. As of
this moment we have opened 23; we are close to opening the remaining
two. That gives us a presence that we did not have five years
ago. We are not fully staffed at the field level yet. We have
the offices, we have core people in the field, we have at this
point about 113 of our 800 professional staff who are now in the
field—that is about 14%. By the end of the year that figure
will increase to about 21% or 22%. We are ramping up significantly
in the field, but it is true that we are going from essentially
zero presence to a very active presence and our footprint and
our impact is not yet what we would like it to be, but we are
increasingly getting there. On the issue of board micro-management,
I have a mixed view about that. In my career I have had the privilege
of working as senior management inside these multi-lateral institutions
and senior management at the African Bank and at the Asian Development
Bank, I have also served as an executive board member myself at
the World Bank and in IFAD,[5]
in Rome, and I have served as a representative of the single shareholder
government, so I have seen three different perspectives. My own
personal view is that these institutions need an active and engaged
board presence. These institutions need to hear the views of shareholders,
in part because we need to maintain the support of shareholders
but in part because shareholders have different views and for
us to reconcile and balance these different views I think we need
to know what those views are on a regular basis. I personally
believe that the active participation by shareholders on a regular
on-going basis is a positive thing for the institution and for
institutional governance. There is some micro-management. Frankly,
in the case of the African Development Bank I think some of it
reflects some of the difficulties of the past. I think our board
is backing off increasingly and, with the confidence in the management
team, has given us more scope, so I do not see that as a huge
problem. The final issue on location—I am not really very
well positioned to comment on what is likely to happen there.
There was the movement from Abidjan to Tunis four and a half years
ago, I guess, or five years ago; there was a discussion by the
governors of the Bank at our annual meeting last year, at which
time they resolved to resolve the issue at the coming annual meeting
in May of this year. Clearly the default scenario is to return
to Abidjan, but judgments need to be made by the governors collectively
about whether the circumstances are appropriate to do that. With
respect to your final question about whether the uncertainty is
affecting our capacity to recruit staff, my own sense at this
moment is that it is not. The uncertainty is a factor but, as
I say, we are getting a tremendous amount of interest from some
very high quality people who see an opportunity to come to the
Bank and achieve something of value. Resolving the uncertainty
would be better than not resolving it. Our hope is to have some
clarity as we exit our annual meeting in May of this year.
Q3 Sir Robert Smith: You mentioned the
52% unprecedented increase in the replenishment. What are the
Bank's main priorities for actually spending the replenishment?
Mr Eichenberger: I should say
that these funds will be devoted to a subset of our countries;
they will be devoted to the poorest countries. We have 53 African
member countries who have a relationship with the Bank. Of that,
40 are concessional only borrowers. The remaining 13 are what
we call middle-income countries, and they borrow out of our market
finance division. I will go through a few things. First, out of
the entire amount of the replenishment, which is about US $9 billion—it
is a three-year replenishment, so we have roughly US $3 billion
a year for the next three years—75% will be explicitly devoted
to these 40 low-income countries and will be allocated to them
on the basis of what we call our Performance-Based Allocation
System where we reassess their performance in terms of governance,
the quality of macro and fiscal policies, structural policies,
the degree of commitment to pro-poor growth, et cetera. We feed
in population, per capita GNP,[6]
performance on governance and we get a result, and that will be
the basis on which these resources are allocated. Seventy-five
per cent of these resources are allocated to individual countries.
Twenty-five per cent of the resources, as a result of this agreement
we reached here in London, are specifically earmarked for two
special purposes. The first is resources specifically earmarked
to finance what we have called regional operations or regional
integration. There is a powerful need in Africa for deeper regional
integration. I think it can fairly be said that Africa is probably
the least economically integrated continent on earth, and there
is a compelling need for things like cross-border roads, for improving
tariffs and customs systems, cross-border power, et cetera, and
so part of this earmark will go for regional operations and the
remainder of it funds a new facility that we created which we
are referring to as our Fragile States Facility. The view within
the Bank among the African countries and among all of our shareholders
is that it is vitally important for this African institution to
be more present and more effectively engaged in post-conflict
countries that need assistance more than ever and that are on
the road to reform, and so we have created this Fragile States
Facility to support nine specific countries that are post-conflict,
peace agreements have been signed and they are moving forward.
That is roughly the allocation of these resources.
Q4 Sir Robert Smith: Can you just clarify
the 75%. You have the formula. Is it basically then that that
money is available to that country for it to set its own priorities
with the money once you have applied the formula to allocate between
the countries?
Mr Eichenberger: Similar to the
World Bank and others, for each country, whether it is an upper
income or lower income, we produce a country strategy valid for
three years or five years. That is produced in close consultation
with the country and is essentially a strategic programme, a business
plan if you would like, about the areas in which we are going
to be engaged. The priorities are developed as a result of this
dialogue, and we are seeing increasingly that the priorities on
the demand side are with respect to basic infrastructure, institution
building and capacity building, regional operations in particular.
The country strategies incorporate those priorities. A country
may say, "We want you to focus on roads, water and sanitation
and some institution building in our financial sector", and
then the allocation process, this formula-driven process, which
is entirely separate, produces a result which says, "Okay,
in this country we will have a lending envelope of $100 million",
let us say, over three years, and then, on that basis, we will
allocate together with them the resources to particular projects.
Q5 Sir Robert Smith: The replenishment
round went up by about 52% but DFID actually doubled its contribution.
In its negotiations with you how is it sought to work to ensure
that common objectives are implemented? What sort of negotiating
position did DFID take when it came to doubling its contribution?
Mr Eichenberger: I think that
there was a great deal of congruence between the priorities that
DFID was articulating and (a) the priorities that 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. We have 800 professionals
at the African Development Bank. There is no way that we can be
a full service development institution across the whole of Africa,
involved in every sector and every issue, and that is different
from the past. So, recognition that we need to focus on areas
where we genuinely can produce superior results, so infrastructure,
roads, with a clear poverty reduction dimension, power issues,
where, for example, access of the poor is explicitly built into
the project design, water and sanitation, which brings a specific
health dimension, helps us to achieve the Millennium Development
Goals, et cetera, and so there was a great deal of congruence
around that. Secondly, the messages from DFID were strong and
consistent about results, results, results. All of the shareholders
are facing increasing pressure to demonstrate to their parliaments
and to their taxpayers that this money is producing results, and
I think, frankly, the institutions and, I would say, the development
community in general has not done a sufficiently good job of doing
that. We agreed on things like building much more systematic monitorable
indicators into project design, et cetera, so that, two years
from now, three years from now, when we go into another replenishment
cycle, we and DFID can demonstrate quite clearly to the UK taxpayer
that this money went for this purpose and produced these results
that we believe you support. On emphasis on governance, governance
seen as absolutely crucial for sustainable development in Africa.
DFID has played a strong advocacy and convening role on issues
around, for example, the Extractive Industries Transparency Initiative
(EITI), pushing to get the Bank, not just engaged in it, but enthusiastic
about it going on. DFID was at the front-line in pushing for creation
of this special Fragile States Facility, arguing that, for example,
in a country like Liberia, where we have had no presence for 20
years, nobody has, if we go through our regular Performance-Based
Allocation process, it might result in US$20 million for Liberia
over a three-year period, not the kind of money that will enable
us to be transformational. So, DFID gave strong support for creating
a facility that would supplement these resources for committed,
well-performing countries like Liberia. Those are a couple of
examples.
Q6 John Battle: To press you on DFID,
I want to ask whether there is any conflict between DFID's approach
and the other shareholders, because DFID has got very clear parameters
about poverty alleviation and untying aid, and that means that
sometimes in negotiations with, for example, the World Bank and
other bodies there is a conflict between DFID's view of who gets
the money and on what terms and other bodies. Is that happening
in the African Development Bank or is everybody following DFID's
lead?
Mr Eichenberger: I would say a
couple of things. There are differences amongst shareholders about
what the priorities should be, but I think those differences have
narrowed and nobody contests the set of priorities that I just
articulated: infrastructure, governance, fragile states and regional
integration. Where the differences arise, I would say, is, in
part, around what instruments do you use to achieve these core
objectives? DFID has advocated fairly strongly for increased use
of what we call budget support. A government puts together a credible
programme with a credible budget, says, "I am committed to
this and I will deliver it in the following way, and what I would
like would be support straight into my budget in order for me
to make that set of choices that I am best positioned to make."
Again, all the shareholders believe that there is a place for
budget support; well performing governments are best placed to
make those choices. There are differences of view about how aggressively
we at the African Development Bank should push that agenda. We
have an overall limit of 25% for this budget support, and, in
fact, we have not even approached that limit, so there are some
differences there. The point was raised about tied verses untied:
there has been a positive movement within the institution moving
towards untied. I would mention a couple of things. First, we
have pushed through a trust fund reform that basically said: henceforth
we will accept no trust funds, we will be the trustee for no funds
that are tied, all tied funds will be grandfathered out. The UK
has been in the forefront of offering only untied funds and is
setting an example. That is very positive. Secondly, one of the
things that we achieved in this recent replenishment negotiation,
we put on the table a proposal to change our own Articles of Agreement
to allow universal procurement. Built into the Bank's Articles
of Agreement, that date back to the post colonial period in the
mid-sixties, were specific limitations that procurement could
only be accessed by member countries. Our view is that the world
has moved on and that, at the end of the day, what we need to
do is get the best quality goods at the best price for the borrowing
countries, and if those goods happen to come from a non-member
country, that is okay. DFID has strongly supported that. I think
they have been playing a leadership role on issues around a move
away from tied practices and a move toward practices that put
more capacity to make decisions in the hands of governments that
have a good programme, and that is an important point. There are
governments that do not have good programmes, and that is a different
set of issues.
Q7 Richard Burden: You mentioned
the Fragile States Facility with a budget of $665 million and
you said it was targeting nine countries. I wonder if you could
tell us a little bit more about how that process of targeting
works and how you work through the nine, what you should be doing
in those nine, and actually how you also exclude countries from
targeting at the moment? I suppose the other thing is how you
would harmonise what you are able to give through that facility,
through that fund, with other donor efforts in those fragile states?
Mr Eichenberger: I am glad you
asked that question, because we struggled with this. I and the
President and senior management were concerned and we were convinced
that we needed to exit this replenishment negotiation with a Fragile
States Facility of some kind. We felt it vitally important for
our bank, an African bank, to be more present in these countries,
but we also understood that there was little likelihood that the
donor countries would support a vague sort of open-ended arrangement,
in part because the donor countries have emphasised consistently
the need for resources to be allocated on the basis of demonstrated
performances, so we had a disconnect. Supplemental resources are
needed in special cases, but we cannot undermine or do violence
to a reasonably rigorous transparent performance basis. It was
on that basis that we re-established four very simple, very clear
and non-judgemental criteria for eligibility for fragile states.
It had to be a post-conflict country that had signed a peace agreement;
it had to be a country that had had a significant decline in real
GNP since 1990, which is the benchmark date for the Millennium
Development Goals; it had to be a country that was in the lowest
quintile of the UN's Fragile States Facility and, on that basis,
nine countries emerged. This allowed us (a) to have clear criteria
so that no-one could say we were playing political favourites,
and (b) it allowed us to assemble a group of countries so that
we could then go to the donors and say, "These are the countries,
this is the programme and here is how much it will cost",
and it was on that basis that we were able to get that agreement.
Those nine countries are now, in principle, eligible for this
Fragile States Facility. In order to actually access this facility
we and they need to come to an agreement that there is a credible
programme of economic policy in place. This is the kind of thing,
for example, we have seen in Liberia, where there is a very credible
programme in place, the World Bank is comfortable with it, we
are comfortable with it and, on that basis, we will engage, but
this gets us out of the business of making potentially political
judgments about who is in and who is out. The final point, let
me just mention that entry into this Fragile States Facility gives
the country access to a multiple of performance-based resources,
an amount that is two times as high. So if your normal allocation
for a three-year period is 50 million, let us say, this will give
you a supplemental 100 million, the view being that in these post-conflict
cases where frankly, destruction is everywhere, it is vitally
important that we get something started: get the water system
working in Monrovia, for example, get a port that is capable of
moving some goods.
Q8 Richard Burden: This was obviously
something that was stressed quite a lot in the 2007 High Level
Panel Report, and as well as saying that work in fragile and post-conflict
states should be a priority for the Bank, it was also saying that
there were certain constraints to that in terms of your operations.[7]
The first was that your governance portfolio was weak and lacked
clear direction and the other thing that it mentioned was, if
you were going to work in fragile and post-conflict states effectively,
dealing with the extractive industries was going to be a really
big challenge for you, described as the resource curse of the
21st century, and recommended that the Bank should raise its profile
on the Extractive Industries Transparency Initiative. There are
two questions really. Perhaps you could say what you are doing
to improve your work in relation to governance and the team involved
in that, and, secondly, how are you raising your profile in relation
to the Extractive Industries Transparency Initiative?
Mr Eichenberger: I mentioned in
passing, in response to the first question, that one element of
our reorganisation was to create a free-standing governance department—it
was one of the important initiatives from that reorganisation—explicitly
recognising that we needed to improve our capacity to engage on
these issues. We are, again along with the World Bank, DFID and
others, doing what we call governance profiles in individual countries
where we try more systematically to assess the governance situation:
how fully functioning are the institutions in these countries?
Where are the institutions where it would make sense for us to
work more closely? What are the institutional changes that we
believe are necessary in order to support a more aggressive approach
in terms of our own lending? This is a work in progress. It is
probably fair to say that governance and the issue of functioning
institutions is possibly the toughest issue. It is one about which
we need to know more, all of us need to know more, and it is something
that we need systematically to include in our country strategies,
et cetera, so this is a work in progress. The governance profiles
are feeding into our country strategies, the governance department
is working closely with our regional departments and our project
departments to build governance components into our individual
operations, even small things. For example, for a routine infrastructure
project, create a web page in the website of the local field office
that indicates simply what monies were disbursed, on what date,
to which person, for what purpose. In some work I did in the Philippines
with the Asian Development Bank, we found that simply publishing
the disbursements from the institution got local people into the
game and created accountability that was not there before. It
is not rocket science, some of this stuff, but it will require
extensive efforts over time. On EITI, we have formally become
a supporter or a member of the initiative; the issues around the
imperative of greater public transparency about resource flows
are increasingly a part of our on-going dialogue with individual
governments. I think that too is a work in progress; it is going
to take considerable time. I would mention one point which I think
is important, and that is, as part of our fragile states initiative
and recognising that in many cases there is a dimension between
fragility or conflict and resource extraction and non-transparency
around resource extraction in Sierra Leone, Liberia, the Democratic
Republic of Congo, you need not look far, one piece that we built
into our Fragile States Facility was that at the close of this
initial three-year period our expectation is that we will probably
want to go back to our shareholders and ask them to refund this
Facility. Our expectation is we are not going to achieve something
magical in three years; we are looking for six. Therefore, we
are going to do an evaluation at the end of the three years, and
one of the criteria for determining future eligibility for supplementing
fragile states resources is exactly the issue around: is there
adequate transparency with respect to debt flows? Is there adequate
transparency with respect to the flow of public resources? The
non-transparency, for example, around some of the major investments
that are being made in Africa now by new players is a matter of
concern, and part of our evaluation of whether we move forward
with the Fragile States Facility will be are we getting the kind
of transparency we think we need, whether it is cocoa in Cote
D'Ivoire or timber or diamonds or whatever? This is new territory
for us, but we think it is important that we do it.
Q9 Mr Singh: Mention has already
been made that the UK has doubled its donation to the African
Development Bank. In fact this year it will be the single largest
donor.
Mr Eichenberger: Yes.
Q10 Mr Singh: But actually throwing
a heap of money at somebody is not necessarily a sign of the quality
of the relationship. I think Sir Paul McCartney will attest to
that! Our interest as a committee is whether this extra money
is just a sign of UK government policy or it is a sign of a growing
and deepening relationship between the Bank and DFID and how effective
it is on the ground. How effective is DFID's support to the Bank,
not just in headquarters terms in Tunis but also on the ground
in terms of other countries?
Mr Eichenberger: Let me say a
couple of things. I would like to pursue that Paul McCartney issue!
First, this did not happen three years ago. It did not happen
during the last replenishment cycle at a time when DFID was also
as an entity significantly ramping up its profile, and so I think
there is information content in that. Secondly, it is clear that
the profile of the African development challenge is substantially
higher today than it was even a couple of years ago. We have Gleneagles,
we have the Commission for Africa's report and we have all the
attention that is going into, for example, the African dimensions
of the climate change challenge, et cetera, and there is recognition
within the development community that Africa is the decisive test
for development systems, and that is the business DFID is in and
I think they feel the need to be more systematically engaged with
our institution. In terms of the choices, you are closer to the
DFID colleagues than I am, but DFID could have chosen to direct
significantly higher resources to IDA. Fifty per cent of IDA goes
into Africa, and there is no question that the World Bank and
IDA have a depth of resources that we do not have as an institution,
but I think we also bring dimensions that IDA does not bring.
It is a fundamentally African institution; it does have that profile
and that credibility on the continent, frankly. Eighty per cent
of our staff are African and, in our view, DFID is making a choice
to invest in that set of assets, to grow those assets as a tool
to achieve the development objective. Finally, and this is a point
that we touched on earlier, it feels to me like there is a lot
of congruence between the priorities that the institution is increasingly
articulating as strategic priorities and the strategic priorities
that DFID and other shareholders, frankly, are articulating. That
is not an accident; there is an on-going dialogue. I think the
comfort level is higher that we have a programme that we can implement
and we have made a set of commitments that have increased the
level of confidence that we will be there when we need to be there.
Q11 Mr Singh: It is always hard for
an agency that receives the money to be critical in any way about
the way it is rolled out, but to make it easier for you to be
more positive, could you suggest ways in which DFID can be more
effective in helping the Bank implement more successfully its
reform agenda? For example, can the technical co-operation arrangement
be beefed up, or are there other areas of technical expertise
that you require?
Mr Eichenberger: On that, as you
know, we agreed with DFID, or DFID agreed with us, to a very generous
technical co-operation agreement that has been in place now for
only about six months, £13 million, and there are elements
of that agreement that are, from our perspective, extremely welcome.
First, it is 100% untied; second, the processes by which our people
can access those funds have been substantially simplified. The
UK Executive Director on the ground in Tunis has sign off authority
for a reasonable amount of funds. From our perspective, that is
a kind of a model of a trust fund arrangement with our institution
that we feel is very responsive to the challenges we have had.
There are unambiguous focal areas. There is not any question about
where DFID expects this money to go—infrastructure, governance,
climate change dimensions, the internal reform process—and
those are the right areas, frankly, but within that there is considerable
fungibility. I think it is now incumbent on us to make the best
possible use of that so that ideally we could come back and say,
"This was a great thing, we have used it wisely and we think
that we make a case to do more." Of that £13 million
agreed six months ago, £13 million for three years, I believe
something like £4 million has already been committed. I myself
have access to the funding in order to bring in some specialised
expertise around effective budgeting in a decentralised context.
DFID was out front on the decentralisation channel which it moved
aggressively with field offices. There are challenges around that,
but DFID knows things about how to run a decentralised operation
that we do not know and that we can learn from, and this fund
reinforces our ability to do that. Is that responsive?
Q12 Mr Singh: Yes. Just one further
point as an aside really, but it could be an important aside.
Given the growing—and we do not know to what extent this
will grow—financial banking and economic crisis that the
financial world is facing, do you foresee any problems for your
bank and any setbacks that may occur as this crisis develops?
Mr Eichenberger: No, I do not.
It seems to me the challenges are likely to be at a more general
level. Africa has had a pretty good run recently in terms of the
macro situation—5%, 5.5%, even 6% growth a year; on a per
capita basis, that is three, three and a half. That is as good
as it has done in 30 years. That is enormously positive, but it
is also true that it has been driven, very importantly, by commodity
prices. There is a plus and a minus, but unlike, for example,
the two previous oil shocks in the global economy, the current
high level of oil prices has not been an unambiguous burden for
Africa because the countries hurt by the high oil prices have,
more often than not, benefited from high prices of other commodities;
so on a net basis it is actually okay. But that does nothing about
the deeper underlying development challenge, it seems to me, around
competitiveness, diversification, integration into global markets.
That is the issue. In terms of the availability of finance—and
I am not an expert on this—we are not seeing much right
now that is worrisome. In fact, I just read an analysis recently
by the Institute of International Finance that suggested that
with investors reassessing the risk profile of some of their more
traditional investments in the developed countries, what they
are actually seeing is more flow of resources into emerging markets.
It seems to me one of the things we need to do at the African
Development Bank is increasingly to attract that risk capital
that is willing to invest in new markets. This gets to a point
which we have not talked about yet but which is important, which
is the profile and the activities of the Bank in the private sector.
We are seeing substantially increased interest on the part of
serious private sector investors in investing in Africa, risks
notwithstanding, and considerable interest from their side in
partnering with our institution, in part for the halo effect,
to reduce the risk. So at this moment we are actually facing a
level of interest in transactions that is going up, not down.
Q13 Sir Robert Smith: That positive
development must be exposed to the current liquidity crisis in
the private sector, the current liquidity crisis going round the
world, in terms of the potential for that private sector side?
Mr Eichenberger: The crisis is
exposed in ... ?
Q14 Sir Robert Smith: You are saying
that there is an interesting, exciting development of the private
sector now becoming interested in Africa, on the back of Marsha
Singh's question. Surely that must be a risk now in the current
liquidity crisis.
Mr Eichenberger: I think it is.
If you ask me, there is no doubt that with the hits that some
of the financial market players are taking and with the shrinkage
of the availability of credit, we can expect to see that. Unfortunately,
Africa has always been almost a footnote around issues of global
capital flows, but perhaps because of that, in fact, because it
is starting from a relatively low base, the degree of the hit
may not be that high, I am not sure, but what we are seeing, as
I say, is on-going interest in a wider range of sectors in Africa.
Q15 John Bercow: Mr Eichenberger,
can you give us some examples of how the Enhanced Collaboration
Initiative that you agreed with DFID in 2004 has helped to harmonise
your work with DFID in partner countries?
Mr Eichenberger: Yes, I can. Let
me say just by way of introduction, I think that, as you say,
it was agreed in 2004. Since that time our institution has gone
through a substantial reorganisation. At the time of the agreement
we had this very limited field presence, which we are now ramping
up, so a fair assessment of that would be results have been mixed
but, I think, unambiguously positive. I think a specific example
would be Mozambique, which has been a good performer, it has been
a priority for DFID and it has been a priority for this institution.
We have a significant field presence in Mozambique and, through
this Enhanced Collaboration Initiative, we and DFID and other
donors, frankly, have probably one of the most cohesive donor
co-ordination mechanisms that now exist in Africa. We are dividing
up responsibilities across individual sectors; that allows us
to be much more focused on core priorities. We are doing much
more joint work—joint work with the World Bank, joint work
with DFID at a critical level—so I think that is an example
where focused partnerships on a pilot basis is yielding some real
results. Elsewhere, Sierra Leone was another country that was
part of this initial pilot. I think it is fair to say that a lot
less has happened there, although it has been the basis for a
good degree of collaboration moving forward, particularly with
respect to how do we use this Fragile States Facility that we
have all agreed is going on. I think more remains in that case.
Q16 John Bercow: Focused partnerships
on a pilot basis exhibiting exemplary joint working will, of course,
be music to the ears of the good burghers of my Buckingham constituency,
Mr Eichenberger, and I do not in any sense cavil at what you have
told me, but if I were to walk into Market Hill in Buckingham
at the weekend and I were, per chance, to be nabbed by a constituent
who said to me, "What did you extract from Mr Eichenberger
about the specifics in terms of water, roads or sanitation in
Mozambique, which his organisation's work, under the Enhanced
Collaboration Initiative, is yielding?" (and it is not an
improbable question from one of the highly articulate and well-informed
constituents that you find in Market Hill Buckingham), what should
be my answer, Mr Eichenberger?
Mr Eichenberger: No, I get that
question all the time at the supermarket! I think that is the
test, the town hall test, where you stand up in front of the average
taxpayer and explain why it is a good thing to do. I think in
the case of this rather well-informed constituent, we could point,
for example, to a very clearly articulated set of specific results
that are expected to come from these collaborative investments
in roads, results that are articulated in the form not just of
how many yards of concrete are we going to pour, which is development
1980, but results in terms of how many people in rural communities
are going to be connected to markets where they can sell their
goods, how many people in rural communities will have more regular
access to basic healthcare as a result of this investment? It
feels to me, frankly, there is nothing revolutionary about that,
but it is an area where I believe the development community has
paid far too little attention for far too long. If we start building
these things into our agreements and measuring and monitoring
them, then I think we will get those results. So the results would
be, "Well, Mr Smith, I believe at the end of the day that
you should expect that an additional 15,000 Mozambicans will have
access to clean water, and we will be able to show you that and
there will be fewer cases of water-borne diseases, and that is
a good thing, do you not agree?"
Q17 John Bercow: That is extremely
helpful. Thank you very much indeed. I will make sure I am armed
with the information, preferably with the transcript, in readiness
for my visit on Saturday to the constituency! What is the status
of the reviews ordered by President Kaberuka into whether the
use of the Bank's capital to fund projects relating to the MDGs[8]
could be expanded? Forgive me, but my understanding is that there
is a total of three reviews. There appeared to be one review that
came on the back of the High Level Panel report—I maybe
mistaken about this—and there are two private investment
banks that have been asked to undertake independent reviews. Anyway,
perhaps you could clarify how many reviews there are, what their
status is and how they are getting on?
Mr Eichenberger: I am not deeply
familiar with that, but I can tell you the following. I think
the distinction between two versus three reviews is that one is
an on-going effort that is internal to the organisation. This
is the kind of thing the Treasury department needs to do. The
other two, as you say, are basically reviews of the balance sheet
being done by two investment banks, Citigroup and Goldman Sachs,
on a pro bono basis, by the way.
Q18 John Bercow: That is a relief.
Mr Eichenberger: They are doing
it pro bono, and the purpose of these reviews is to basically
examine: is there latent power in the balance sheet consistent
with a Triple-A rating that could be accessed in order to leverage
more finance into Africa? Are there ways that the institution
should or could think more creatively about insurance, guarantees,
et cetera? I had a conversation with the President just on Friday,
and he indicated that actually, just an hour before, he had had
a conversation with the Citigroup guys. They are very close to
coming to closure. He has promised the board to get the results
of both analyses to them in time for a full discussion before
our annual meeting; so this is imminent.
Q19 John Bercow: When is that?
Mr Eichenberger: Our annual meeting
is the middle of May, so we are expecting these discussions in
April. I think people in the Bank should be well placed to give
you some preliminary views.
1 International Development Committee, Sixth Report
of Session 2007-08, DFID and the World Bank, HC 67 Back
2
Department for International Development Back
3
International Development Association of the World Bank-the arm
of the World Bank which provides loans and grants to low-income
countries Back
4
European Commission Back
5
The UN International Fund for Agricultural Development Back
6
Gross National Product Back
7
High Level Panel for the African Development Bank, Investing
in Africa's Future, January 2007 Back
8
Millennium Development Goals Back
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