Examination of Witnesses (Questions 40-59)
GILLIAN MERRON
MP, MR RICHARD
DEWDNEY AND
MS SALLY
TAYLOR
24 APRIL 2008
Chairman: Good morning, and thank you
for coming in. Perhaps I could just explain that two of the members
of the Committee who were engaged in the visit to the Bank in
Tunis would have been here but for the fact that they are both
engaged in different NATO committees which preclude them from
being available in the House, which slightly explains our depleted
numbers. In other words, it is not a lack of interest; it is a
clash of timetables. Robert Smith also has an interest to declare.
Sir Robert Smith: I should declare my
entry in the Register of Members' Interests as a shareholder of
Shell and RTZ.
Q40 Chairman: As I say, thank you. As
you will appreciate, the Committee decided we should have a look
at the relationship between DFID and the African Development Bank
for the pretty logical reason that the Department has made a significant
commitment to increase the funding to the Bank, which is clearly
a declaration of confidence by DFID in the Bank and its role.
From our point of view, we felt it was important to explore that
and determine the basis for that decision and obviously the expectations
that DFID has in doing it. Perhaps if I could start, can I formally
ask you to introduce your team for the record. We obviously welcome
you. It is your first time in front of the Committee.
Gillian Merron: Thank you. I have
been looking forward to it. I am absolutely delighted you are
conducting the inquiry because I think it will help us immensely.
I am very pleased to introduce Richard Dewdney, who I know you
have met in Tunis, our UK Executive Director, and Sally Taylor,
who is DFID's Head of International Financial Institutions Department.
We are all here to assist in the inquiry.
Q41 Chairman: Thank you for that.
I wonder if we could perhaps start by determining to some extent
how DFID went about making the decisions to increase the funding.
I suppose the point is, what did you do to evaluate the effectiveness
of the Bank to justify such a big increase by doubling the support?
It is a question we have asked in other contexts as well, but
we think it is one that needs to be pressed, which is, what assurance
can you give to taxpayers as well as to Parliament that the increase
in funding to a multilateral institution like the Bank is for
the very best of reasons in terms of fulfilling DFID's objectives
and the Government's objectives and not because you have a rise
in budget and you have to find ways of distributing it effectively;
in other words, it is not anything to do with capacity constraints.
What assessment did you make to take the decision to double the
funding, and how can you reassure us it is based on a proper assessment
that this is a good way of delivering UK aid and development funding?
Gillian Merron: The first thing
to say is perhaps why we doubled the UK contribution, and I think
the Committee is right to ask the question, because we do have
a responsibility to explain it. Perhaps I could start with what
I regard as a simple explanation and then move on to the important
points that you raise. For me, this was about meeting our commitment
that was made at Gleneagles, which was to double aid to Africa
if it was to build African institutions. Clearly, the African
Development Bank is the leading institution in terms of finance.
That was our reason for doing it. How did we make the decision?
It is a judgement. The judgement is based on three particular
areas: the results, and I know the Committee has seen the results
paper; in addition, reform, and perhaps we will talk more about
that later. I think that is important, not just judging what has
been done but what will be done. Also, what the contribution is
to our priority, as the UK Government, in terms of building and
developing Africa. The other part of the judgement, of course,
is about what it does in terms of leverage, and indeed, I think
the leadership that we showed, even just looking at our own constituency,
meant that our colleagues in our own constituency did increase
their contribution by 50%. So it was not just what the UK contribution
would be but also what it would actually bring in. This is from
my own visit to Tunis following on from the Committee's: what
was very important to me that I would want to reassure the Committee
about, and that is why I welcome this inquiry, is the fact that
we are looking for reform. We are looking for moving forward,
and the areas on which I think we need to move forward, because
we are looking at meeting the Millennium Development Goals, and
the other point perhaps about our doubling of the contribution,
is that it is at the right time; it is halfway on the way to 2015.
It does give opportunities. We want to see institutional reforms
that are going to do more in terms of growth, which is the way
out of aid; infrastructure; regional integration; and also the
private sector and, as I say, I am sure we will talk in the Committee
about the kind of reform agenda that the Bank is undergoing so
it can deliver better. I think this would probably be a good time
to bring in Richard and Sally about a bit more detail on how we
made the assessments.
Ms Taylor: We took a range of
evidence and we looked at a number of different things to try
and build up a picture of where the Bank was at the moment. I
think the Committee have seen the Multilateral Effectiveness Summaries—we
did one on the World Bank, we did one on the African Bank, and
a number of other multilateral agencies—which looked at
a range of things. As the Minister was saying, it is about building
for the future, it is about the results that they will achieve,
it is about partnerships and about how they manage resources.
We had a look at that and we also had a look at what donors had
to say about the Bank—we did something called the Multilateral
Perceptions Survey—and also what countries had to say. We
did a pilot with the Overseas Development Institute. Those things
build a picture together to give a view of where the Bank is now
and where it might go.
Mr Dewdney: If I could add very
briefly to the point made by the Minister about the announcement
of the UK contribution, I think it was very helpful that the Secretary
of State made that announcement in November to help build momentum
for the replenishment as a whole. We can be confident that it
helped increase the overall envelope that the Bank now has to
deliver.
Q42 Chairman: If I were being frank
with you, I would say that the Committee's visit and what we got
out of it made us feel fairly comfortable just in terms of feel,
but, clearly, you have to be more than just gut-instinct right
about it. You have set out on behalf of the constituency a strategy
paper, and you have alluded to some of the points—with the
objectives of improving the Bank's effectiveness at headquarter
level, improving the Bank's effectiveness in-country, reinforcing
the Bank's contribution to infrastructure, and sharpening the
contribution to good governance in African countries, but you
do not really give an indication of how you can evaluate that.
They are all worthy objectives but how do you determine that the
Bank is effective at headquarters or that its in-country operations
are working, and that it is delivering on infrastructure and good
governance? Do you have your own targets?
Gillian Merron: Richard is just
bringing the report to me about our assessment of where we are
up to, but I think what I would want to get across is that all
that matters to me, as I am sure all that matters to the Committee,
is results. I would share your view about feelings being quite
insufficient. We have to have hard facts, and that is why, as
Sally describes, a whole range of measures—no one of them
on their own, I think, gives us the absolute answer but by employing
a whole range of means of assessment, I think we do come up with
some very clear measures, including showing what can be done.
Richard is about to present to me the report, so he might be able
to give a little flavour of it to the Committee.
Mr Dewdney: Thank you, Minister.
Just a few words, if I may. We have a joint institutional strategy
that covers the common objectives that we share as a constituency
of four countries—Germany, UK, Netherlands and Portugal—and
we agreed that in 2006 in the four areas that you outlined. Every
year, as part of the constituency report that we do in Tunis for
our capitals, we include an assessment of progress we think has
been made in each of those four areas. As the Minister just said,
the latest report is out in time for the annual meeting in May
and it reveals satisfactory progress across those four objectives,
with a particular strength, I think, in performance and progress
at the country level and on infrastructure at the country level,
although much more needs to be done and I am sure we will get
to that later in the inquiry. There has been a very big increase
in staffing, from a mere 100 in 2005 to 300 now, with a further
increase next year to 400. We are increasing the capacity of those
offices in terms of the professional expertise that they have
now: 13% of our professional staff are in country offices and
we are much more engaged in country dialogue processes. On the
infrastructure side, 75% of lending in 2007 was on infrastructure.
That is part of our agenda to make the Bank more focused and concentrate
on its areas of strength. It is increasing its collaboration with
key partners, in particular the World Bank and the EC, as I think
you heard when you were in Tunis. I do not want to go on at too
much length. Another important development is that, of course,
with the results framework that we now have agreed at the replenishment
for ADF 11, we have a key set of indicators for outcomes both
at the country level and measures of institutional effectiveness.
The report that has just gone to DFID includes an analysis of
progress against each of those indicators.
Q43 Chairman: Is it possible for
the Committee to have sight of that report?
Gillian Merron: For myself, I
have no problem with that but I would just ask that perhaps you
would allow me the opportunity to ask our colleagues in the constituency
if they are happy with that. Certainly I am happy with that.
Q44 Chairman: The point at the end
of the day is that we are producing a report and it would be helpful,
I think, for both the Department and the Committee to have some
idea of what was in it.
Gillian Merron: Indeed. If you
can give us a few days, to be courteous to our colleagues, I am
sure we will be able to come back to you and hopefully it will
be a positive response. As far as I'm concerned, you would be
very welcome.
Chairman: It would compromise our report
not to have it, if that is actually going on and it is specific.
I think it is in everybody's interests that we know about it.
Q45 Mr Singh: The Commission for
Africa had a vision for the African Development Bank that it should
become the pre-eminent financial institution in Africa by 2015.
Are we getting close to that vision or are we miles away from
it? What is your feeling about that?
Gillian Merron: I think they talked
about the premier institution but, for me, that probably is not
so much the point as whether they are the best at what they can
do. I regard the African Development Bank as a unique institution
which is uniquely placed with unique access within Africa and
a unique amount of understanding. That is why I am keen that we
not only support it but also see change. Looking at the High Level
Panel report, and in my discussions with President Kaberuka, I
regard it as a very good reference point for how it is going to
move on in that way. I would add that when we talk about being
a premier development institution, it is on a whole range of levels.
It is not just about finance. I think you have to move beyond
that and this is where the opportunity lies. It is also in terms
of the provision of knowledge and also technical assistance and
support. That is why I talk about the Bank being in a very unique
place. There are four main areas of course, which I am sure the
Committee is well aware of but I think always bear repeating,
that the Bank sees it as essential to move on and upwards, and
that is investing in infrastructure, building capable states,
including tackling corruption—and, Mr Bruce, I completely
agree in terms of the UK public; they have to be completely assured
of the work that is going on in that regard—promoting the
private sector, which we are very keen to see more of, particularly
in the low income countries, and of course developing skills.
Again, if we are just to be pushing money into countries without
the capacity, we are not getting the full benefit. How are we
doing in terms of being a premier development institution? I think
it is unique. It should be one which can call on others; it should
work well with its partners, including the World Bank, and it
should occupy a very special place—and indeed, I think it
does. The challenge—and President Kaberuka is quite clear
on this—I think is to raise their game and improve their
performance. He has set in train, as you will have heard, a whole
range of reform moves which will bring us to that point. The other
thing that I am keen to keep a track on—and again, I am
sure you have heard about this—is that the President wants
to appoint a Chief Operating Officer. I do feel—not that
it will cure everything; I would not want to put it all on their
shoulders, but in terms of moving the Bank forward in what it
can do and how responsive it is, that is important. The other
absolute key to us is decentralisation.
Q46 Mr Singh: One aspect of the uniqueness
of the Bank is that it is African.
Gillian Merron: Yes.
Q47 Mr Singh: It gives it an advantage
over other institutions, in that it is trusted and it can talk
to African governments at the same level. It should have a strong
voice, maybe a pre-eminent voice, on development issues in Africa.
Do you think it is achieving that voice or has it still got a
long way to go?
Gillian Merron: It still has a
long way to go. Again, I would call on Richard and Sally because
they are more experienced in how it has been in the past. My sense
of the Bank—not just a sense, not just a feeling; the evidence
shows me that actually the Bank is at a real turning point. I
will be at the governing body meeting in a few weeks and, for
me, 2008 is the opportunity to really turn the corner, because
there has been much assessment of good results, there has been
a huge boost, and we have been a big part of that, and there is
a plan to move forward to deliver more results, and it is to make
the whole—not just the culture but the practice of the African
Development Bank—all about results, which is where it should
be. It might be useful if I could bring in my colleagues to start
looking back to where the Bank has been.
Mr Dewdney: Thank you, Minister.
Let me just start by complementing what you just said with a few
remarks about how the Bank has operated in the past. I think there
has been a common recognition that it has been spread rather thin,
that the shareholders have put multiple and inconsistent demands
on it. Going forward, if we can deliver excellence in a narrower
field, to answer your first question, then that builds the case
for the Bank to play a broader and deeper role in the future.
On the specific issue of being a voice for Africa, we have seen
a lot of evidence of that since President Kaberuka arrived. He
is much more visible internationally than his predecessor. He
was in London earlier this week at the food prices summit, for
example, and is making a major contribution now across a range
of different issues, be it looking at the impact of oil price
rises on the continent, trade negotiations, and so on. I think
one of the principal challenges for the Bank, however, is building
a credible, analytical base on which to be a credible advocate
for the continent going forward. That is going to be a challenge.
We have a new knowledge management strategy that is rightly focused,
and needs to be focused to build the synergies with the operational
priorities of the Bank. I am confident that the institution will
make progress.
Q48 Jim Sheridan: I just have one
question on partnerships, Minister. I am interested to see how
the Bank co-ordinates its efforts on the ground with organisation
such as DFID and other bilateral and multilateral institutions
and donors. I would ask you for some tangible examples of how
the Bank's partnerships with other donors and political and financial
bodies is working out.
Gillian Merron: The first point
I would like to stress is that the Bank realises what is obvious:
it cannot do everything on its own, and, whilst it is unique and
well-placed, it is going to benefit by strong working partnerships
with other organisations. Perhaps if I start with DFID, we are
a key partner for the Bank and we have not just doubled our UK
contribution. I would want to draw the Committee's attention to
going further than that, because I think these are good examples:
to increase capacity in the way that Richard was just talking
about, we have got a technical co-operation agreement over five
years. That is £13 million, and that is about improving the
Bank's ability to offer technical support and advice on areas
like water and sanitation, infrastructure, governance and so on.
We are also strengthening the staff. I think that is very important
actually in terms of the Bank continuing to improve its delivery
through secondments so we are supported by people. We have also
given £6 million to the Infrastructure Project Preparation
Fund, again, to develop high-quality regional projects. One of
the areas the Bank is extremely well placed on is how it works
across countries, because many development challenges, as you
well know, do not stop at the borders of countries, and I am very
keen on that area. That is some of what we are doing. In terms
of the others that you mention, obviously, the World Bank and
the EC are the biggest partners, and the Bank is increasingly
demonstrating a strong partnership there. I am told that Bob Zoellick
and Donald Kaberuka are rarely off the phone to each other. That
is how it was put and I said, "That's a hell of a phone bill!"
Q49 Jim Sheridan: It is cheaper then
travel.
Gillian Merron: It probably is,
but the personal relationship is important across those institutions.
However, if you want to know really where we have to go next with
the Bank, it is decentralisation, without any doubt. That is where
we will see the strongest co-working across institutions, delivering
results that are responsive to what is needed locally. That is
why we are pushing, as the UK, on decentralisation. On the relationship
between the World Bank and the African Development Bank, there
is, as you will know, the memorandum of understanding which was
signed in 2000. That was re-invigorated last year and has very
much looked at the key things that are important to us in development
on infrastructure and regional integration and so on. We, as the
UK Government, are constantly working with the organisations to
improve the partnerships, because it is certainly my view that
we are going to benefit by the sum of the individual organisations
working together.
Q50 Jim Sheridan: Obviously, the
relationship between the African Development Bank and the World
Bank is improving. From a DFID perspective, how do you see this
partnership developing and indeed delivering results on the ground?
Gillian Merron: Again, what I
would emphasise is that we are missing opportunities in not being
decentralised. That, I believe, is where the ability to respond
will be. Both Banks have comparative advantages and should not
be stepping on each other's toes. They should be working together.
I definitely do think there is room for improvement but that real
improvement that you and I would be looking for will only happen
through decentralisation. That is why we are supporting the African
Development Bank to do that, and to have the right staff in the
right place with the right skills. I can perhaps give you some
positive examples of co-operation: in the transport sector, something
I have a personal interest in, the two institutions do meet bilaterally
to actually look at priorities and discuss opportunities for funding.
They have also undertaken the African Infrastructure Country Diagnostics
Study, again, stepping back to look at what they can do and who
is best placed to do it. Of course, as I say, our job is to engage
at the project level to improve co-operation but also at the institutional
level as well.
Q51 Jim Sheridan: Is there any concern
about duplication between both organisations?
Gillian Merron: There is concern,
but I think there are positive examples, as I say on transport,
of stepping back and saying "What is it we need to develop
for the right way forward?" I probably have greater concerns
about not maximising possibilities than duplication. That is my
own view on it. I do not feel the institutions are established
yet in order to maximise being responsive locally, because that
will be the only way to do it.
Q52 Chairman: You have not actually
mentioned the African Union. We were advised that there are the
flutterings of a suggestion that the African Union might want
to spawn its own bank. We were told that was probably not a substantive
suggestion but what is the relationship with the African Union?
How do you think it should operate?
Mr Dewdney: I think the relations
are good between all of the key pan-African institutions, the
AU and NEPAD, the New Economic Partnership for African Development,
which was under the AU banner, and the UN Economic Commission
for Africa. I think it could be strengthened. I think perhaps
historically there have been tensions about respective roles but
I think increasingly the African Bank is seen as the operational
arm, if you like, particularly in the areas where it has been
given mandates by the AU and NEPAD in infrastructure and so on.
Gillian Merron: Can I just mention
agriculture?
Q53 Chairman: You can, but we have
a question we will come to anyway.
Gillian Merron: I will wait.
Q54 Sir Robert Smith: In the evidence
we got from Joseph Eichenberger, he told the Committee that "governance
and the issues of functioning institutions is possibly the toughest
issue we are facing." I just wondered how satisfied DFID
is with the Bank's Fragile States Facility agreed in December
2007?
Gillian Merron: I also met Joe
Eichenberger when I was in Tunis and I was interested in some
of his—by the way, he enjoyed coming to the Committee and
I am sure it was very helpful. In terms of fragile states, we
are very strongly in support of the new facility which was agreed
during the ADF 11, because we want the African Development Bank
to play a far bigger role in post-conflict and post-crisis countries.
The reason for that is that I do feel that the Bank has the opportunity,
which others may not in the same way, to move quickly when there
is a chance to actually move in. The challenge—and of course,
we know that 7.5% of the Bank's budget is put aside for this—is
that fragile states, as we know, do not just have large needs
but also the effects of being a fragile state, particularly in
times of conflict, have a very large impact on the surrounding
countries. For me it is therefore a very crucial area of work,
quite a delicate area of work, but one that I think the African
Development Bank is well placed to do. I would expect the African
Development Bank to be supporting rebuilding of infrastructure
where the possibility arises, because it is about supporting economic
recovery and actually delivering on services. So the fragile states
work of the Bank is absolutely crucial to us, including arrears
clearance. On the issue of governance, could you just clarify
again the area that you were asking about?
Q55 Sir Robert Smith: Just what other
levers or role the Bank can have in tackling the governance issues
in Africa when it comes to development. It was put to us that
that was still a big challenge. I wondered how you felt, what
levers the Bank has and what other efforts it could make to address
governance and transparency.
Gillian Merron: I think, for example,
the formal support to the extractive industries—the Extractive
Industries Transparency Initiative (EITI) is important. I think
it is a very clear example. I think for me, going back to our
previous discussion on anti-corruption, the fact that the Bank
is working with African countries to tackle corruption and also
strengthen the management of public expenditure nationally is
very important. I know the Bank has very strong internal systems
and policies, and in fact, there is very high-level support by
the President for the Auditor General, and his absolute insistence
that recommendations on anti-corruption are followed up. All of
those, are extremely important. I think the other point is, as
we talked about, the uniqueness of the Bank. The President does,
of course, have very special access to the heads of African governments
and we would be keen that he would continue to use that in a very
positive fashion, as I know he does.
Q56 Sir Robert Smith: On the extractive
industries side, do you agree with the High Level Panel that the
Bank itself should try and avoid directly investing in extractive
industries projects because the commercial side and other sources
should be an adequate source of funding for those sorts of projects?
Ms Taylor: I think the Bank is
there to respond to the needs of the countries, and that is the
starting point, that it is a country-led approach. I think the
Bank has something special to bring in terms of working with the
private sector, being able to bring in its safeguards, both social
and environmental, and I think there is evidence that the Bank
is able to leverage in the private sector and to work with others
for better overall support.
Q57 Sir Robert Smith: You want the
conditionality that they should adhere to the EITI principles
if the Bank is involved in the project?
Ms Taylor: Yes. As you know, the
UK view is very much that conditionality should not be imposed,
that it needs to come from the country, but fiduciary responsibilities,
transparency and accountability are all important to us.
Q58 Sir Robert Smith: So you do not
agree with the High Level Panel then in its recommendation?
Ms Taylor: My personal view is
not really.
Q59 Sir Robert Smith: What is the
Government's view?
Gillian Merron: The EITI to me,
and its strength, is about the coalition, that it brings together
governments and companies and civil society groups, and it is
about supporting improved governance, because otherwise we are
not going to be able to maximise the use of resources and President
Kaberuka did recently this month endorse the launch in Washington
and they have given their formal commitment of support to play
their appropriate and special part in that agreement.
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