28.ICAI gave the ADB a green/amber score for effectiveness in delivering UK aid priorities. It said that “Overall, while the Bank still has some way to travel before it fully realises its potential, it is fundamentally performing well in relation to peers and is playing a central role delivering complex infrastructure projects that are critical to Africa’s development.”
29.Professor Stephany Griffith-Jones argued that development banks should become even more important in promoting development: “development banks, and particularly multilateral regional development banks, are particularly valuable because they can, for example, leverage funds at a significant level.” She continued:
That argues that, in the case of the African Development Bank, the capital has increased quite a bit, but the paid-in capital, which is a relatively low share of total capital—no more than 6%—is going to be disbursed in 10 tranches over 10 years. This might have been fine in normal times, but in covid times the needs in Africa are so high and have increased so much that perhaps a good thing would be to accelerate, particularly in the next year or two, the disbursement of this paid-in capital, to give them financial capacity to do more. This would not be very expensive.
30.Colin Buckley, CDC Group, saw the Bank as a strong partner with his organisation in helping to deliver on the UK’s development priorities:
The CDC views the African Development Bank as a critical partner in delivering economic development for Africa, consistent with the UK priorities. The way we work with the African Development Bank is both in terms of investing and in terms of leveraging our respective strengths in areas outside of investing. It is important to start with investing. At the moment, CDC has co-invested about $1 billion in 30 investments alongside the African Development Bank. Some examples of those investments would be the Africa Renewable Energy Fund, which is looking at projects in Ethiopia around geothermal and biomass, and solar in Uganda. There is the TIDE Africa Fund, which is looking to fund high growth young African businesses across the continent. There is the Ruzizi hydropower plant, which is bringing energy to about 30 million people, some 70% of them under the poverty line, in Burundi, Rwanda and DRC.
31.ICAI, however, said that “The Bank has not mobilised as much private finance for development across the institution as peers … International financial institutions, including specialist development finance institutions such as the IFC and the UK’s CDC, have all struggled to mobilise private finance from third-party investors in sub-Saharan Africa.”
32.Professor Stephany Griffith-Jones warned us of the size of the task confronting the ADB in taking forward infrastructure projects:
Africa has now developed quite a lot, so a lot of countries are middle-income, but they were recently low-income, so they have problems in infrastructure and in so many aspects. The challenge that an institution like the African Development Bank faces is so much bigger than in Latin America and particularly in Asia, where things seem to happen a lot on their own.
33.Professor Griffith-Jones said that in assessing the effectiveness of the ADB, one should not just look at “financial performance, although that is important, but on whether the institution is maximising sustainable and inclusive development impact.” She also encouraged the Bank to do more to promote African financial markets:
Perhaps the African Development Bank could do more in deepening domestic capital markets in general, both the stock market and the bond market, but in particular deepening the local currency market. For example, it can borrow in the local currency market and then lend in the local currency. It has done that in several countries in Africa, but it could do it much more widely.
34.Colin Buckley warned that it was difficult to attract private funds to African projects: ”We have to recognise that there is a fundamental tension between additionality and mobilisation. If you do an investment that is clearly additional—that is no investor would ever look at it—you are not going to be able to mobilise anyone into it. You have to sidle up to a deal that is essentially bankable in order to get interest in investors to follow your lead.” He also cautioned that suitable projects in Africa were not always easy to come by—and they were often subject to political complications:
the problem with infrastructure in Africa is not the availability of capital but the availability of projects to invest it in. The African Development Bank has played a key role in trying to develop projects. Because we ourselves now are trying to develop projects through our platform Globeleq, which we founded about five years ago, we have become increasingly aware of the challenges that presents to creating a new infrastructure project. It is not entirely within either our or the African Development Bank’s gift. A lot of this is highly political. I am not so sure I could comment on whether it could do more, but I would recognise that what it does already is critical to creating an infrastructure market in Africa.
35.One of the key challenges facing the African Development Bank is in leveraging private finance for its key infrastructure projects. The current financial situation due to the coronavirus pandemic is likely to make that problem worse.
36.One possible action that could improve the prospects for funding of infrastructure is for a faster disbursement of the Bank’s paid-in capital. We urge the Government, through its position as UK Executive Director, to consider encouraging this and other possible routes to maintaining financial support for Africa’s infrastructure.
37.The problem of ensuring that infrastructure is built in ways that are sensitive to the interests of local people and of the environment came up regularly in our evidence. The Bank itself found in 2019 that the proportion of its work that had satisfactory environmental/social safeguard mitigation measures in place had been falling in recent years.
38.When we sought the views of the Minister, Minister Duddridge told us that development could be done in a way that recognised social and environmental needs:
If we develop Africa as Europe developed, or indeed as China or America developed, that will be catastrophic for the globe, and those that are growing their way out of poverty even more so … In relation to climate, we are in the fortunate position of being in the driving seat for COP 26. We are encouraging African countries not only to look at what they are committing in their nationally determined contributions, but also to explain to the wider world the impacts. COP 27 will be African-led, so there is a real opportunity to get it right for the developing world, making sure we get that GDP growth per capita growing faster than the global average.
39.Debbie Palmer said that the Bank has “a pretty good story to tell” on climate change, and had not, for instance, made any investment in coal since 2015:
It is quite a leader among its peers of the multilateral development banks. It is in the process of developing a new strategy that will focus really hard on the climate impact and the climate change issues around its lending. We worked with it to secure a commitment to a 40% climate finance target for 2025 of $25 billion. We know that it already has a really significant renewable energy portfolio.
40.ICAI reported continued shortcomings in project preparation and implementation at the Bank, and Professor Griffith-Jones agreed, saying that from her experience “there were not enough resources, particularly human resources, on implementation. Project preparation in the African Development Bank and in general in development banks, even national ones, is a big gap that needs to be filled much more.” Simon Mizrahi, Director, African Development Bank Group, noted that this issue was raised in the context of a “historic” $115 billion general capital increase for the Bank—the largest it had ever received. As part of that general capital increase, the Bank agreed on a set of “ambitious reforms to improve the Bank”. These included improved strategic staffing. “One particular area that was identified as part of the areas that required reform was indeed in terms of the need for strengthening the project preparation facility.”
41.Simon Mizrahi also accepted that some of the challenges in applying environmental and social safeguards and in trust fund management, “are related to the fact that we keep our costs down. Perhaps we have been keeping those costs down a little too much.” He acknowledged that in key areas the Bank might need to strengthen its capacity and expertise, and specifically mentioned the UK’s role in helping to put focus and attention on work it was doing in terms of building skills to address problems related to sexual exploitation, abuse and harassment.
42.Minister Duddridge said that the UK would “support the African Development Bank to spend more on its people in proportionate terms, but particularly around fragile and conflict states.” ICAI also identified shortages of capacity to manage trust funds. The Minister said that “The methodology of using a trust fund, i.e. effectively getting the bank to lead programmes, is a strong one … it is much more effective to have trust funds that multiple donors put into but the banks manage. New ones of those are happening all the time. I heard of one we are doing with the Swiss, which is paying disaster risk insurance premiums for the agricultural sector, providing countries with mitigation against the risks of problems with crops.” Phil Stevens of the FCDO said that the Department were supporting secondments to the Bank, in the areas of both gender and infrastructure, to try to build the Bank’s capacity in those specific areas.
43.Dr Barton of ICAI reiterated the concern that the Bank was “very lean in staff terms”, including in relation to implementing social and environmental safeguards, and that the UK itself “could do more to recognise the need for that flexibility in those areas and bear down less hard on the overall cost-income ratio.” She said it would “obviously take time to see whether the Bank fulfils its ambitions [on staff for safeguarding and fragile states] and ensures it has the staff to do these jobs. In the past, the UK’s performance improvement plans and metrics have had a lot to do with staffing, but so far they seem to have led more to reduction of funds arriving in the Bank, which does not help staff it more quickly. Broadly, I was encouraged in relation to that one, although the Bank has some way to go, because this is an area of weakness as things stand because of lack of staff capacity.”
44.However, she told us that in his evidence it appeared that the Minister had “very much taken up our views on that”. Overall, she said she had been “very struck by how fully the Government appear to be implementing our recommendations.”
45.The need for the Bank to recruit good new staff, and to strengthen the skills of existing staff, was a pervasive theme of ICAI’s review and of the evidence we took. We were concerned to hear that expertise in such key areas as safeguarding and development in fragile states is in short supply. We heard several statements about the Bank’s efforts to acquire the skills it needs, and the UK’s support for those efforts, but words need to be matched with effective action.
46.The UK Government should do all in its power to encourage sustained progress towards filling the skills gaps at the Bank. While bearing in mind the need to respect the Bank’s independence and to maintain a multilateral approach, the UK should press the Bank for early action and regular monitoring of progress on recruitment and retention. An update on the staffing situation should be provided to the Committee by the end of October 2021.
47.We heard some evidence on how the Bank has been dealing with the effects of the covid pandemic. Simon Mizrahi painted a picture of the impact on Africa. The pandemic, he said, had “really upended the world economic order as we know it. Africa, like other regions, possibly more than other regions, is reeling from the economic and social consequences of the pandemic.” He quoted an IMF estimate that, as a result of the covid crisis, Africa will need $1.2 trillion in additional investments over the next three years. He continued: “One of the most pressing development threats the continent is confronted with is that we expect to see an additional 43 million African people who might be pushed into poverty.”
48.Debbie Palmer added some more figures to the picture. She told us that the economic consequences of covid in Africa “have been really significant. We had a deficit of 10 million jobs in Africa in 2019. The latest data suggests that could have quadrupled in 2020. We know that the number of poor people in Africa is going to more than double by 2050.”
49.There was frustration that the pandemic was undoing so much sound progress across the Continent. Professor Griffith-Jones said “it is very sad to see in Africa, as in Latin America, that these countries have actually done extremely well, particularly Africa, in terms of growth and expansion of education and health. All that can be reversed within this year and possibly next year.”
50.Simon Mizrahi said that “The good news is that African countries and leaders have already taken a bold range of actions, including ambitious public health interventions to flatten the curve … They have been leading the expansion of social safety nets and monetary and fiscal interventions at an unprecedented scale.” He continued that the Bank had been very keen to support these efforts. This support included the establishment of a $10 billion Covid-19 Rapid Response Facility, designed to help Governments implement their remedial actions. In March 2020, a “record-breaking” $3 billion Fight Covid-19 Social Bond was launched on the global market, the largest ever US-denominated social bond. Mr Mizrahi said the Bank would “continue to use our triple-A rating and our convening power to provide the level of support African countries need and deserve.”
51.Colin Buckley observed that covid had brought about “… a real shift in the way institutions have worked together. Our challenge now is to make sure that survives covid. We did a lot of things in crisis and now we have to regularise them … we all worked together to try to overcome the usual day-to-day issues to get the money on the ground a lot faster than would normally be the case.“
52.Debbie Palmer of FCDO gave another insight into the impact of covid-19 on collaborative working across institutions:
we have done quite a lot of work to encourage teams at country level from the African Development Bank to share their investment plans earlier with our staff at post. In each country, there ought to be, and there usually is, a donor co-ordination mechanism where we will sit with our partners; it is chaired by different groups in different countries. Covid actually has brought the international community together a great deal, partly because we are all doing this, sitting on Teams and on Zoom, and are able to have meetings even when we are not meeting physically.
53.Professor Griffith-Jones welcomed the covid support provided by the Bank as “extremely crucial”, but she was “not sure it is enough because the problem is so large.”
54.We are heartened by the evidence of concerted and determined efforts on the part of the African Development Bank to mitigate the worst effects of the covid-19 pandemic and support the response of individual countries. We also welcome what appears to have been wider enhanced coordination between development institutions in the face of the pandemic.
55.However, we are concerned that, as the pandemic continues to spread, and in some cases to worsen, including in African countries, momentum could be lost in the face of the huge challenges posed by the pandemic.
56.The UK’s future support for the African Development Bank should reflect the Bank’s key role in complementing bilateral support.
19 ICAI, , July 2020, p.ii
20 Q26 [Professor Stephany Griffith-Jones]
21 Q26 [Colin Buckley]
22 ICAI, , July 2020, p.29
23 Q31 [Professor Stephany Griffith-Jones]
24 Q30 [Professor Stephany Griffith-Jones]
25 Q30 [Colin Buckley]
26 Q28 [Colin Buckley]
27 ICAI, , July 2020, p.27
28 Q11 [James Duddridge]
29 Q11 [Debbie Palmer]
30 Q28 [Professor Stephany Griffith-Jones]
31 Q29 [Simon Mizrahi]
32 Q35 [Simon Mizrahi]
33 Q10 [James Duddridge]
34 Q9 [James Duddridge]
35 Q9 [Phil Stevens]
36 Q18 [Dr Tamsyn Barton]
37 Q24 [Dr Tamsyn Barton]
38 Q18 [Dr Tamsyn Barton]
39 Q37 [Simon Mizrahi]
40 Q36 [Simon Mizrahi]
41 Q8 [Debbie Palmer]
42 Q37 [Professor Stephany Griffith-Jones]
43 Q37 [Simon Mizrahi]
44 Q37 [Simon Mizrahi]
45 Q37 [Colin Buckley]
46 Q15 [Debbie Palmer]
47 Q37 [Professor Stephany Griffith-Jones]