His response to the global economic downturn has transformed the African Development Bank
Quiet streets greeted the African Development Bank’s return to Abidjan, its former headquarters, this May for its 45th annual meetings. The bank left in 2003, precipitated by the deteriorating security situation in the city as Côte d’Ivoire slid into civil war. Today it occupies three buildings in Tunis – a “Temporary Relocation Agency” that has begun to seem less and less temporary. Its dislocation has been frustrating for bank staff and for international partners, but with elections in Côte d’Ivoire repeatedly postponed an imminent return has seemed unlikely.
The AfDB, though, has achieved a turnaround that could similarly be described as unlikely. A decade ago the bank was languishing, struggling to articulate its relevance to the African countries that were its clients and shareholders.
Today the great inefficiencies and frustrations that outsiders experience at the annual meetings – bloated as they are by the slow march of protocol – disguise an organisation that has evolved significantly under the leadership of its returning president, Donald Kaberuka. Kaberuka, the former finance minister of Rwanda, took over the presidency in 2005, replacing Omar Kabbaj, whose tenure was characterised by risk aversion, restoring the bank’s triple-A rating but recentralising its staff and reigning in its ambition.
That he was returned to the office in an unopposed coronation in Abidjan this May is demonstrative of the regard with which Kaberuka is now held. According to bank sources, the Moroccan delegation to the bank tabled the suggestion that no election should be held, so successful has Kaberuka’s first term been. The institution’s confidence and purpose grew quietly over the first few years of the Rwandan’s term, but it has been the AfDB’s response to the economic downturn that has defined “his” bank.
One of the most immediate effects was that the bank was once again relevant to middle income countries that had largely graduated beyond its services – being able, as they were, to access funding direct from the capital markets. However, as credit dried up internationally, these countries struggled to raise funding. As Dr Nkosana Moyo, the bank’s chief operating officer, explains: “Well managed countries, countries like Botswana and Mauritius, started having to come to us, instead of going directly to the capital markets… But because the bank maintained its triple-A rating, it meant that it could still access capital and leverage its own balance sheet and therefore on-lend to the countries that, until this point, could have got there on their own.”
The bank also “frontloaded” – accelerating the deployment of its resources in its client countries to act as a countercyclical investor and cushion the impact of the downturn. “There were other tricks,” Moyo says. “We went back to the portfolio and worked with countries to reconfigure that portfolio so that some resources could be released where they had been committed but not yet used. So in consultation with the countries in question you could essentially cancel effectively any commitments and redeploy them in the same country, just then reprioritise them.”
The group committed US$12.6 billion to its regional member countries in 2009, compared to US$5.5 billion in 2008. In the past four years, its portfolio has doubled to US$15.6 billion. In Abidjan this year, the AfDB’s governors approved a general capital increase that tripled the bank’s capital to almost US$100 billion. This, bank officials say, will finance more than just the shortfall caused by the crisis response. Instead, it will push on with the institution’s mission defined by Kaberuka – to do less, but do it better. “In the last five years what the president has done is to be very disciplined in getting the bank not to try to do everything under the sun,” Moyo says.
This focus has meant cutting back direct interventions in social sectors and concentrating on areas where the bank perceives it has expertise, such as infrastructure, and the infrastructure elements of other thematic areas.
Taking food security as an example, Moyo explains: “We do not want to try and do everything that comes under the agriculture umbrella. What we want to focus on is the infrastructure component. So whether it’s the movement of goods, or irrigation, or water harvesting, we will pay attention to that. But we understand that our partners, such as FAO and the seed companies and so on, will come in and do other things.”
The crisis, too, has brought this issue of focus into sharp relief as donors examine their development budgets and try to cut out duplication of effort amongst the institutions that they fund. “If you go to the donor side, the same people are giving money to the World Bank and to us,” Moyo acknowledges. “There has to be a rationale why you do exactly the same thing with these two institutions. So there is a dialogue which is seeking to clarify much more sharply the division of labour.”
The bank, Moyo says, should be expected to help to form policy and demonstrate local knowledge. Under Kaberuka, the bank began to reverse the previous phase of recentralisation. The first stage of that decentralisation has largely been completed, says Moyo, and the second, which will see decision making and research brought closer to the point of disbursement, is underway.
“Strategic or policy formulation dialogue should be better informed by interaction with us,” he says. “We want to begin to develop the knowledge component of our institution.” To this end, the bank has hired Professor Mthuli Ncube, formerly the dean of the Faculty of Commerce, Law and Management at the University of the Witwatesrand, as its chief economist. “We implement projects. What do we learn from them?” Moyo says. “How do we use that experience to reformulate the causality relationships in terms of what we know from the economics side?”
In 2006 the Center for Global Development in Washington DC set down six pieces of advice, three for him and three for the AfDB’s shareholders. The report: Building Africa’s Development Bank advised that the institution should define its mission as promoting economic growth; focus on one area where it had comparative advantage and could fulfil that mission – infrastructure; and to “lead, but don’t lend, on key regional issues” – i.e. to develop as a policy and advocacy actor beyond its role in disbursing donor capital.
In a “report card” on the bank’s progress, issued before the annual meetings began, the CGD gave the bank a B+, A- and A, respectively. The crisis response, increased private sector disbursements and the narrower focus on infrastructure came through strongly. On the third target, whether Kaberuka has personally graduated from the effective technocrat that he was known to be before his term, to become a potent interlocutor in international affairs is arguable, Todd Moss, senior fellow at the CGD says. “He is definitely a technocrat,” Moss says, “but if you think back to what Khabbaj was doing, he simply didn’t play that role. Whereas at the G20, at Copenhagen, if there’s an African issue, who are the shareholders going to turn to as a credible voice? It’s Kaberuka.”
For the shareholders, the CGD report advised that they “back off” and reduce the long list of conditions imposed upon the bank; “lighten up” and transform the board into a non-executive, non-resident body; and finally to address the issue of the bank’s headquarters. On this latter point, the bank determined that the security situation in Abidjan had not recovered sufficiently to begin the process of return. The CGD gave the shareholders an “incomplete” grade for this and for the first recommendation – back off – but Moss is encouraged by the lack of a new “Christmas list” of shareholder demands to accompany the recent capital increase and in the discussions around the replenishment of the African Development Fund, the group’s concessionary window.
On the requirement to “lighten up,” Moss says: “It’s unlikely that they’re going to go to non-executive, non-resident. But the point is that the board is totally focused on the wrong things. They’re focused on the minutiae of policy and the mechanics…They’re tying up the staff with all this paper chasing. It’s totally counterproductive,” he argues. “It’s one thing to have a white knuckle, tight grip on things if you don’t think that Kaberuka knows what he’s doing, but I think everybody’s pretty happy with Kaberuka, and if they’re happy with him, let him do his thing, let his team work.”
