The African Development Bank (AfDB) faces a peculiar situation: most of its African members cannot use the bank's loans. Only 13 out of 53 countries in the region qualify for borrowing; the rest are too poor, too indebted or too war-torn. But Donald Kaberuka, the AfDB's new president, promises to turn the bank into the foremost development institution for the continent.
Until last month, Kaberuka was the Rwandan finance minister. He now faces a formidable task. As the candidate backed by the US, Kaberuka came to power after a highly politicized election this July – a process, which showed the continuing rift between the bank's African and non-African members. It will take considerable diplomatic tact to manage these tensions.
Then there's the issue of the bank's sphere of influence: as more agencies look to take part in Africa's most promising development projects, the AfDB faces increased competition in its own backyard. The European Investment Bank is stepping up its push into North Africa, a region that is home to some of the least risky projects on the continent. "No one really wants to go to places like the Congo," says Eric Paget-Blanc, international public finance analyst at Fitch, the ratings agency.
Kaberuka also has to walk the tightrope of helping some of the world's poorest countries support their citizens while not endangering his institution's own finances. After a year of unprecedented promises by donor governments, as well as Nigeria's success in securing a huge chunk of debt relief, the new president is well poised to build on the positive momentum.
Politicized Elections
The first attempt to find a successor to outgoing president Omar Kabbaj, whose second term finished this August, ended in deadlock at the AfDB annual meeting on May 18. An irresolvable stand-off between Kaberuka and the Nigerian candidate, Olabisi Ogunjobi, meant that the election had to be postponed until July.
On July 22, however, Kaberuka scored a decisive victory. The 54-year-old secured around 80% of the total votes. There was less enthusiasm for him among the African voters, 70% of whom backed him for president.
"The second vote was very quick; he got a strong majority, which gives him a strong mandate," says Konrad Reuss, managing director for sovereign ratings at S&P. The Rwandan's francophone background coupled with his English education meant that he was a good compromise candidate.
Born in Rwanda in 1952 in the northern town of Byumba, Kaberuka left the country at the age of eight. He later completed an economics doctorate at the University of Glasgow and worked at Lloyd's Bank in the UK. He was appointed Rwandan finance minister in 1997 and is credited with reforms that led to the successful recovery of his country's economy. Since 2002, Kaberuka has co-chaired the ministerial committee of HIPC, the debt initiative for heavily indebted poor countries.
Building on work of his predecessor, Kaberuka has great plans for the AfDB. "The overall aim will be an effective institution at the cutting edge of Africa's development challenges and the attainment of the MDGs," he says in an exclusive interview with Emerging Markets. "Also, the resolution of the continent's indebtedness and securing Africa's capacity to take advantage of international trading opportunities."
The private sector, both domestic and foreign, needs to play a central role in this development, says the president. "African economies must grow at a rate of at least 6–8% per annum. This requires a significant increase in the current level of gross domestic investment, which is only around 20% of GDP.
"I am very encouraged by the increasingly effective efforts of the African Union in dealing with conflicts and bringing about stability in fragile states," he adds. "It is vital to make Africa safe for investment."
Kaberuka is aware that the international political climate is favourable, and several developments mean that now is the time to act. "We have to take full advantage of the opportunities created by the improving economic performance in a number of African countries," he says, as well as the heightened interest in Africa arising from the Blair Africa Commission Report and G8 Gleneagles Communique."
The Bank
The AfDB, created in 1964 by 29 African countries, is the largest financial institution in Africa. It is the continent's only bank with a triple A rating from all major rating agencies. "The triple A rating rests on the members' willingness to support the bank in a crisis," explains Reuss. "An institution that only lends to a small number of its members raises questions about how strong this support would be." S&P downgraded the bank in the mid-nineties when conflict erupted between African and non-African members (to whom the bank only opened in 1982), and the latter threatened to withdraw funding.
But in terms of financial stability, the bank has moved in the right direction under the 10-year leadership of Kabbaj, says Reuss. "It is a very strong institution. Governance has improved and the balance sheets are strong. The bank is very conservative with its liquidity policy." S&P restored the triple A rating two years ago.
Strong criticism is levelled against the AfDB from African civil society groups, who accuse the bank of dancing to the tune of western interests. "The bank has failed in its mandate to take Africa out of its quagmire, despite spending billions of dollars on development projects," says the African Forum and Network on Debt and Development (Afrodad), a Zimbabwean-based organization working on Africa's debt and development crisis. "The foreign shareholders, although only owning 40% of the bank, dictate the policies and operations due to their financial muscle."
Afrodad demands greater civil society participation at the bank, a reform of governance structures to promote democratic decision-making and an examination of the root causes of the debt crisis. The AfDB's close relationship with the Bretton Woods institutions has led to the dominance of neo-liberal development plans, which, says Afrodad, should be replaced by more home-grown solutions.
Going Forward
But Kaberuka is set to continue with the strategies of his predecessor. "We will intensify the already established good strategic partnerships with the Bretton Woods Institutions both at policy and operational level," he says. "The World Bank has worked with the AfDB on reforms that have brought about growth of economies of many African countries."
Achieving better implementation results and project quality is a key concern. For the latter reason, the AfDB is moving towards large-scale decentralization and plans to open 25 field offices by the end of 2006. "The AfDB sees the need for a local presence to be able to respond quickly to good projects," says Paget-Blanc. Kaberuka confirms this, stating that "the identification of the institution's comparative advantage" is one of five main issues necessary for better development effectives.
In his inauguration speech on September 1, Kaberuka stressed that African countries must not depend on aid, but should strengthen trade among themselves and attract more foreign investment. With regard to the bank, Kaberuka said that "the AfDB must strive to become a knowledge institution, a first point of call for economic development issues on the continent."
The UK's minister for international development, Hilary Benn, suggested in May that the bank could play a leading role in managing a proposed $10 billion infrastructure fund. The last replenishment of the bank's concessional lending fund last December was 43% higher than the one before, reflecting strong commitment from donor governments.
"Harnessing support from donors is crucial," says Reuss. "We're at a critical stage; there is a huge window of opportunity." As long as poverty alleviation remains a priority in international politics, support for the AfDB is likely to continue. Kaberuka is clearly not going to stand in the way: "I am glad that the support to the AfDB by the donors is growing and I intend to strengthen this," says the new president.
Yet much depends on the bank's ability to extend its mandate to the African members, who are currently only allowed to borrow from the AfDB's concessional loan windows. "There has not been a real improvement
for African countries," says Paget-Blanc, "and the bank operates in a very difficult environment."