IFIs in Africa News Briefing

Issue #21

Friday, June 15, 2007

In this issue:


  • Uncontested World Bank presidential nominee Zoellick pledges to keep Africa atop agenda
  • World Bank to launch deforestation fund
  • IMF predicts DR Congo will "reap the benefit" of its mineral wealth
  • IMF tells Zambia to raise taxes and increase fiscal discipline
  • IFC and China Exim Bank to co-finance investments in Africa
  • Controversy surrounding Bujagali dam ongoing as Lake Victoria crisis continues
  • Special Feature: World Bank ‘sees green’ in G8 declaration
  • Additional articles

Uncontested World Bank presidential nominee Zoellick pledges to keep Africa atop agenda

Less than two weeks after being nominated by the United States to replace Paul Wolfowitz as World Bank President, Bob Zoellick paid a visit to Ghana, Ethiopia and South Africa before continuing his journey through Europe and Latin America. During his tour in Africa, Zoellick met with various government officials, seeking to reaffirm the Bank’s commitments to the continent and generate support for his nomination.

Despite widespread calls for an open, democratic and merit-based process for choosing the next Bank president, no one has challenged the US’s continued control of the position. The deadline for nominations was June 15, 2007, but Washington’s pick remained the sole name put forward.

Thus far, the selection of Zoellick to succeed Wolfowitz has met with mixed reactions in Africa. Government officials in Kenya, Senegal and elsewhere have come out strongly in support of the former U.S. Trade Representative, while others have dismissed the nomination on the grounds that the manner in which he was selected is deeply flawed and untransparent. By tradition, the U.S. government reserves the right to select the President of the World Bank, while European governments choose the IMF's Managing Director.

Ahead of his recent meeting with Zoellick, South Africa’s Minister of Finance Trevor Manuel spoke out against the nomination process, maintaining that the "legitimacy of both the institution and the candidate are compromised" by the undemocratic nature of the appointment process. While crediting Zoellick as a “competent individual” with a “credible track record,” Manuel emphasized that the effectiveness of both the Bank and the Fund continue to be constrained by "a huge deficit of democracy."

During what he himself described as a "listening and learning" tour, Zoellick made no major break from his predecessor's stated agenda for Africa. He said that as World Bank president he would continue to support the Bank's anti-corruption strategy and promote infrastructure development and regional integration on the continent.



World Bank to launch deforestation fund

The World Bank is reportedly preparing to launch a $250 million fund aimed at using carbon finance to reduce emissions from destruction of the world’s rainforests. According to recent news reports, the World Bank received support for the proposed Forest Carbon Partnership Facility (FCPF) from the G8, which referred to the initiative as a "significant and cost-effective contribution toward mitigating greenhouse-gas emissions."

The FCPF would leverage private investor money and donor contributions to help countries develop strategies for avoiding forest degradation and secure payment for forest-related emissions reduction, through the creation of tradable carbon credits. The facility would initially pilot its activities in five tropical countries, potentially including the Democratic Republic of Congo, home to the world’s second largest rainforest.

A World Bank report released in 2006 showed that deforestation and land use are responsible for 20 percent of global carbon emissions each year, contributing significantly to global warming, particularly in tropical countries. Agence-France Presse reports that the proposed new fund, which could be launched as early as December of this year, would be managed by the World Bank Carbon Finance Unit but financed by private investors and donors, not by the World Bank itself.

Similar market-based “avoided emissions” financing schemes have generated much interest from international investors, but it is still unclear whether carbon trading will lead to substantial and sustainable emissions reductions. Using carbon credits to pay for forest conservation is being touted as a "win-win" approach. While many environmentalists recognize the need to provide incentives for the protection of the world's remaining forests, there are concerns that moving too fast with emissions credit trading schemes will enrich Wall Street investors, multilateral banks and elite governments positioning themselves to profit from the burgeoning market, without guaranteeing any real, long-term benefits for the planet and forest-dependent communities. Questions remain about whether and how communities and ecosystems will benefit in the countries where these projects are to be located.

According to the Bank, more than 90% of the 1.2 billion people living in extreme poverty depend in part on forests for their livelihoods. However, given existing land tenure systems in many countries, few communities stand to gain from market-based mechanisms. Groups such as Forest Peoples Programme have flagged concerns about the potential impacts of "avoided deforestation" schemes on indigenous peoples and forest-dependent populations, including likely increased support for exclusionary forest conservation models, heightened conflicts over land, and targeting of marginal communities as drivers of deforestation.

Any system that aims to generate a market for carbon credits earned from reduced forest destruction would depend on fulfillment of a number of prerequisites, including: considerable background research and agreement on baseline levels of forest degradation and related emissions in the target countries; increased government capacity to monitor and control forest management; improved land tenure systems that recognize the rights of forest-dependent communities; clarity on the timing of payment for emissions reduction – upfront or "on delivery" – and agreement on a reliable, independent verification system, among other measures. In short, many questions remain about how the Bank's proposed FCPF would operate and how it could guarantee that payments for avoided carbon emissions actually ensure long-term forest protection, rather than short-lived efforts for financial gain.



IMF predicts DR Congo will "reap the benefit" of its mineral wealth

The head of the IMF's Africa Division, Cyrille Briançon, told Reuters that the Democratic Republic of Congo (DRC) would soon reap the benefit of increased private sector investment in the country's mineral sector. Briançon noted that mining investment has surged since Congo's civil war ended in 2003, especially in copper and cobalt extraction, and that many new and rehabilitated mines will begin production by next year.

It remains to be seen, however, who will actually benefit from the revenue earned from the country's lucrative mineral resources. Efforts by the World Bank to generate tax revenues for local and provincial governments through provisions in the new Mining Code have so far produced few results. While 40% of tax revenues earned from mining are supposed to be distributed back to the producing regions, government and civil society observers readily admit that little or no money leaves Kinshasa for the provinces. Critics have also argued that the tax rates set under the code are unduly favorable to mining companies, but the Mining Code, which was adopted in 2002 with World Bank support, is locked into law and cannot be revised for at least 10 years.

Persistent corruption in the country further dampens the prospect of widespread benefits from the mining industry. Transparency International ranks DRC as one of the world's most corrupt countries. To date, Congo's mineral wealth has brought little but misery to most Congolese; in the last decade, the struggle for control of mineral resources perpetuated and intensified the country's civil war in which 4 million people were killed.

The IMF's comments about the benefits of mining investments coincide with an announcement by the Congolese government that 60 mining contracts signed during the war and by the interim government will be subjected to review. The Financial Times reports that the government finally agreed to conduct the review after considerable pressure from civil society and donors, establishing an interministerial commission charged with “revisiting” the contracts over the next three to six months. Although the announcement has been praised and raised hopes about increased transparency in Congo’s mining sector, few observers expect that there will be substantial changes in the terms of the deals, or any outright cancellations of contracts. Many consider the bulk of the mining concessions granted during the past decade to be manifestly unfair, particularly as deals were negotiated without any transparency or competition.



IMF tells Zambia to raise taxes and increase fiscal discipline

Reuters reports that the IMF has agreed to extend its three-year financing arrangement with Zambia through September, approving a further $33.4 million loan to the country after conducting a review of the country's economic policies and financial position.

In a statement released last week, the IMF's Deputy Managing Director Takatoshi Kato stressed that Zambia must continue to implement its structural reform program, maintain fiscal discipline and pursue policies to further lower inflation. Kato also added that Zambia must also generate "higher levels of tax revenue" before it can increase spending toward its National Development Plan.

A recent report from ActionAid, however, suggests that these recommendations are off the mark. The report entitled "Confronting the Contradictions" documents how the IMF's excessive restrictions on inflation rates have prevented African governments from pursuing poverty alleviation programs, and that many of the structural reforms demanded by the IMF have undermined long-term development goals.

Tax rates have also proven a highly contentious issue in Zambia, where civil servants pay nearly 40 percent of their income in taxes introduced by the IMF in 2004 as a condition for the country to qualify for debt relief. The tax hike and public sector wage freeze prohibiting salary increases and new hires sparked a nationwide strike in February 2004.

In December 2006, the UN news agency IRIN reported that the IMF proposed levying a 17.5 percent value-added tax (VAT) on food, agricultural inputs, transportation, and other basic goods and services to increase government revenues. The proposal was roundly rejected by the Zambian public who argued that the tax would directly hurt the poor.

Rather than requiring regressive taxes which harm Zambia's poor, some feel that the IMF should instead encourage mining companies and the European Parliament to accept an increase in royalty rates on the country's lucrative copper mining industry. In March, the European Parliament denied an appeal by Zambian civil society and the government for a modest increase in royalties on copper projects backed by the European Investment Bank (EIB)

Royalty rates on mineral resources currently stand at only 0.6 percent, well below the 3 percent average rate found in many other countries. Although copper prices are currently at record levels, the generous investment conditions designed to attract mining companies earlier this decade, such as corporate tax exemptions, appear to have brought little benefit to the country.



IFC and China Exim to co-finance investments in Africa

Reuters reports that the heads of the International Finance Corporation (IFC) and the Export-Import Bank of China (China Exim) - China's official export credit agency - signed an agreement to provide joint financing "to support environmentally and socially sustainable investment in emerging markets," mainly in Africa. China Exim's Vice President Li Jun told Reuters that he hoped to provide $20 billion worth of project financing to the continent over the next three years.

Many observers contend that neither bank is in a position to ensure the environmental and social sustainability of their projects. Although the IFC presents itself as the world's lead institution on sustainable banking, many in civil society are skeptical of IFC’s commitment, arguing that the IFC has failed to practice what it preaches in its own operations. While the IFC may deserve some credit for its role in promoting safeguards at private banks through the Equator Principles, absent effective enforcement mechanisms, the “sustainable banking” push at the world’s leading financial institutions may amount to little more than rhetoric.

Both the IFC and China Exim have questionable track records when it comes to the impacts of their investments on people and the environment. China Exim has invested heavily in the highly controversial Merowe Dam in Sudan, where opponents of the project have been attacked, over 10,000 residents have been displaced to date without receiving adequate compensation, and environmental consequences are expected to be severe. Meanwhile, the IFC has attracted criticism for its increasing role in extractive industries, including lucrative oil investments and destructive mining projects, which have significant adverse environmental and social impacts.

The IFC-China Exim agreement represents the latest formal collaboration between the World Bank Group and the rapidly growing Chinese lender. Last month, the World Bank and China Exim signed a memorandum of understanding to provide joint financing on public sector projects.

Read a brief analysis of collaboration between the World Bank and China from the last edition of IFIs in Africa:



Controversy surrounding Bujagali dam ongoing as Lake Victoria crisis continues

Just weeks after the World Bank Group approved $360 million in loans and guarantees for the Bujagali Hydroelectric Dam, the project is again in the news following renewed debate over the crisis facing Lake Victoria. The Guardian reports that the $800 million dam on the Victoria Nile in Uganda, the "biggest-ever foreign investment in East Africa," will be unlikely to produce the projected 250 MW of electricity because water levels of Lake Victoria, the river's source, are at record lows.

While Bujagali’s proponents attribute the decline in the world's second largest fresh-water lake to a regional drought and regular cycles, others contend that existing dams have been at fault. According to The Guardian, "engineers had made excessive releases through the [existing] dam wall, causing more than half of the drop in the lake," in order to keep up with growing energy demands.

Regardless of the cause, critics argue that Bujagali will operate at well below capacity. Frank Muramuzi of Uganda's National Association of Professional Environmentalists (NAPE) predicts that the "output will be closer to 100MW, which will make the power far too expensive," and that "smaller, cheaper options such as micro-hydro, solar and geothermal projects located in areas that would be of more benefit to the rural poor have not been adequately explored."

Kenyan President Mwai Kibaki has also spoken out for the need to prevent further reductions in the levels of Lake Victoria. Last week, Kibaki launched the Lake Victoria Basin Commission, a collaborative initiative by the governments of Kenya, Uganda and Tanzania designed to reverse the lake's ecological decline. All three countries border on the lake, on which over 30 million people depend for their livelihoods.



Special Feature: World Bank ‘sees green’ in G8 declaration

Headlines trumpeted “breakthroughs” and historic agreements on climate, Africa and AIDS at the recent G8 summit in Helingendamm, but there is little evidence that the world leaders took any significant steps toward addressing the most pressing issues facing the planet today. The final G8 declaration is short on specifics, lacking targets and timetables for action on climate change or for delivery of promised aid to Africa. The leaders’ declaration on “Growth and Responsibility in Africa” reads more like a recap of existing initiatives and past promises than it does a roadmap of future actions.

Most observers have welcomed the G8 countries’ agreement that “the UN climate process is the appropriate forum for negotiating future global action on climate change” in the post-Kyoto/post-2012 era, but civil society organizations have denounced the world leaders’ failure to make any collective commitment to a specific emissions reduction target. Oxfam International scolded the G8 countries for their failure to adopt bolder measures: “They have taken one step forward, but they should be running by now.”

The World Bank has applauded the G8’s emphasis on the carbon market, which the Bank is actively promoting not only as a vehicle for combating global warming, but increasingly as a source of revenue for African countries that haven’t received promised increases in aid from donor countries. According to a World Bank press release on the eve of the summit in Germany, “the Bank urges the G8 to seek an international greenhouse gas agreement that uses the booming carbon market to mitigate climate change and create incentives for the expanded use of clean energy,” and predicts that carbon markets could “deliver financial flows to developing countries of anywhere between US$20 billion to US$120 billion a year.” Critics have raised concerns that while clearly profitable for bankers and investors, emissions trading mechanisms are poorly regulated and make it too easy for polluters in the North to continue their practices while not necessarily providing additional benefits for clean development in the global South.

Among the few “new” commitments made in Germany, the G8 agreed to provide at least $60 billion to the global fund to fight AIDS, tuberculosis and malaria “over the coming years.” However, many observers caution that this pledge (which lacks a firm deadline) shouldn’t generate too much excitement yet, given the G8’s failure to deliver on the 2005 Gleneagles commitments to dramatically scale-up aid to Africa. Critics contend, too, that G8 documents misrepresented progress on debt, claiming that 18 African countries had received 100% debt relief when in fact past initiatives have only covered a limited number of creditors and when progress is threatened by vulture funds and other private firms.

The declaration on “Growth and Responsibility in Africa” reiterates the G8 commitment to fulfill its Gleneagles promises, but provides no new timetables or more specific commitments for delivery increased aid money. Infrastructure, trade and investment remain the centerpieces of the G8 strategy for "development" in Africa. The statement stresses G8 support for regional integration and trade, including the role of Regional Economic Communities (RECs) and the implementation of the NEPAD infrastructure short-term action plan (I-STAP), as well as continued support for the Infrastructure Consortium for Africa.

The link between conflict and illegal exploitation of natural resources, and the need for greater transparency in the oil, mining and gas sectors received specific mention in the declaration, which reiterates G8 support for the Extractive Industries Transparency Initiative (EITI) and mentions the launch of a “certification pilot project.” However, neither the Africa declaration nor the Chair’s summary of the summit recognizes the shortcomings of EITI and the need to press for expanded, mandatory transparency requirements and greater fiscal accountability from governments as well as investors.

Echoing many of the World Bank’s stated priorities in Africa, the G8 declaration emphasizes the need for greater responsiveness and engagement in fragile states and indicates that donors will reward countries with good governance, but maintain “flexible” criteria in defining governance standards. The G8 expect an increase in “Aid for Trade” to $4 billion, although it is unclear by when this target will be reached. The countries repeated their Hong Kong commitments to provide duty-free and quota-free market access for least developed countries (LDCs), but not surprisingly make no mention of G8 obligations to reduce domestic subsidies or change practices that distort the global market. The Bank’s Clean Energy Investment Framework receives passing mention in the G8 statement, which commits the G8 to supporting the implementation of the Energy Access Action Plan for Africa. In its discussion of energy in Africa, to the G8’s credit, the statement prioritizes energy efficiency and the use of domestic renewable resources, but highlights hydropower and biomass as the key sources, fueling concerns about over-reliance on hydropower in a warming world, as well as the social and environmental impacts of large dams, and the potential consequences of a biofuel boom on food security and ecosystems in Africa.

In the end, the vague commitments made and timid steps taken at the recent summit have led some observers to remark that “the carbon emissions released in travel and preparation for it could well have been saved.”



Additional Articles


Note: The text of the IFIs in Africa News Briefing may be freely used providing the source is credited.

The Bank Information Center (BIC) partners with civil society in developing and transition countries to influence the World Bank and other international financial institutions (IFIs) to promote social and economic justice and ecological sustainability. BIC is an independent, non-profit, non-governmental organization that advocates for the protection of rights, participation, transparency, and public accountability in the governance and operations of the World Bank, regional development banks, and IMF.

BIC is supported by private foundations and organizations that work in the fields of environment and development. BIC is not affiliated with any of the Multilateral Development Banks, nor does it receive any funding from them.


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