3 September 2009
The frontloading of resources in response to the crisis has nearly exhausted AfDB's lending capacity for 2010, as the Bank explores ways to sustain its lending levels. Meanwhile, its support for disastrous projects like the Gibe III Dam in Ethiopia highlights risks of a stronger AfDB.
According to Reuters, the African Development Bank (AfDB) is expected to double its investments this year with commitments amounting to some $11 billion - up from $5.8 billion the previous year - in response to the global financial crisis. According to AfDB President Donald Kaberuka the investments are going towards budget support operations, infrastructure projects, liquidity programs and a $1 billion trade finance facility.
At its Annual Meetings this past May, AfDB Board of Governors passed a resolution to initiate plans to triple the Bank's general capital to nearly $100 billion so that it would have sufficient resources to allow it to cope with the global financial crisis. The AfDB will convene a meeting of its shareholders at the end of next week to review the adequacy of its capital, which it uses to make loans through its non-concessional lending window for middle income African countries and the private sector.
Meanwhile, the Bank is considering the possibility of an early replenishment to its concessional lending window, the African Development Fund (ADF), which is funded primarily by donor country contributions. Donor countries will meet in Helsinki in October to discuss options to increase resources for the ADF, which offers loans and grants to poor countries. Some advocates argue that resources would be better spent if targeted to poor countries through the ADF replenishment, as opposed to a capital increase.
The proposed capital increase and ADF replenishment are expected to improve the Bank's lending and financing capability and allow it to play a more important role in helping regional member countries cope with the financial crisis. This would be crucial for the AfDB to sustain its current lending levels, as it has nearly exhausted its resources and would otherwise have little to lend in 2010. The financial crisis has had a greater impact on the continent than earlier feared. As a result, African countries and many projects which have had their original financiers pull out due to the crisis, are looking to the AfDB to get much needed financing and mitigate the effects of the crisis.
Given AfDB's questionable investments in problematic projects like the Gilgel Gibe III hydroelectric project in Ethiopia, however, it remains unclear whether AfDB has demonstrated proper judgment in project selection and that its investments are geared toward poverty reduction. The AfDB is expected to consider around $250 million in project financing despite massive social, environmental and economic risks associated with the dam, which have yet to be addressed. Construction of the Gibe Dam started in 2006 despite the lack of an environmental and social impact assessment.
Friends of Lake Turkana (FoLT), a Kenyan organization representing indigenous groups in northwestern Kenya, filed a complaint with the AfDB's Compliance Review & Mediation Unit (CRMU) in February 2009 to investigate and intervene in the Bank's plans to finance the Gibe project and its impacts on Lake Turkana and the ecosystems and people who depend on it.
The Gibe Dam is also expected to have significant impacts on local communities in Ethiopia, yet affected peoples and civil society have had to suppress their concerns in fear of government retaliation. Recognizing the lack of freedom allowed to Ethiopian citizens, the CRMU recently agreed to register a complaint filed by five international organizations concerned about the project's impacts on populations and the environment in Ethiopia.
The Gibe project has also raised controversy when the Ethiopian government failed to follow standard procedure when it awarded the main contract to Italian firm, Salini, without a bidding procedure. Many potential public funders turned away from financing the project because of this flaw and private financiers like J.P. Morgan Chase withdrew support due to the financial crisis. Despite its procurement guidelines prohibiting it from funding the main contract, the AfDB evaded the rules by taking advantage of a loophole in the loan under consideration which allowed it to finance through a sub-contract.
Meanwhile, the World Bank, which originally refused to fund the contentious Gibe Dam because it violates the Bank's procurement policy, is now considering providing financial support for the project at the request of the Ethiopian government. The World Bank has stated that it is considering supporting the project through a guarantee, which whould be exempt from having to abide by the procurement policy and international norms. However, the Bank's website indicates that it is actually considering financing the dam through a conventional loan, though it is unclear how the Bank would justify such a blatant about-face.
read more:
AfDB Sees Commitments Almost Doubling to $11 Billion by Helen Nyambura-Mwaura, Reuters, August 5, 2009
Kenyan Indigenous Groups File Complaint with AfDB on Ethiopian Dam, Bank Information Center, March 2, 2009
Ethiopia's Gibe 3 Dam Endangers Kenya's Lake Turkana by Ikal Angelei, March 1, 2009 (International Rivers website)
Kenyan Request for Investigation of AfDB & Gibe 3 Dam, February 5, 2009 (International Rivers website)