IFIs in Africa News Briefing

Issue #30

Wednesday, April 02, 2008

In this issue:


President of Chad nullifies World Bank agreement to grab oil money and crack down on opponents

According to Reuters, Deby used a state of emergency decree to suspend Chad’s obligation to devote 70 percent of the revenues from the Bank-backed Chad-Cameroon oil pipeline to poverty reduction measures.

The restrictions on Chad’s oil revenues are part of an unprecedented pact Deby made in order to secure World Bank support for the pipeline project, amid concern about his government’s reputation for corruption and human rights abuses. At one time the Bank trumpeted the agreement as a model for other “high-risk” infrastructure projects, though it has yet to be replicated elsewhere.

The central African country of Chad has been in turmoil since the beginning of February, when rebels attacked the capital, N’Djamena, in a failed coup attempt against Deby, who himself took power in 1990 in a similar maneuver. The rebels appear to represent another faction of the same elite Deby is part of – his nephew is a leader of the rebellion – and some observers have suggested that they are motivated in part by the lure of the oil revenues, which have grown exponentially as a result of record-high prices. When the assault was repelled after two days, Deby used it as a pretext to clamp down on political rivals.

Human Rights Watch reported in early March that a prominent parliamentary opposition leader is still missing, while another leading opposition legislator, Ngarlejy Yorongar, “resurfaced in the last few days” in Cameroon after escaping from government custody. Yorongar was one of the early critics of the highly controversial Chad-Cameroon pipeline, and led the coalition of groups who submitted a formal complaint to the World Bank about the project in 2001. He was arrested by security forces immediately after the initial attack was repulsed.

Meanwhile, another prominent critic of the Chad-Cameroon pipeline, Delphine Djiraibe, finally found refuge in Paris after numerous demands for her safe passage out of Chad from colleagues worldwide. Djiraibe heads the Chadian Association for the Promotion and Protection of Human Rights, which has consistently challenged the government and the World Bank to live up to their commitments to use the country’s oil revenues for poverty reduction.

As President Deby purportedly seized Chad’s oil profits to buy arms, World Bank staff evacuated the country. Reuters reports that a Bank spokesman promised that “once it’s possible to have discussions with the government, we’ll explore whether it’s possible to address pressing needs and ongoing development objectives.” But an unnamed analyst counters that “The World Bank can do nothing, their role has become almost nil in Chad.”

The World Bank has a long and embattled history with the government of Chad over revenues from the Exxon-Mobil-led project, which at a cost of $4.2 billion represents the single largest on-shore investment in Sub-Saharan Africa. Soon after the contract with Exxon-Mobil was finalized in 2000, Deby took $25 million of the initial signing bonus and used it to purchase arms – a move that was eventually excused on the grounds that the money was not from direct oil profits.

In December 2005, Deby orchestrated an amendment to the country’s oil revenue management law that allowed it to redirect funds to security spending to quell increasing unrest in the country. In response, the World Bank suspended its loans to Chad, triggering a freeze of the offshore escrow accounts holding oil revenue payments. Facing a standoff in which the government threatened to halt oil production, the Bank backed off, signing an agreement that allowed the resumption of World Bank lending and granting the government even greater discretion over the revenue than before.

The complex and restrictive rules placed on the revenues realized from the pipeline made some activists, concerned with infringements by the World Bank on national sovereignty, uncomfortable, but leadership from Chadian civil society and the autocratic nature of Deby’s government led to a general consensus to support the controls instituted by the agreement with the Bank.

BIC and other observers have long raised questions about whether the Bank could hold Chad to its commitments to spend on priority sectors. After the 2006 standoff, BIC wrote: “Is there any more guarantee today that oil revenues will be used to benefit the poor than there was the day that that the Bank suspended lending in January?” – and concluded that in fact it was more likely that money would be diverted to arms purchases.



World Bank again accused of tolerating corruption in Kenya

On March 6, a Wall Street Journal editorial targeted corruption in World Bank projects in Kenya as part of that newspaper’s series of commentaries on corruption and perceived mismanagement at the Bank. The article provided a link to a report on four Kenyan projects completed in January 2007 by the World Bank’s Department of Institutional Integrity (INT). The report details evidence of suspicious procurement and hiring practices on two HIV/AIDS projects and one road-building project.

The article spurred renewed complaints about the Bank’s alleged contribution to a climate of loose ethics and corruption in the Kenyan governments – complaints that were first voiced by Sir Edward Clay, former UK ambassador to Kenya. This time, John Githongo, former Permanent Secretary for Governance and Ethics, who fled the country after revealing details of a contracting scheme involving cabinet members, charged that “the World Bank became like a department in the Ministry of Foreign Affairs, saying everything was okay.” Bank spokesperson Eric Chinje responded by detailing the loans the Bank suspended in response to the scandal.

The INT report was published two months before the World Bank ended its suspension and renewed support, saying it was using the Kenyan loans to pilot new and stricter measures to ensure good governance.



Food riots hit West and Central Africa

A global rise in food prices led to several outbreaks of civil unrest recently in West and Central Africa. In Cameroon, Reuters reports that at least 24 people were killed and over 1600 people arrested. Already 200 have been tried and given jail sentences of up to three years, while civil society organizations have protested the secretive summary trials.

The events in Cameroon were preceded by riots in several towns in Burkina Faso. The governments of both Burkina Faso and Niger reduced or eliminated tariffs and duties on food imports in an attempt to combat the effect of the price hikes.

In Cameroon, in addition to the harsh crackdown, President Paul Biya’s government slashed duties on imports of food and cement imports, and increased wages for public sector employees by 15%. Biya also promised a review of fuel prices, telephone rates, and bank fees.

Biya’s strongly-worded promises of government intervention can probably be credited to the fact that he is now campaigning for a controversial change to Cameroon’s constitution that would allow him to run for another term to extend his 25 years in office. Many protesters expressed anger about both the price increases and Biya’s maneuvering.

The Cameroon Tribune reports that the riots broke out while a joint mission of the International Monetary Fund (IMF), World Bank, and African Development Bank was in the country. Dhaneshwar Ghura, an IMF spokesperson on the mission, was quoted as saying his institution had taken “note of the preoccupations of the population and was glad that government is already preparing a number of measures to address some of the preoccupations.” It was not clear whether the IMF had acquiesced to the policy adjustments announced by Biya; Gura, speaking a day before Biya’s address, said that the institution was “open to discussions."

Under normal circumstances, the IMF would be unlikely to approve the steps Biya announced. Cameroon’s November 2007 “letter of intent” laying out its agreement with the IMF under a Poverty Reduction & Growth Facility (PRGF) loan indicates a planned increase of about 10% in the country’s public wage bill. Although the specific terms of the promised 15% wage hike are unknown, it seems unlikely that such a move would be compatible with the terms of the IMF agreement – especially given the government’s planned new hiring and payment of salary arrears to some employees.

While reductions in tariffs and duties are not likely to disturb the IMF, which is committed to “free trade,” it is more likely to be concerned about Biya’s pledge to review fuel price policies. Cameroon’s PRGF includes an elaborate plan for reducing fuel subsidies and ensuring that retail prices reflect the real cost of oil. A “benchmark” under the plan for evaluating Cameroon’s compliance with IMF conditions is price hikes for gasoline, oil, and diesel. It even specifies that retail price increases are to take effect on the first day of the month.

The causes of the increase in world food prices go beyond any IMF program. They include the increasing use of food crops like maize for agrofuels and the financial crisis rooted in the U.S. mortgage markets causing tightening of credit worldwide. But some of those agitating for economic relief measures in Cameroon regard the IMF as one of the ultimate causes for their plight. Reuters reports that unions have called the planned salary increases insufficient because pay levels will remain lower than they were before 1993 wage cuts imposed by the IMF and the 1994 devaluation of the CFA franc, used in much of francophone Africa, by 50%.

The multilateral institutions are clearly concerned about the impact of global food price increases, including civil unrest. When “bread riots” (sometimes called “IMF riots”) broke out in the 1980s in countries as diverse as Venezuela, Nigeria, and Jordan, the structural adjustment programs of the IMF and World Bank, with austerity measures including reduced subsidies and slashed government budgets, were widely blamed for causing social meltdowns.

This time around, both the IMF and World Bank have attempted to take proactive steps to mitigate stress associated with the price crisis. While visiting Burkina Faso recently, IMF Managing Director Dominique Strauss-Kahn noted that “countries are potentially facing a situation where all of a sudden the price of oil and food may increase.” According to IRIN, Strauss-Kahn said the IMF could provide “short-term emergency measures” including new loans and advice on tax policy to ease the pressure on African countries.

Strauss-Kahn has been criticized for publicly supporting President Bush’s stimulus measures to address potential recession in the U.S. – the opposite of the painful austerity measures the IMF applied during the East Asian financial crisis of 1997-98. But while he has been quick to register the IMF’s concern about a potential food price crisis in Africa, it appears that in this case the IMF will not diverge so radically from past practice: new loans, seldom the best remedy for countries facing humanitarian crises, are the best he has to offer.

The World Bank, meanwhile, has also voiced its worry about food prices. On March 10, according to Reuters, Bank President Robert Zoellick linked the Bank’s plans to dramatically increase lending for agricultural production in Africa to the crisis. He said that lending would increase to about $700 million for fiscal year 2009, from a current $420 million, and could reach about $850 million per year. However, the plans for this increase were originally announced, in more general terms, at the Bank’s annual meetings in October 2007, before the food price crisis became a widespread concern.



AfDB acknowledges limited progress in meeting commitments under Paris Declaration

In a press release last week, the African Development Bank (AfDB) noted that there was “room for improvement” in cooperating with other donors, one of the tenets of the Paris Declaration on Aid Effectiveness. While emphasizing areas of perceived progress, the AfDB also admitted that “inadequate progress had also been made in ensuring that aid was more predictable and that donors are not creating parallel structures and country missions to do the same work.”

Donor and recipient countries will convene in Accra, Ghana in September 2008 to assess progress made under the Paris Declaration, a commitment signed in 2005 to make aid more efficient and effective, and to enhance country ownership. Critics argue, however, that in increasing general budget support to national governments, donors actually have more influence on those governments’ policies than before, in what has been described as a “policy cartel.” But perhaps the most fundamental critique of the Paris Declaration agenda is that it focuses solely on governmental actors to the exclusion of civil society.

Meanwhile, the AfDB is making preparations for its annual meetings, which will be held on May 14 and 15 in Maputo, Mozambique, with some seminars starting on May 11. Contact BIC (africa@bicusa.org) if you are interested in attending and getting “observer” status.



Controversial EIB-backed mining project in the Congo to face contract renegotiation

The results of a nearly year-long mining contract review process conducted by the Democratic Republic of Congo (DRC) government were finally released last month. The controversial Tenke Fungurume concession in mineral-rich Katanga Province is among the 61 contracts signed over the last decade - during the Congolese civil war and under the transitional government - that have been slated for renegotiation or cancellation. Bloomberg reports that “the Mines Review Commission wants state-owned [mining company] Gecamines to increase its stake in the copper and cobalt project to 45 percent, from 17.5 percent.”

The concession, in which US mining giant Freeport McMoRan holds a majority stake, spans an area of 600 square miles and covers one of the largest copper-cobalt deposits in the world.

The European Investment Bank (EIB), which in July 2007 approved a €100 million ($150 million) investment in the project, has come under fire from civil society groups who, according to the Guardian, “are furious that by saying it was prepared to back the project before the review, the EIB appeared to be pre-judging the review’s conclusions.” While the EIB insists that it will not disburse the loan until the contract is cleared by the DRC government, critics argue that approving the project amounts to a serious disregard for relevant sovereign processes.

Meanwhile, the EIB announced last month that it plans to endorse the Extractive Industries Transparency Initiative (EITI), which requires that governments and companies voluntarily disclose EI revenue payments and receipts. While civil society groups such as the newly formed Counter Balance coalition on the EIB welcome the move, “they emphasised the major contradiction between the development and transparency ideals in the initiative and the realities of the EIB’s lending practices,” pointing to the Tenke loan which is “notorious for the lack of transparency and the alleged corruption surrounding it.”

In a recent press release, Counter Balance asserts that “many of those contracts [under revision], including that of TFM [Tenke], are characterized by gross irregularities or imbalances such as a lack of transparency in the negotiation and awarding of deals, conflicts of interest, a failure to properly assess Congolese assets prior to the deals and the inclusion of terms that are highly disadvantageous to the Congolese government.” They go on to add that “in light of the questionable validity of the Tenke contract, the EIB’s financing of the project can only be described as an irresponsible investment.”



Regional hydroelectric dam to face delays; vulnerability to drought raises questions over project’s viability

The Rwandan newspaper New Times reports that the proposed hydroelectric dam at Rusumo Falls on the Kagera River between Burundi and Tanzania is facing potential delays. The project manager, Isah Nadibe, was quoted as acknowledging that “the site where the dam is to be built has not yet been identified,” and added that a series of feasibility studies and consultations was still being carried out.

The governments of Burundi, Rwanda and Tanzania are stakeholders in the regional initiative, which is expected to produce 60 MW of electricity. Both the World Bank and African Development Bank (AfDB) are currently considering financing the project. The World Bank says it would provide power for “the western mining provinces of Tanzania,” which, according to Reuters, could spur development of Burundi’s nickel mining industry.

Apart from questions about what development benefits mining is likely to bring, it remains unclear whether the project will live up to its expected capacity and prove cost-effective. New Times notes that “when drought hit the Great Lakes Region in 2004, the water levels in lakes and rivers dropped. Power production reduced leaving most cities in the region in darkness.” In an area prone to drought, particularly with the onset of climate change, questions remain about the sustainability of such a project and whether, in the long run, it will be worth the projected $190 million cost.

Meanwhile, World Bank documents suggest that it anticipates major environmental and social impacts. In its initial safeguard document, the World Bank predicts “potentially significant biophysical and socioeconomic impacts both downstream and upstream,” and estimates that roughly 7000 people may have to be resettled by the project in an already densely populated area, raising questions about livelihood sustainability and access to land.



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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