IFIs in Africa News Briefing

Issue #20

Friday, May 25, 2007

This is the first IFIs in Africa News Briefing released as an electronic newsletter. We're still testing the new format, and apologize in advance for any unexpected problems. Please contact me at jklemm@bicusa.org if you're having any trouble accessing or reading the information below.

The newsletter is also available online at: www.bicusa.org/en/Newsletter.26.aspx.


In this issue:


  • World Bank and Chinese bank team up on lending to Africa
  • Wolfowitz exit sparks debate over his successor
  • As fiscal year nears end, World Bank accelerates Africa lending
  • World Bank promotes carbon trading to reduce poverty in Africa
  • Additional articles

World Bank and Chinese bank team up on lending to Africa

Reuters reports that the World Bank and the Export-Import Bank of China (China Exim) have signed a memorandum of understanding (MOU) to collaborate on projects in Africa. The Bank has indicated that these joint investments will focus primarily on infrastructure lending, namely in the transportation and energy sectors, and that their efforts will initially be concentrated on “sustained-growth” performers such as Ghana, Uganda and Mozambique.

Little is known about the terms of the new agreement between the two lenders, as the text of the MOU has not been disclosed. According to Reuters, the World Bank’s VP for Asia Jim Adams said the agreement is intended to make China “become part of the global donor system.” Some observers have speculated that the Bank’s decision to team up with China Exim is part of its strategy to avoid competition with its rapidly growing Chinese counterpart. It is less clear what China Exim's incentives are for joining hands with the Washington-based Bank.

China Exim, China’s official export credit agency, provides financing predominantly for overseas investment and construction projects to facilitate Chinese private investment. International Rivers Network (IRN) revealed in a new report that China Exim has loaned at least $6.5 billion to African governments, primarily for infrastructure projects. The increasing role of China in Africa has raised the specter among Western donors that Chinese investment will adversely affect governance and the environment on the continent, and that African governments will again rack up unsustainable levels of new debt.

The World Bank’s decision to join forces with the Chinese bank represents the latest about-face of multilateral lenders in their stance on China’s role in Africa. In recent months reactions from multilateral lenders such as the World Bank, IMF and European Investment Bank (EIB) have fluctuated between concern, outrage, and now, conciliation. Earlier this month, the African Development Bank (AfDB) held its annual meetings in Shanghai, signaling the continent’s growing ties with China.

Civil society has also become increasingly concerned about the growing role of Chinese banks in Africa and elsewhere. A new report from Friends of the Earth (FOE) and BankTrack entitled “Time To Go Green” details the need for stronger environmental standards and better compliance among Chinese banks, including China Exim. Meanwhile, IRN has voiced its concerns about China Exim’s involvement in a number of hydroelectric dams in Africa, particularly the highly controversial Merowe Dam in northern Sudan. The project has highlighted The project has highlighted broader concerns about China’s apparent tolerance of human rights violations and lack of transparency around social and environmental safeguards.



Wolfowitz exit sparks debate over his successor

The scandal involving World Bank President Paul Wolfowitz finally culminated in his resignation earlier this month. The media furor around Wolfowitz’s involvement in securing a salary hike for his girlfriend has since switched gears, and is now focused on who will replace him and how his successor will be chosen.

Since the Wolfowitz scandal broke, many names of potential candidates have surfaced, including two possible African contenders. At one point, Ngozi Okonjo-Iweala, the former Nigerian Finance Minister and one-time World Bank Vice President, has been put forward as an option. South Africa’s current Minister of Finance, Trevor Manuel, was also discussed as a prospect, though he has stated that he would not accept the post, and has called for the leader of the Bank to “be chosen in a transparent and consultative way, and not restricted to nationality.”  

Despite diverse speculations about the next Bank leader, to date, only one country has made an official nomination: the United States. Earlier this week, the White House nominated former US Trade Representative and Deputy Secretary of State, Robert Zoellick, to replace Paul Wolfowitz as the next World Bank President. Although the Bank’s Articles of Agreement give the Board of Directors, and not any one country, the power to choose the institution’s leader, all indications are that the US will maintain its traditional monopoly on the selection process.

Since the creation of the Bretton Woods Institutions over sixty years ago, the US government has chosen the President of the World Bank and the Europeans have named the Managing Director of the IMF. To date, every World Bank president has been a white, American man. Even after the forced resignation of the Bank’s most highly contested and controversial president, the prerogative of the United States to choose the Bank’s leader appears intact. 

A growing chorus of voices is insisting that this anachronistic and undemocratic arrangement be abandoned, and that an open presidential selection process be established as a first step toward a more fundamental overhaul of the Bank’s governance structure. Civil society activists, the World Bank Staff Association, and a handful of countries have spoken out against the undemocratic nature of the appointment process.

In a recent statement, four prominent American legislators called for a merit-based process, urging President Bush to work with others “to identify the woman or man with the right mix of intellectual, management and diplomatic skills,” regardless of nationality. Brazil, Australia and South Africa, have publicly called for a more open selection process, but none have yet proposed alternative candidates for the post.



As fiscal year nears end, World Bank accelerates Africa lending

The World Bank Board of Directors approved over $1.2 billion worth of projects for Africa in the past week, confirming fears that the Bank would attempt to push through billions of dollars in lending to the region before the end of the fiscal year on June 30. As of mid-March, the Bank had approved only $1.8 billion of the “$5 billion or higher” promised for Africa this year by the outgoing president Paul Wolfowitz. With this latest round of approvals, that total has now reached $4.3 billion. Upon joining the Bank in 2005, Wolfowitz declared that Africa would be his top priority.

The sheer volume of recent approvals for sub-Saharan Africa raises the question of whether the Board of Directors is exercising sufficient due diligence over the loans it approves. Some observers are concerned that shortcuts are being taken, particularly on oversight of safeguard provisions, posing potentially serious risks to affected communities and the environment. In March, a press release from the Government Accountability Project (GAP) revealed that the World Bank’s Africa staff had argued that the quality of loans would suffer if project preparation was rushed, and that governments would not be able to use the money effectively.

The loans approved over the last week were predominantly for the transportation and energy sectors, as well as for education and general budget support. Much of the lending still slated for approval by the end of June is expected to finance major infrastructure projects, specifically road construction.



World Bank promotes carbon trading to reduce poverty in Africa

Reuters reports that the World Bank was promoting the burgeoning carbon trading market as a “tool to help Africa’s poor” at a recent conference in South Africa. Karan Capoor, from the Bank’s carbon finance team for Africa, told journalists that African governments could use earnings from carbon trading schemes to fund poverty reduction measures in their countries.

The conference followed the release of a new report by the World Bank’s Carbon Finance Unit on trends in carbon trading, which shows a dramatic increase in the size of the global carbon finance market from $11 billion in 2005 to over $30 billion in 2006. The report focuses primarily on the Clean Development Mechanism (CDM), an initiative established under the Kyoto Protocol to allow industrialized countries to meet their greenhouse gas reduction commitments by investing in low carbon projects in developing countries – in other words, to enable industrialized countries to “offset” their continued pollution by helping to reduce or prevent emissions in other countries that do not have their own greenhouse gas reduction targets.

The Bank’s new report acknowledges that Africa’s take in the market is still negligible, accounting for only 3 percent of CDM projects globally in 2006, the majority of which were in North Africa and South Africa. It further recognizes that the CDM lacks a facility through which developing countries with “obvious energy needs….can be rewarded for clean development.” Most African countries’ emissions are too low for them to qualify to earn credits for carbon reductions.

In November 2006, donor and developing country governments gathered in Nairobi, Kenya and adopted a framework led by the World Bank, African Development Bank and the UN to channel more CDM projects to Africa.

Critics have charged that the CDM is inherently unsustainable, will not contribute toward curbing climate change, and effectively amounts to “a carbon accounting loophole for industrialized countries, instead of a tool for climate protection."  Nicholas Stern, a leading climate change expert and former World Bank economist, has spoken out against the CDM, telling The Guardian that “it falls significantly short of the scale and nature of incentives required to reduce future emissions.”

Other critics, including CDM Watch and International Rivers Network, have highlighted the ways in which the CDM is being used to subsidize “non-additional” projects – i.e. developments that would have proceeded even without the carbon credits, such as large dams and anti-pollution equipment on chemical factories in China. Furthermore, they argue that some of the projects benefiting from the CDM contribute to adverse social and environmental impacts, in contravention of the CDM’s mandate to promote sustainable development. In the end, many climate activists argue that instead of helping reduce global emissions, the mechanism may in fact enable continued climate change, to which developing countries, particularly in Africa, are most vulnerable.



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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