IFIs in Africa News Briefing

Issue #24

Friday, September 21, 2007

Dear readers,

Thank you for your patience during the two month hiatus in the release of our IFIs in Africa News Briefings. We will now resume its publication on a biweekly basis. Thanks for reading!

In this issue:


  • AfDB promises increased aid to DR Congo under new fragile states policy
  • AfDB approves largest ever private investment in South Africa’s utility giant, Eskom
  • IFIs continue push for Africa’s minerals
  • Questions loom large as Bank pushes carbon finance for forest protection
  • Bank trumpets record lending to Africa, but is it pushing quantity over quality?
  • World Bank launches market-driven initiative to "light up" Africa
  • Independent evaluation finds over 40% of IFC projects fail to deliver development results

AfDB promises increased aid to DR Congo under new fragile states policy

During his recent trip to the Democratic Republic of Congo (DRC) to inaugurate a new regional office there, African Development Bank (AfDB) President Donald Kaberuka promised to step up the Bank’s activities in the country as it continues to emerge from conflict. He announced that the DRC would be eligible for increased assistance under the Bank’s new policy on fragile states, which is expected to receive board approval by the end of this month. In his speech, Kaberuka added that the new policy “provides for great flexibility in resource allocation” for so-called “fragile states,” which the AfDB broadly defines as countries undergoing political transition or emerging from conflict.

The AfDB’s new policy, which is not yet available to the public, reflects a growing trend among international financial institutions toward increasing their involvement in fragile states, particularly in Africa. The International Monetary Fund (IMF) recently announced that it will prioritize financial assistance to African countries emerging from conflict, and just last month in the context of its “long term strategy exercise,” the World Bank Group identified fragile states as one of its four focus areas for the future. This emphasis comes despite a critical report released last year by the Bank’s own evaluation unit that gave the Bank’s performance in this area mixed reviews.

These developments have met with concern from some outside observers who are apprehensive about the leverage that these institutions may wield over cash-strapped governments with little bargaining power. While not focused on IFI operations, Naomi Klein’s recent book about “disaster capitalism” raises further questions about who benefits from policies aimed at boosting private investment in such contexts. Just last week, for example, the IMF approved an Emergency Post-Conflict Assistance (EPCA) agreement worth $66.2 million with Cote d’Ivoire, contingent on significant reforms of the cocoa, coffee and oil sectors, and on the adoption of fiscal austerity measures.

Meanwhile, the World Bank’s portfolio in the DRC continues to grow amidst increasing controversy over its emphasis on investment in the natural resource sectors as a key driver of economic growth. Since it reengaged with the DRC in 2001, nearly half of the $2.3 billion that the Bank has committed to the country was approved on an emergency basis, and as such was not subjected to the normal social and environmental safeguard reviews.

The AfDB’s apparent interest in lending to the DRC under its new fragile states policy has also drawn criticism because it remains unclear whether the Bank has sufficient expertise to effectively engage with and monitor its operations in post-conflict countries.



AfDB approves largest ever private investment in South Africa’s utility giant, Eskom

Last month, the African Development Bank (AfDB) announced the approval of its largest ever private sector project, a $500 million investment in the expansion of South Africa’s power company, Eskom. According to Reuters, the loan will support Eskom’s ambitious plans to add 8000 MW to its grid by 2012 as part of an investment package estimated to cost $20 billion. Such an expansion would represent a 22 percent increase in the company’s generation capacity.

Eskom’s reputation in Africa is varied. While some look to the utility giant as an effective service provider on the world’s most energy-scarce continent, many accuse the company of using its clout to buy up the lion’s share of the region’s energy supplies. Eskom is the lead agency in Westcor, a regional power initiative whose centerpiece is the controversial Inga 3, a planned hydroelectric dam in the Democratic Republic of Congo (DRC) that would supply much of the region’s power, especially to South Africa. Eskom is also widely criticized for its close ties to industrial interests in the region, whom many contend are receiving power at discounted rates subsidized by taxpayer money and tariffs from private, often residential, customers. Civil society groups are also alarmed by recent announcements that Eskom plans to add 20,000 MW of nuclear energy to its supply mix by 2025.

The AfDB’s decision to support Eskom’s expansion is consistent with its recent unprecedented scale-up of private sector investments. This year to date, the AfDB has already approved $1.6 billion in new private sector commitments, a four-fold increase from $400 million last year, and only $200 million the year before. This trend has generated renewed interest in the Bank, which until recently was only a small player on the continent. Although its influence is growing, particularly within the private sector, it remains unclear whether the Bank wields sufficient leverage to ensure that its social and environmental safeguards, which are fairly strong on paper, are adhered to in the projects it supports.

Earlier this month, the AfDB’s Board of Directors authorized a compliance review of the Bank’s investment in the controversial Bujagali Dam and an associated electricity interconnection project in Uganda. The investigation, the first of its kind since the establishment of an Independent Review Mechanism to address citizen complaints, will seek to determine whether the Bank violated its own policies in approving the projects and, if so, suggest remedial actions.



IFIs continue push for Africa’s minerals

The International Finance Corporation (IFC) appears on track to meet its goal of doubling financing for mining in Africa this year. According to its website, the IFC is currently considering a $7.8 million investment in the Kalakundi copper-cobalt mining concession in the Kolwezi District of southeastern Democratic Republic of Congo (DRC). The proposed project is operated by Canada-based Africo Resources Ltd. Despite widespread evidence of the risks involved in hard-rock mining, the IFC has classified the project as environmental "Category B," meaning that it involves only limited adverse social and environmental impacts that can be readily mitigated.

The IFC asserts that it is only investing in the feasibility and exploration phase of the project, and thus that its safeguard policies and environmental classification system do not apply beyond that preparatory stage. However, one of the stated objectives of IFC’s support is to help the client company raise the additional financing needed to make the mine operational: “IFC equity interest in ARL will also provide confidence to potential equity and debt investors who will be required to provide approximately $235 million in the financing for the construction and operational phase of development of the Kalukundi project.” Given that the intended outcomes of the project are linked to the mine’s future production, it is unclear why the IFC’s obligation to assess, mitigate and be held accountable for the impacts of its financing would not extend to the operational phase of the mine.

The IFC is also reportedly interested in financing a greenfield open pit gold mine in the Sabodala gold belt of southeastern Senegal. The 20 square km concession is owned by Australian mining company Mineral Deposits Ltd. (MDL). According to the MDL website, exploration has already indicated that the project site contains over 1 million ounces of gold reserves. Production is expected to begin toward the end of 2008, and the company will use cyanide leaching to treat the ore. The project has already drawn considerable attention from local affected communities, who have serious concerns relating to: the lack of access to information and inadequate consultation on the environmental and social management plan; impending displacement; low recruitment levels of local laborers for the project; the continued lack of potable water in the area and the improper disposal of chemical waste, as well as noise, dust and other disturbances from blasting near their communities.

Meanwhile, the African Development Bank (AfDB) has indicated that it intends to invest $100 million in the contested Tenke Fungurume copper-cobalt mine in the DRC, despite calls from civil society for public lenders to await the outcome of an ongoing examination of 60 mining contracts, including the Tenke deal, before committing funds. In July, the European Investment Bank approved €100 million in financing for the project, in seeming disregard for the contract review, while last month the Overseas Private Investment Corporation (OPIC) agreed to invest a further $250 million. The Tenke concession covers what is reportedly the world’s largest untapped copper-cobalt deposit.



Questions loom large as Bank pushes carbon finance for forest protection

This week, the World Bank’s Board of Directors is set to approve a new initiative aimed at catalyzing a market for carbon emissions credits from avoided deforestation. The Forest Carbon Partnership Facility (FCPF) is designed to assist select countries in finding the most cost-effective way of reducing carbon emissions from forest degradation and deforestation and to promote carbon finance-based incentives for those reductions.

Changes in land use and deforestation are the second largest source of climate change, accounting annually for one fifth of greenhouse gas emissions. While there is broad consensus on the need to protect the planet’s remaining forests and widespread recognition of the need to provide countries with financial incentives to do so, there are significant concerns and many outstanding questions about the proposed design and impacts of the FCPF. The Bank’s Board is being asked to give a ‘green light’ for the Bank to proceed with development of the FCPF, in the absence of detailed information on the initiative’s operations or any procedures for future Board oversight.

As proposed, the FCPF would include two components. The first is a “readiness mechanism” to assist at least 20 countries in measuring their forest carbon stocks, identifying sources of forest-related carbon emissions, and preparing a strategy for effective emissions reductions measures. The second component is the carbon finance mechanism, through which the Bank would facilitate payments to select countries that implement emissions reductions measures, by catalyzing public and private purchases of credits from avoided forest-related emissions. The aim is to attract donor funds, as well as buyers in the voluntary and regulated emissions reduction systems. Indonesia, Papua New Guinea, Costa Rica, Brazil and the Democratic Republic of Congo have been named as candidates for pilot carbon finance initiatives. The FCPF is essentially designed to help prepare for a carbon trading system that recognizes emissions reductions from avoided deforestation and forest degradation post-2012 (the year when the current Kyoto Protocol expires). By some Bank projections, the market for credits from reduced forest emissions will exceed $1 billion by 2014.

From available public documentation, it remains unclear what methodologies will be used to: a.) assess countries’ “readiness” to implement avoided deforestation measures and manage the market-based credit system that the FCPF would help catalyze, b.) measure carbon stock/storage and changes in emissions from forests; or c.) avoid the problem of in-country and trans-border ‘leakage’ – the phenomenon whereby deforestation (or other emitting activity) is reduced in one area, only to be increased in a neighboring zone. Given the difficulty of improving forest governance in the past, it is questionable whether the five countries proposed as pilots for the FCPF carbon finance component have sufficient capacity to enforce commitments regarding avoided deforestation, or can acquire such capacity during the short two year “readiness” phase envisioned by the Bank.

Some environmental and conservation organizations, and groups working with forest-dependent communities, are concerned that if the FCPF proceeds without adequate preparation, consultation or prior strengthening of community land tenure rights and forest law enforcement capacity within countries, it may end up generating a new source of revenues for governments, companies and investors without guaranteeing real reductions in carbon emissions, true protection of forest resources from degradation, or equitable benefits for the poor (especially forest-dependent communities). In a recent letter to the Bank, some groups cautioned that, as designed, the FCPF could generate perverse outcomes, enabling logging companies to benefit from carbon finance schemes that are supposed to reward forest protection. Others warn that without proper planning and approach, emissions reduction initiatives like those envisioned in the FCPF risk exacerbating conflicts between conservation groups and forest-dependent populations.

Furthermore, this week’s discussion and approval of the FCPF is scheduled to take place without prior public debate of the Bank’s track record in the forest and carbon finance sectors. The findings and recommendations of recent assessments of the Bank’s forest work, for example, should serve as the basis of planning for future forest sector activities, including the FCPF. However, two of the most recent such studies remain secret. Despite being completed in early 2007, the Mid-Term Review (MTR) of the Bank’s Forest Sector Strategy Implementation has neither been publicly disclosed nor discussed by the Bank’s Board. In addition, a Board-requested review of safeguard policy implementation in select Bank forestry operations has still not been made public.



Bank trumpets record lending to Africa, but is it pushing quantity over quality?

The World Bank approved a record total of $5.8 billion in new commitments to sub-Saharan Africa during fiscal year 2007. Many believe, however, that it is precisely the Bank's preoccupation with its lending volume that undermines its effectiveness. The pressure to lend, inherent in Bank policies and staff incentives, ensures that money gets out the door. But it often contributes to a bias in favor of large projects over more suitable alternatives tailored to the needs of the poor. It also encourages the Bank's expansion and pushes staff to move on to the next operation rather than focus on achieving positive results from projects already underway.

Much of the increase in lending to Africa in FY07 can be attributed to a spike in financing for infrastructure, energy and regional integration projects. These sectors are typified by large-scale investments that require massive amounts of capital, and often generate significant foreign-denominated debts for borrowing countries. The flagship FY07 projects highlighted in the Bank's recent press release include some of its most controversial, such as the $800 million Bujagali Dam on the Victoria Nile in Uganda.

While there is broad consensus on the importance of infrastructure for development, there is far less agreement on what kind of infrastructure is appropriate to meet whose needs. The trend toward regional infrastructure interconnections and transnational electricity trading schemes, pushed through initiatives like the New Partnership for Africa's Development (NEPAD) in Africa and the Initiative for the Integration of Regional Infrastructure in South America (IIRSA) in Latin America, holds clear benefits for industry. What is far less clear is whether local populations stand to gain from these mega projects, or whether their needs and interests will be (literally) overshadowed by the pylons and pipelines built by and for the private sector.

The Bank continues to make declarative statements about the virtues of its economic growth-centered development model, despite ample evidence that the trickle-down approach has failed poor people around the world at least as often as it has helped them. In its latest press release describing FY07 lending to Africa, the Bank states that "Higher economic growth is lowering poverty levels." However, the number of people living on less than $1 per day has increased steadily in Africa over the past decade and the Bank itself admits that most African countries aren't on track to meet the MDGs by 2015. According to the 2007 World Development Indicators, average poverty rates in sub-Saharan African countries remain above 40 percent. As these statistics illustrate, GDP figures say little if anything about the quality of life for a country's population. The Bank's own publications (like the World Development Report 2006: Equity and Development) have acknowledged that it's the distribution of the benefits from economic growth, not the rate of growth alone, that has an impact on sustainable development.

The Bank is typically the first to cry foul when others draw causal links between its operations and poverty trends on the ground. Bank economists will often claim that there are too many factors involved to isolate the causes of changes in poverty levels, and thus, conveniently, that it is not possible to assess whether Bank projects are in fact contributing to the institution's stated mission of reducing poverty. This reluctance to identify clear poverty impact assessment criteria and independently verifiable measures of Bank effectiveness has earned the Bank a hefty amount of criticism over the years. Most recently, a book called "The Dinosaur Among Us" by former IFC employee, Jeffrey Hooke, lists the Bank's lack of accountability and failure to measure its development effectiveness among its chief flaws. He identifies ten major problems with the institution, and warns that unless actions are taken to resolve them, and urgently, the Bank is on the path to extinction.

More than once, the press release cites the increase in cell phone use in certain African countries as a sign of development success. While the booming cell phone industry in Africa no doubt has had positive impact on commercial activity and quality of life for many people, last time we checked, there was no MDG focused on mobile phone access.



World Bank launches market-driven initiative to "light up" Africa

The Bank’s new "Lighting Africa" program, which was launched in early September, seeks to catalyze business interest in developing innovative ways to bring light to millions of Africans who are not connected to the electricity grid. While the attention to off-grid and non-fossil fuel based electricity supply in Africa is welcome, it remains questionable whether the private sector can meet the Bank’s goal of delivering affordable lighting to 250 million people on the continent by 2030.

The proponents of "Lighting Africa" claim that fuel-based lighting is both inefficient and expensive, costing Africans $17 billion every year. This makes cheaper, less environmentally damaging technologies a very attractive alternative. But the environmental benefits of cutting down on kerosene lamps and the development gains from allowing youth to study longer or businesses to stay open later at night aren't the only reasons this initiative is sparking interest. Financiers and investors are eager to tap into what they perceive to be a potentially lucrative rural lighting market on the continent.

Read the full article on BIC's website.



Independent evaluation finds over 40% of IFC projects fail to deliver development results

For the first time, the Independent Evaluation Group (IEG) of the International Finance Corporation (IFC), the World Bank’s private sector arm, has publicly released its assessment of the institution's development results. While the IFC has put a positive spin on the findings, which examined the performance of 627 projects approved during a of the 10-year period (1991-2001), others take a more sober view of what the study reveals.

According to the IEG, 41% of the IFC projects studied had low development ratings. IFC performed particularly poorly in Africa and Asia, where only half of its projects had positive development outcomes. In Africa, the quality of IFC work was particularly poor, rated as “high” in only 45% of projects, as compared to 68% in other regions.

Read the full article on BIC's website.

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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