IFIs in Africa News Briefing

Issue #25

Friday, October 19, 2007

In this issue:


  • In bid to spur increased pledges from donor governments, IBRD & IFC commit $3.5 billion of their profits to IDA
  • AfDB, World Bank and WTO push Aid for Trade initiative at Tanzania conference
  • Civil society pressures IMF to allow African countries to increase spending on priority sectors
  • IMF warns Congo over $5 billion Chinese loan
  • Special Feature: Internal watchdog slams World Bank agriculture programs in Africa since 1991

In bid to spur increased pledges from donor governments, IBRD & IFC commit $3.5 billion of their profits to IDA

World Bank President Robert Zoellick announced that the World Bank Group has committed $3.5 billion of its profits toward the replenishment of the Bank’s concessional lending window, the International Development Association (IDA). According to the Associated Press, this would represent the Bank Group’s largest ever contribution to IDA, and approximately a 50 percent increase over the previous replenishment round held in 2004.

Zoellick has set out to raise a total of $39 billion from donor governments, which could include China for the first time. The funds will be used to finance the Bank’s operations in low income countries over the next three years. Zoellick has appealed to donors to give generously, and has pledged to direct a large portion of the IDA funds to Africa – hardly surprising, given that by far the greatest concentration of IDA-eligible countries is in the sub-Saharan region.

Half of the $3.5 billion pledged by the World Bank Group will reportedly come from the IBRD, the Bank’s lending window for middle income countries. The other half will come from the International Finance Corporation (IFC), the Bank’s private sector lending arm. The IFC, which saw record profits during the 2007 fiscal year, only contributed to IDA for the first time in 2006. Zoellick told the Associated Press that IFC would now work more closely with IDA to identify and finance more public-private partnerships for infrastructure in Africa. This could suggest a greater emphasis on private sector-led development in future IDA projects.

While some see the IFC’s cross-subsidization of IDA as positive, others are concerned that the IFC may use its role as a major IDA donor to deflect criticism of its own operations. Given increased public scrutiny of IFC’s operations, it may try to justify investments that have questionable development impacts by claiming that the earnings it makes on such projects help finance aid to poor countries. Whether they merit praise or concern, the IFC’s contributions to IDA do not obviate its obligation to ensure that its own investments reduce poverty, and to publicly report on their development impacts. Presently, the IFC does not disclose its impacts on a project-by-project basis, making it difficult for civil society to assess IFC’s fulfillment of its development mandate.

In a very surprising development, the Financial Times reported that the World Bank Group is considering a plan to solicit donations for IDA from private companies. No multilateral development bank has ever accepted donations from private sources; if IDA were to do so, it would raise numerous questions about to whom the institution is accountable.

Meanwhile, the African Development Bank is seeking donor support to replenish its own concessional lending window, the African Development Fund (ADF), to cover loans and grants to eligible impoverished countries between 2008 and 2010. Nearly 40 African countries - the bulk of the AfDB’s members - are eligible only to borrow from the ADF; just 13 are currently eligible to borrow from the AfDB’s market-rate lending facility. The AfDB will meet with donor countries in London in December, and is hoping to mobilize $10 billion for the next ADF period, up from $5.4 billion raised for the previous ADF envelope.



AfDB, World Bank and WTO push Aid for Trade initiative at Tanzania conference

A conference on generating “Aid for Trade” in Africa wrapped up earlier this month in Tanzania. The forum, organized by the African Development Bank (AfDB), the World Bank and the World Trade Organization (WTO), among others, focused on how to advance the Aid for Trade initiative through which developing countries receive funds from donor countries to build export-oriented infrastructure and open their markets to increased trade.

Critics of the initiative claim that the priorities of Aid for Trade schemes are misplaced in that they aim simply to facilitate trade creation, and are not geared toward poverty reduction. Some assert that the liberalization measures at the core of the Aid for Trade process, such as lowering import and export tariffs, could aggravate rather than alleviate poverty, since they eliminate an important source of tax revenues and limit governments’ capacity to foster domestic capacity. Meanwhile, the increase in imported goods as a result of trade reforms can undercut local production lead to significant job losses. As reported by Inter Press Service in March, this could particularly affect unskilled and semi-skilled workers.

Some observers, such as the Vice President of Tanzania, have also expressed their concern that donors will not actually provide new funds, but instead simply reallocate existing social development commitments. They fear this could actually result in the diversion of funds from priority sectors like health and education toward infrastructure such as ports and roads aimed at facilitating exports.

The conference was the last in a series of three discussions regarding Aid for Trade; the two previous meetings, held in September, focused on Asia and Latin America. The outcomes of the meetings are intended to feed into the World Trade Organization’s (WTO) review of plans for the Aid for Trade initiative in November.

While IFIs such as the World Bank and AfDB lent their support to the Aid for Trade process in Dar es Salaam, senior World Bank officials asked that the European Union extend its deadline for African governments to sign trade agreements with the EU beyond the end of the year. The EU has insisted that Economic Partnership Agreements (EPAs) be concluded by December 31, when their current trade agreements under the Africa-Caribbean-Pacific (ACP) arrangements in the region expire. According to an Inter Press Service (IPS) article from September 27, the Bank officials suggested that the deadline be extended to allow African governments additional time to work on the details of trade deals, and “some Bank economists also take the view that the EU should not pressure the Africans into hastily accepting clauses on investment and competition issues in the EPAs.”

While these comments by Bank officials are encouraging, some civil society advocates hope that the Bank will go a step further and use its leverage to prevent investment and competition clauses from being incorporated into the EPAs at all. These controversial clauses, which would limit governments’ ability to protect local firms or stipulate certain investment conditions, have been omitted to date from negotiations at the World Trade Organization (WTO) after intense resistance by developing countries. According to IPS, “African diplomats and anti-poverty campaigners have accused the EU of using the EPA talks to push these issues back on the international trade agenda.”



Civil society pressures IMF to allow African countries to increase spending on priority sectors

IPS reports that civil society groups have appealed to the new head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, to significantly change the Fund’s approach in Africa within his first 100 days in office. The French national takes up his role as Managing Director of the Fund on November 1.

In their letter, civil society advocates called on the IMF to address issues raised earlier this year in a report by the Fund’s own evaluation unit, the Independent Evaluation Office (IEO). The IEO’s report was critical of the policy restrictions the Fund places on African governments and recommended that it encourage governments to take advantage of increased aid flows to step up spending for priority sectors, such as health and education.

In June, the IMF adopted an implementation plan that responded to some of the critiques laid out in the IEO report. Civil society observers deemed the plan unsatisfactory for its failure to address key issues regarding alternative economic policies, caps on government spending for public service salaries (often called wage bill ceilings), and conditionality.



IMF warns Congo over $5 billion Chinese loan

According to Reuters, the International Monetary Fund (IMF) advised the Democratic Republic of Congo (DRC) to beware the macroeconomic effects of the $5 billion loan package it recently signed with China to fund infrastructure development and mining projects. Congolese President Joseph Kabila announced that the loan would be repaid partially “in mining concessions and tolls from road and railways.” Although not stated by the IMF, it is probable that its comments were motivated also by concern that the huge infusion of funds may be misused. The annual corruption rankings published by Transparency International classify the DRC among the world’s most corrupt countries.

The massive $5 billion aid package is perhaps the most dramatic signal yet of how serious China is about becoming a major influence in Africa. Both the IFIs and the traditional donor countries which control them have for the last year been issuing cautions about the impact of Chinese aid. The motivations for those warnings are no doubt complex: questions about increased debt and the risk of fueling corruption are not unreasonable, but most commentators also see concern that China will usurp the Wests’ commercial and political interests on the continent.



Special Feature: Internal watchdog slams World Bank agriculture programs in Africa since 1991

The World Bank's Independent Evaluation Group (IEG) has released a substantial study on the Bank's agriculture programs in sub-Saharan Africa between 1991 and 2006. The report is an unusually clear acknowledgement that the Bank's engagement with the most important sector (one that employs 75% of the Africa’s workers) in its highest-priority region has largely been a failure.

In its 200-plus pages, the report (The World Bank's Assistance to Agriculture in Sub-Saharan Africa: An IEG Review) affirms many of the criticisms that civil society has long made of Bank agriculture policy, but in the end contains few concrete recommendations.

The IEG admits that the market-based reforms promoted by the Bank in the 1990s had little demonstrated success, but nevertheless encourages increased use of public-private partnerships to provide inputs to farmers.

Like the 2008 World Development Report on “Agriculture for Development,” which was released this week, the IEG report does not measure the success of agricultural policies on the basis of how they contribute to (or detract from) rural people's well-being and living standards. Notably absent from the report is any mention of the challenge that climate change poses for African agriculture.

Former Bank economist William Easterly summed up the report’s findings in a recent New York Times article: "Here's your most important client, Africa, with its most important sector, agriculture, relevant to the most important goal — people feeding their families — and the bank has been caught with two decades of neglect."

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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