African Development Bank


African Development Bank
African Development Bank

AfDB logo
Formation August 4, 1963
Type International organization
Legal status Treaty
Purpose/focus Regional development
Membership 78 countries
President Donald Kaberuka
Main organ Board of Executive Directors
Website http://www.afdb.org/

The African Development Bank Group (French: Banque africaine de développement [1] / Portuguese: Banco Africano de Desenvolvimento) is a development bank established in 1964 with the intention of promoting economic and social development in Africa. The Group comprises the African Development Bank (AfDB), the African Development Fund (ADF), and the Nigeria Trust Fund (NTF). AfDB provides loans and grants to African governments and private companies investing in the regional member countries (RMC) in Africa. It is owned and funded by member governments, and has a public-interest mandate to reduce poverty and promote sustainable development.

Contents

History

Following the end of colonial period in Africa, growing desire for more unity within the continent led to the establishment of two draft charters, one for the establishment of the Organisation of African Unity (established in 1963, later replaced by the African Union), and for a regional development bank.

A draft accord was submitted to top African officials, then to African Ministers, before being cosigned by twenty-three African governments on August 4, 1963, in the form of an agreement establishing the African Development Bank. The agreement came into force on 10 September 1964. Although established officially in under the auspices of the Economic Commission for Africa, the AfDB began operation in 1966 with its headquarters in Abidjan, Côte d'Ivoire.

Although originally only African countries were able to join the bank, since 1982 it has allowed the entry of non-African countries as well.

During its forty years of operations, AfDB has financed 2 885 operations, for a total of $47.5 billion. In 2003, it received an AAA rating from the major financial rating agencies and had a capital of $32.043 billion.

Functions

The AfDB has four principal functions. First, it makes loans and equity investments for the economic and social advancement of the regional member countries (RMC). Second, it provides technical assistance for the preparation and execution of development projects and programs. Third, it promotes investment of public and private capital for development purposes. Fourth, it assists in coordinating development policies and plans of RMCs. The AfDB is also required to give special attention to national and multinational projects and programs which promote regional integration[2].

In 2005, AfDB approved loans in the amount of 2.29 billions of Units of Account, a value defined in accordance to a basket of currencies equal to the Special Drawing Rights of the International Monetary Fund.

The largest share of AfDB lending goes to infrastructure projects, followed by multisector operations, which are usually loans for various policy reforms or general budget support for a government. AfDB support for infrastructure, private sector development, and the extractive industries (particularly mining) is expected to increase over the coming years.

Group entities

The African Development Bank Group has two other entities: the African Development Fund (ADF) and the Nigeria Trust Fund (NTF).

African Development Fund

Established in 1972, the African Development Fund started operations in 1974[3]. It provides development finance on concessional terms to low-income RMCs which are unable to borrow on the non-concessional terms of the AfDB. In harmony with its lending strategy, poverty reduction is the main aim of ADF activities. Twenty-four non-African countries along with the AfDB constitute its current membership. The largest ADF shareholder is the United States with approximately 6.5 percent of the total voting shares, followed by Japan with approximately 5.4 percent.

The ADF’s general operations are decided by a Board of Directors, six of which are appointed by the non-African member states and six designated by the AfDB from among the bank's regional Executive Directors.

The ADF’s sources are mainly contributions and periodic replacements by non-African member states. The fund is usually replenished every three years, unless member states decide otherwise. The total donations, at the end of 1996, amounted to $12.58 billion. The ADF lends at no interest rate, with an annual service charge of 0.75%, a commitment fee of 0.5%, and a 50-year repayment period including a 10-year grace period. The Tenth United Kingdom replenishment of the ADF was in 2006.[4]

Nigeria Trust Fund

The Nigeria Trust Fund (NTF) was established in 1976 by the Nigerian government with an initial capital of $80 million. The NTF is aimed at assisting in the development efforts of the poorest AfDB members.

The NTF uses its resources to provide financing for projects of national or regional importance which further the economic and social development of the low-income RMCs whose economic and social conditions require financing on non-conventional terms. In 1996, the NTF had a total resource base of $432 million. It lends at a 4% interest rate with a 25-year repayment period, including a five year grace period[5].

Management and control

The AfDB is controlled by a Board of Executive Directors, made up of representatives of its member countries. The voting power on the Board is split according to the size of each member's share, currently 60%-40% between African (or "regional") countries and “non-regional” member countries (“donors”). The largest African Development Bank shareholder is Nigeria with nearly 9 percent of the vote. All member countries of the AfDB are represented on the AfDB Board of Executive Directors.

Mr. Donald Kaberuka is the 7th elected President of the African Development Bank Group, having taken the oath of office on September 1, 2005. He chairs the Boards of both the African Development Bank and the African Development Fund. Mr. Kaberuka is a former finance minister of Rwanda.

Member governments are officially represented at the AfDB by their Minister of Finance, Planning or Cooperation who sits on the AfDB Board of Governors. The AfDB Governors meet once a year (at the Annual Meetings of the AfDB each May) to take major decisions about the institution’s leadership, strategic directions and governing bodies. The Governors typically appoint a representative from their country to serve in the offices of the AfDB’s Board of Executive Directors.

Day-to-day decisions about which loans and grants should be approved and what policies should guide the AfDB’s work are taken by the Board of Executive Directors. Each member country is represented on the Board, but their voting power and influence differs depending on the amount of money they contribute to the AfDB.

Status

With the statute of a regional multilateral development bank, the African Development Bank is engaged in promoting the economic development and social progress of its regional member countries in Africa.

AfDB commits approximately $3 billion annually to African countries, equivalent to only about 6% of development aid to the continent. Its relatively small lending portfolio and its tendency to follow in the footsteps of larger, more prominent public institutions like the World Bank, has meant that the AfDB has received little attention from civil society organizations as well as academia.

AfDB has placed an emphasis on the role of women, education and structural reforms, and lent its support to key initiatives such as debt alleviation for Heavily Indebted Poor Countries and the New Partnership for Africa's Development (NEPAD).

The Bank is currently based in Tunis, Tunisia after relocating from its headquarters in Abidjan, Ivory Coast because of instability there. It employs approximately 1,020 employees as of 2007, and has 78 members: 53 countries in Africa and 25 American, European, and Asian countries.

Recent trends and directions

One of emerging views, repeatedly cited by the AfDB’s Board of Directors and management, is the view that the AfDB should be more “selective” and “country-focused” in its operations. Though this policy has still to be clearly defined, it appears to be driving certain lending priorities.

The infrastructure sector, including power supply, water and sanitation, transport and communications, has traditionally received the largest share of AfDB lending. This focus was re-affirmed in the AFDB’s 2003-2007 Strategic Plan, which identified infrastructure as a priority area for AfDB lending. In 2005, the AfDB approved 23 infrastructure projects for approximately $982 million, which totaled 40 percent of AfDB approvals that year. Given the increased attention to infrastructure development in Africa from donors and borrowers, it is likely that AfDB’s infrastructure lending will increase significantly in the coming years. In 2007, infrastructure operations accounted for approximately 60 percent of the bank's portfolio.

Regional integration infrastructure projects will also be a key part of the AfDB’s future business. According to the AfDB’s 2005 Annual Report, regional economic blocs will make Africa “more competitive in the global market”, while transport and power interconnections between smaller African economies will help create larger markets within the continent. The AfDB’s member countries claim that AFDB, as a multilateral institution, is particularly suited to support regional integration projects.

The AfDB has also been designated the lead agency to facilitate "NEPAD infrastructure initiatives", which are regional integration projects led by African Regional Economic Communities (RECs). Additionally, the AfDB hosts the Infrastructure Consortium for Africa (ICA). The ICA was established by G8 countries to coordinate and encourage infrastructure development in Africa, focusing on regional infrastructure development in particular. The AfDB also helps to prepare projects so they may obtain financing from others sources through an initiative called the Infrastructure Project Preparation Facility (IPPF). So even if the AfDB is not directly involved in financing a particular infrastructure project, it may have helped to make that project possible.

Another key area of concentration of the AfDB’s support of RMCs is the fight against HIV/AIDS. The AfDB has five policies towards securing Africa's future through health funding:

  • Institutional capacity building through assistance of policy/strategy formulation and implementation
  • Human capital development to create an environment for the operation of national AIDS strategies through training and technical assistance support
  • HIV/AIDS multi-sectoral responses with emphasis on prevention and control interventions that include IEC (Information, Education and Communication), STI (Sexually Transmitted Infections) control, VCT (Voluntary Counselling and Testing), infrastructure support for the establishment of laboratories and blood transfusion facilities, and provision of equipment and supplies, including antiretroviral drugs
  • Advocacy through participation in international and regional forums to raise political commitment and leadership towards a collaborative effort in the fight against the pandemic among RMCs and development partners
  • Partnership development with a view of forging new alliances and revitalizing existing collaboration to cover critical development concerns such as HIV/AIDS and to bringing partnership activities within the framework of the bank's vision[6]

To date, the bank's contribution in the fight against HIV/AIDS is estimated at over UA 500 million. The bank is also among the initiating partners of AIDS in Africa – Scenarios for the future, a project whose outcome will enable governments and development partners alike to make strategic choices of current and future development paths and define their activities accordingly in order to face the challenges posed by HIV/AIDS.

Energy projects are likely to become a more important area of the AFDB’s infrastructure work, given the lack of access to energy services across Africa and continued high oil prices affecting oil-importing countries. It is not clear if the AFDB’s role in the energy sector will prioritize energy projects for domestic consumption or for export, although the AfDB has supported both in the past. The AFDB is currently drafting an energy policy and developing its contribution to the G8-mandated Clean Energy Investment Framework.

Although there is no official statement or consensus to this effect, AFDB lending for agriculture, (non-infrastructure) rural development and social sectors, such as health and education, is reportedly likely to decrease over the coming years.

Prospects

The AFDB today is an institution whose financial standing has been restored from the near collapse of 1995, but whose operational credibility remains a work-in-progress. A working group convened by the Center for Global Development, an independent Washington think tank, release a report in September 2006 that offered six recommendations for Bank's president and board of directors on broad principles to guide the Bank’s renewal. The report contains six recommendations for management and shareholders as they address the urgent task of reforming Africa’s development bank. Prominent among the recommendations is a strong focus on infrastructure.

AfDB is still a relatively small source of development finance for Africa. According to the most recent figures, the AfDB provides only 6 percent of total development assistance to the continent. Through its International Development Association (IDA), the World Bank annually approves about four times more in low-interest loans and grants to Africa than the AfDB does. The AfDB lacks the financial resources, the staff capacity and the range of staff skills and experience of the World Bank. For example, at the World Bank there are more than four times the number of staff working on any given project than at the AfDB. A number of the AfDB's projects, especially its policy loans, are financed jointly with the World Bank and other donors. The AfDB also relies extensively on World Bank research and analysis. As a larger institution and often the lead financier on joint projects, the World Bank attracts more attention than the AFDB.

While the AFDB’s lending had not expanded significantly in recent years, 2006 figures indicate that things may be changing. Between 2005 and 2006, the AfDB’s lending activities increased by more than 30 percent to $3.4 billion. Over the same period, private sector operations doubled in value. The AFDB has specific mandates from the New Partnership for Africa’s Development (NEPAD) and other international organizations to take the lead amongst financial and development institutions in areas such as infrastructure, regional integration, and banking and financial standards in Africa. These mandates have also increased the AFDB’s profile in the media. The increased international emphasis on Africa’s development needs in recent years (for example, surrounding the 2005 Gleneagles G8 Summit), and on the importance of infrastructure investment in Africa, has highlighted the role of the AfDB.

Some research has indicated that a high percentage of respondents in African countries has a marked preference for additional aid from the African Development Bank, despite the fact its relatively low rating against most of the aid effectiveness criteria found to be important by donor recipients[7]. This suggests that donor recipients in Africa views on the ‘multilateral donor of choice’ are informed by additional aid effectiveness criteria that are not commonly identified or reported against, though exactly what those criteria have not been discussed.

In general, whereas there has been progress at all levels with regard to democracy, growth and restoring the macro-economic balances in Africa over the past fifteen years, half of sub-Saharan Africa lives on under one dollar a day, and AIDS is threatening the social fabric of the continent. The studies conducted by various organizations (including the African Development Bank and the World Bank) show that, with the exception of northern and southern Africa, the United Nations Millennium Development Goals (reducing by half the number of persons living in poverty and without access to potable water by 2015) will in most cases not be attained. Nevertheless, these same studies indicate that the majority of the African countries can make notable progress to these ends.

Membership

  AfDB Beneficiary Countries
  ADF Beneficiary Countries
  AFDB and ADF Beneficiary Countries
  Non-African Member Countries

AfDB Beneficiary Countries:

ADF Beneficiary Countries:

AFDB and ADF Beneficiary Countries:

Note: All countries in the African Union including Mauritania but excluding the SADR are eligible for NTF benefits. Morocco is also eligible though not a part of the African Union.

Non-African Member Countries:

United Nations Development Business

The United Nations launched Development Business in 1978 with the support of the World Bank, and many other major development banks from around the world. Today, Development Business is the primary publication for all major multilateral development banks including the African Development Bank, United Nations agencies, and several national governments, many of whom have made the publication of their tenders and contracts in Development Business a mandatory requirement.[8]

See also

  • African Economic Outlook is published annually by the OECD Development Centre and the African Development Bank.
  • Asian Development Bank

References

  1. ^ The accent must be written on the first e see French orthography : Diacritics. The logo used on this page contains a mistake
  2. ^ Bank Information Centre, USA, (2005, July 27), African Development Bank Retrieved on 2005 from, July 27, from http://www.bicusa.org/bicusa/issues/african_development_bank/index.php
  3. ^ "The African Development Fund" United Nations Convention to Combat Desertification (UNCCD) 2004, no longer available (2006)
  4. ^ "The African Development Bank: Tenth Replenishment of the African Development Fund, Order 2006" Statutory Instrument 2006 No. 2327, Government of the United Kingdom ISBN 0-11-075060-8 ;
  5. ^ African Development Bank Group, (2005), about us, Group entities Retrieved on 2005 from http://www.afdb.org/portal/page_pageid=313,165673&_dad=portal&_schema=PORTAL
  6. ^ African Development Bank Group,(2006), Topics, HIV/AIDS from http://www.afdb.org/portal/page?_pageid=473,970125&_dad=portal&_schema=PORTAL
  7. ^ Cecilie Wathne and Edward Hedger 2010. What does an effective multilateral donor look like? London: Overseas Development Institute
  8. ^ United Nations Development Business' website

External links


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