A bank that lends itself to growth

 In the mid 1990s the bank lost its AAA rating, stricken by $1-billion in bad loans. Today it is the second largest lender for African development, behind the World Bank. It has developed a strategy for infrastructure lending second to none — even though it aims to improve on this.

It's been very poor, however, at advertising its successes. Little is known of the bank's transition or role outside of development circles. Founded in 1964 on a wave of pan-African euphoria, in 2005, when Donald Kaberuka, a former Rwandan finance minister took over as the bank's president, the AfDB disbursed $2-billion annually. Today, its annual loan commitment is $8.5-billion, 60% of which is in infrastructure.

The bulk of the remainder goes on private sector development. Since 2009, the bank has also gone into "counter cyclical" funding support to governments under stress, partly as a result of the global financial crisis and also, since then, given the impact of the Arab Spring. The latter is one reason why the North Africa region is now the biggest regional lender, at more than 40%, and Morocco and highly stressed Egypt the number one and two borrowers respectively. They are followed by South Africa, on account of its $1-billion loan to Eskom, and Botswana, which went to the bank when the diamond market tanked in 2008.

Kaberuka describes the bank's transformation as: "A shift from trying to act like a super non-governmental organisation fighting poverty through all angles, which, thank God, we didn't have enough money to do."

Instead of passively following the donors' lead, the bank shifted its focus, he says, to the things it was supposed to "leave to the market: private sector funding, infrastructure, governance, regional integration and education included".

In the process, it has moved to focus on, in Kaberuka's words, "unleashing Africa's economic potential, the best way to fight poverty". As one result, private sector lending is up tenfold to $2.8-billion.

Now the bank is shaping its long-term strategy for the next 10 years, including finding the means to up its infrastructure fund. It's also working on new ways to assist fragile states, given that 200-million Africans live in poor conditions across some 20 states. Limited government capacity in such states is often overwhelmed by the growing swarm of non-governmental organisations.

The bank has $70-billion in "priority" infrastructure projects. To up its infrastructure lending with a $20-billion fund, the bank is now thinking of means beyond its 20 shareholders, looking to sovereign wealth funds, pension schemes, and new, "emerging" donors including Brazil and China. For example, it is currently finalising a $2-billion infrastructure development fund with the Chinese government.

Bank's operatin philosophy
The change in the bank's operating philosophy — from social charity to business — not only aligns with the global mood on aid, but also goes to the heart of the ingredient absolutely necessary for development: local ownership by Africans. The past few decades of unprecedented African growth have, if nothing else, shown that aid from the West is not the only way (if it's a useful method at all) of developing Africa.

But in taking its operations to the next level, the African Development Bank admits that it has to overcome a big hurdle — changing the political economy of African countries to be more receptive to outsiders and to private sector investors.

If it can achieve this aspect, it will be able to do the "transformative" infrastructure projects that every African hopes for — geothermal power in East Africa or the Grand Inga hydropower project in the Democratic Republic of Congo, for example.

Making the latter 40 000MW scheme, which has been mooted for more than a century, a reality will demand more than more money. It requires at its core convincing the Congolese, in the words of one AfDB official, "to grant sovereignty over their territory to others for mutual advantage" — in other words, to stop seeing the world in zero-sum them-and-us terms.

Making these game-changing projects happen is about helping local leadership to use political will beyond staying in power in the short term.

"Problems of infrastructure projects," reflects one AfDB official of nearly 20 years standing, "tend always to be politically linked."

The incentive of more cash will no doubt help to influence African government policy for the better in this regard. Through its successes over the past few years, the AfDB is uniquely placed to do more than just more cash flows. Its African brand can help to reassure the continent's leaders they are not losing out by allowing foreigners in. And once it can help to cement a few African neighbourhood exemplars — "islands of excellence" Kaberuka calls them — the stage could be set for a virtuous, fresh cycle of investment, growth and replication.

Greg Mills is the director of the Brenthurst Foundation

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