Donald Kaberuka: Africa’s unique window of opportunity

Interview
Donald Kaberuka: Africa’s unique window of opportunity
Africa is poised for an exciting new era in its economic and social transformation. In this interview with African Banker editor, Anver Versi, African Development Bank President, Donald Kaberuka explains how the Bank has taken the leadership role in driving African economies forward.

African banker: Why is the AfDB holding its annual meeting in Shanghai?

KABERUKA : The Bank responded favourably to an invitation from the Chinese government to hold its Annual Assembly in Shanghai. China has been a nonregional member of the Bank Group since the opening up of the Bank’s capital to non-regional countries. This will be the second time that the Bank goes outside the region to hold its Annual Meeting. We were in Valencia, Spain, in 2001. The theme of the Shanghai Meeting is ‘Asia and Africa: Partners in Development’; it is therefore quite appropriate that we are able to have this discussion in China. As you know, we in Africa are very keen to see and learn first hand, how China has succeeded in achieving tremendous growth over a fairly short period of time and also to promote trade and investment between Africa and China which is mutually beneficial.

What is the state of Africa’s economies today?

At its best in 30 years. We’re seeing, for the sixth year running, sustained economic growth across Africa at 5.5%. The economies with extractive industries such as oil and gas are leading, but even countries not endowed with such natural resources are growing. After many years of policy gains and reforms, macroeconomic stability is now anchored in most parts of the continent. And the external environment continues to be benign. But let me add a rider. First, not all countries are growing above the rate of the population increase. Second, this rate of growth would have to be sustained for many years for it to have any real impact on poverty. Third, in some regions the situation is fragile and the risk of reversal is always lurking around the corner. What we are doing as an institution is to try to consolidate this progress in order to open up further possibilities for Africa. To the frequently asked question: if the economies are growing, why is there so much poverty? The answer is in two parts. Firstly, as I have just mentioned, we would have to sustain this rate of growth for a long time for us to see the impact on poverty and secondly, if economies were stagnating, it would mean that real per capita incomes would be declining given the increasing demographic pressure and therefore deeper and more widespread poverty.

You are in the midst of a major reform process within the AfDB. You also appear to have taken on the leadership role in driving Africa’s economy forward?

First of all I must underline the following: The AfDB is a very solid financial institution. It has got the highest possible ratings. Its risk bearing capacity is very solid. What we are trying to do is to move to the next stage; build on this bedrock of financial soundness to increase our operational effectiveness and get results on the ground. That is the purpose of the current reforms: becoming result oriented, focused and selective; having greater decentralisation; aligning strategically with partners and developing excellence in a number of areas such as infrastructure, regional integration, water and sanitation and be a strategic counsellor to our member countries on development. As I mentioned earlier, the internal and external conditions have never been better and we see Africa’s own Bank playing a bigger role as a channel of choice for the international efforts and also able to respond much more effectively to the demands of our countries. This is of course a medium term process but we are on track.

At one point, the World Bank was sitting on almost $10bn of un-disbursed resources for Africa. Why is there such a gap between approvals for projects and their implementation?

It is a challenge for all multilateral institutions including the AfDB. The real measure of our effectiveness should be actual results on the ground. How many children we are able to get into school? How many kilometres of roads have been constructed? How are we doing in increasing energy availability? These are the results which count, not the volume of approvals. This said, problems of absorption capacity are real. There are many factors responsible for the gap between approvals and disbursements. If, for example, a country receives a loan from the Bank and then for some reason a conflict breaks out, the chances are, we will suspend disbursements because our operations cannot proceed and the country will, in all probability, fall into arrears. Sometimes it is due to the delays to ratify the loans on time and fulfil other conditions of effectiveness. With increased decentralisation, greater presence in the field, we’ll be able to steadily close the gap between approvals and disbursements.
We have opened 22 out of 25 offices in different parts of Africa and I am already seeing encouraging results on the ground; where conditions for effectiveness, including ratification are faster. There are a number of things we also need to do internally here, especially in streamlining conditionalities in accordance with the “Paris Delegation” on Harmonisation and Development effectiveness.

Does this call for greater harmonisation of efforts?

It calls for greater harmonisation among partners and better dialogue with member countries, better understanding of the countries’ priorities, their institutions, capacity issues so that we can provide a kind of response appropriate to each country’s concerns. That is why field presence is critical.

You are undertaking major reforms to bring about precisely what you’ve talked about, that is. Streamlining operations. But you also work with many bilateral and multilateral partners. Do you see a movement on their part to streamline their operations as well?

We have all signed up to the “Paris Delegation” on Harmonisation and Development effectiveness. The real challenge is implementation. Progress is being made but is far too slow. Over the last 30 years, the international aid architecture has changed considerably with the number and nature of development agencies vastly increasing – multilateral, bilateral agencies, benevolent foundations such as the Bill Gates Foundation as well as the so called “vertical funds” like the Global Fund for HIV/AIDS. The risk of fragmentation, stretching and overloading national capacities is high, hence the need for greater harmonisation of efforts. Progress has been made but we need to move faster.

That leads us naturally to the next question. Despite the massive fanfare and the generous pledges made to African countries at Gleneagles, the level of aid has actually contracted. How can this be explained?

It is true that “core” ODA levels, that is, excluding debt relief and humanitarian operations, have actually declined. That is a fact. While we are aware of the budget constraints and limitations, which are real, it is critical that commitments made are kept.
The political will and momentum mobilised at the Millennium Summit, Gleneagles, must not be lost. Debt cancellation for many eligible countries was a good beginning and has already been realised. As for the next engagement which was to double aid to Africa and improve its effectiveness, all I can say is that it is work in progress. Both we and the World Bank are currently in dialogue with our partners on the future replenishment of our concessional windows which are principal instruments for transferring soft loans and grants to low income countries. We are only a few years to the MDG target and that “big push” is as urgent as ever. Beyond the declining aid levels, we are also disappointed by the slow progress on trade negotiations. We are not underestimating the challenges of an ambitious round such as Doha, but the prize is within reach if the political will is there. Africa, like Asia before, will prosper only by effective participation in world trade. That can happen on two conditions. First, that we have to have a fair international trade regime which frontloads the interests of low income countries. That is why it is called a “Development Round”.
The second condition is that we are able to remove the bottlenecks on the supply side and build our trading capabilities. I am referring to the quality of infrastructure, transport, communications, energy and expanding the trading space within Africa by more effective regional integration. I feel that the window of opportunity which exists today is unique. It is the first time there is such a large global consensus on what needs to be done. In the overarching agenda to fight poverty, it is critical that despite political constraints and other realities, this Multilateral Trade Round negotiations should not be allowed to fail.

How critical, in your opinion, is leadership and governance in accelerating growth in Africa?

Economic growth is all about investment and that requires confidence and stability. Good leadership, sound institutions are essential preconditions for economic growth, as clearly articulated in NEPAD. Today, much of Africa is at peace and under democratic rule, institutions are strengthening, leaders are regularly elected via competitive elections; this has gone a long way to create an era of stability and confidence which is a major contributor to the current positive economic growth.

Africa’s fortunes are still largely tied to the global demand for its raw commodities. Can Africa wean itself away from this pattern of exchange?

You are right to note the problem of dependence on primary commodities. It is true that the current bullish conditions in the global economy and the increase in Asian imports of minerals, oil and other soft commodities has indeed given a boost to some of our economies. Two things are important here. We should use this window, the terms of trade gains, for greater diversification and moving up the value chain. But we will do so if the Doha trade negotiations succeed in dealing with issues such as tariff escalation. We should also seize the opportunity to invest in infrastructure, skills and capacity so that we gradually become less reliant on raw commodities. There is encouraging progress in some countries where services such as finance and IT are fast growing, bypassing commodities. This is what the African Development Bank is trying to encourage and promote.

What is the Bank’s relationship with the private sector?

The AfDB has a private sector window which supports our countries with different instruments: direct lending, guarantees, lines of credit to local finance institutions, promotion of local currency lending and public private sector partnerships etc. We have almost doubled our private sector operations this year, and I expect this trend to continue. We are gearing ourselves to that by increasing our internal capacity to understand and manage risk. The private sector is the future for Africa. That is why the AfDB is also supporting our countries in improving the business climate by reducing the costs of doing business and creating greater confidence.

You do take equity positions?

We are investing in a number of equity funds and the experience so far is encouraging. We are also participating in the Pan-African Infrastructure Fund.

Is the investment commercially-oriented?

We have dual objectives; to get a good return on our investment and to promote development. Our objective is to help the funds and business grow, and our exit strategy is in the region of under 10 years.

How far should privatisation of the public sector go in your opinion? Can development and profits go hand in hand?

Let me rephrase your question. What is the right balance between the state and the private sector? It is no longer the state on one side and the private sector on the other. It is more a partnership between the two. In the first 30 years of Africa’s post-independent period, the public sector became very dominant; the pendulum swung too far. This caused large fiscal imbalances and efficiency losses. Making progress on privatisation is still important but the right balance varies from country to country and therefore it benefits of greater efficiency, reduced fiscal imbalances, are beneficial and the negative impacts temporary. In a number of countries there have been transactional difficulties especially in the aviation and utilities domain such as electricity and water. These are complex transactions requiring careful attention; but the principles remain the same. This said, I think the greatest challenge in Africa is the promotion of the private sector. In some countries, the sector is young and nascent and has to be nurtured. This requires not only the right business environment, but sometimes transitional direct supportive measures.

With the opening up of the 25 field offices as you mentioned, the ADB appears to be firmly on course to decentralisation. How much central authority are you prepared to relinquish?

We are moving away from a rigid centralised system to an agile, responsive one. We aim at tailoring and customising our field presence, depending on the challenges we face on the ground. Countries are different. We are decentralising while maintaining accountability and strong fiduciary controls. Decentralisation resolves some issues but also creates other problems. We are addressing them as we gather experience. But I have no doubt it is the way to go. This is not true just for the AfDB, it is also the same for other similar organisations. The action is in the field. But I once again emphasise the importance of strong fiduciary controls, accountability and seamless links between the field and headquarters.

Are you happy with the level of capacity you have at the moment?

It is an optimisation issue. The demands on the Bank are always increasing as Africa’s expectations on the institution grow. We are aware that we will never have all the financial and human resources we need, no organisation ever does. This is why it is important to be focused, to be selective, to optimise all the resources you have. We are, at this time, engaged in an exercise to increase our staff capacity both in Tunis and in the field offices and we are working assiduously to mobilise additional resources.

How can you encourage and assist national financial institutions to mobilise domestic savings for investment?

By promoting local capital markets and strengthening appropriate local financial institutions, consolidating reforms in the Bank and non-bank financial sectors as well as developing appropriate instruments for each country, depending upon the degree of financial depth.

When you were growing up, did you see yourself as a banker? What subjects interested you the most while at school?

Like all young boys I wanted to be a pilot! Now, I am a pilot, not of an aeroplane but of Africa’s premier development institution! This said, Africa has always been a passion for me from a very young age and I am glad to be contributing in a modest way in the position I occupy today.

Who, in your opinion, past or present, do you admire the most?

[laughs]. Madiba, Nelson Mandela, the icon of modern day Africa.

What do you wish to achieve before the end of your tenure at the Bank?

I have a job to do here and I am determined to get it done. As for the legacy, I will leave that to historians. This said, I would like, at the end of my tenure, to have consolidated the strong financial position of the Bank and a more focused, effective institution, a channel of choice of support to Africa that is truly Africa’s Premier Development Bank. I would like to see Africa at peace with itself, expanding and diversifying economically, making faster progress at regional integration, moving up the value chain, and taking its rightful place in the world trade and investment flows. It’s a challenging agenda to which I would like to make my modest contribution during my tenure at the AfDB.

What do you do in you do in your spare time?

I play squash on and off, but less and less these days because of the demands on my time; and I listen to classical music.