Annual Meetings of the African Development Bank Group
Statement by Omar Kabbaj,
President of the African Development Bank,
at the Opening Session of the Annual Meetings of the
African Development Bank Group
25 May 2004
Your Excellency President Yoweri Kaguta Museveni,
Honorable Gerald Ssendaula, Chairman of the Boards of Governors,
Honorable Governors of the African Development Bank Group,
Honorable Ministers of the Government of the Republic of Uganda,
Honorable Members of the Diplomatic Corps and Representatives of International Organizations,
Your Excellencies, Distinguished Guests, Ladies and Gentlemen,
I have the honor and privilege, on behalf of the Boards of Directors and the management of the African Development Bank, as well as on my own behalf, to welcome you all to the 2004 Annual Meetings of the Bank Group. I would first like to thank President Museveni, and the government and people of Uganda for graciously having invited us to hold our meeting in Kampala this year. Mr. President, allow me also to express to you our heartfelt gratitude for the kind attention you have personally given us by your continued presence at all our meetings and functions, despite your many pressing engagements.
Uganda has been famously described as the ‘Pearl of Africa’, and having witnessed first-hand the warmth of its people and the beauty of its landscape, it is indeed a country worthy of this appellation.
Mr. President, Uganda is today also known for its other qualities. It is often cited for the significant economic and social transformation that it has undergone under your able and wise leadership. While it still faces considerable challenges, Uganda has nonetheless sustained high economic growth rates and it has also reduced substantially the number of people living in abject poverty. Your country is also applauded all over the world for the bold decision you personally took in 1987 to launch a national campaign against the HIV/AIDS pandemic. Once ranked among the countries with the highest adult prevalence rates, your personal engagement and your government’s commitment have resulted in its dramatic reduction.
Today, Uganda exemplifies the spirit and the confidence of a new Africa and we salute you, Mr. President, your government, and your people for all these achievements.
This year’s Annual Meetings have a special character as we are celebrating the 40th Anniversary of the African Development Bank. We are also holding these meetings at a time when, after a decade and a half of reforms, many African countries are beginning to make significant headway in their efforts to develop their economies and improve the welfare of their populations. Indeed, we are entering an era when we can justifiably be optimistic about the future of Africa and be hopeful about the end of the Afro-pessimism which was so prevalent in the recent past.
At this juncture in our history, I believe it is worthwhile to pause and look back at the road we have jointly traversed during this past decade, so that we can gauge the progress we have made and assess the challenges that lie ahead. With your permission, Mr. Chairman, in my review of the African economy and in my report to Honorable Governors on the state of their Bank — and on the outcome of its activities in 2003 — I shall adopt this perspective.
The African Economy in 2003
The Bank estimates that Africa’s GDP in 2003 grew by 3.7 percent. This is well above the 2.8 percent recorded for 2002 and higher than the average of 3.1 percent for the previous five years. Equally significant is the number of countries that enjoyed growth rates of above 5 percent, which rose from 10 in 2002 to 18 at year-end 2003. And of particular note is the success recorded by countries such as Mozambique, which continued to achieve growth rates in excess of 7 percent.
Both internal and external factors accounted for the improved performance of the African economy. Domestically, most governments continued to implement sound macroeconomic policies and persevered with the implementation of structural reforms, thereby improving the conditions for growth and investment. Africa’s improved economic performance in 2003 is also in part explained by the abatement of national and regional conflicts that had beleaguered the continent for so many years. Angola, Burundi, Congo, the Democratic Republic of Congo, and Sierra Leone are now largely at peace and the prospects of bringing to an end the conflicts in Liberia and southern Sudan are quite promising.
Externally, despite the sluggish performance of the world economy in 2003, Africa enjoyed a more favorable environment. The demand for Africa’s exports increased, along with a rise in the prices of most primary commodities. An increasing number of countries also began to take advantage of the opportunities offered by new trade initiatives such as the US Africa Growth and Opportunity Act (AGOA) and the Everything but Arms Initiative of the European Union. As a consequence, Africa’s exports increased by close to 5 percent in volume terms and by 17 percent in value terms in 2003. These are well above the average of the last five years and led to substantial improvements in the region’s trade and current account balances.
Africa’s Economic and Political Progress since 1994
The significance of the performance of the African economy in 2003 and, indeed, the progress that African counties have made in recent years is best appreciated when we recall where our countries stood some ten years ago.
Before I present some of these changes, I wish to emphasize that while our countries have made significant progress in the last decade, they still face considerable challenges. Close to half the population of Sub-Saharan Africa is estimated to still live below the poverty line. And with the exception of countries in North Africa and South Africa, most African countries are unlikely to achieve the Millennium Development Goals (MDGs). Indeed, Africa’s average GDP growth rate for the last five years of 3.1 percent is less than half of what is generally accepted as being required for African countries to make progress towards the MDGs and make headway in reducing poverty.
Nonetheless, when compared to the declining economic fortunes and the macroeconomic instability of the region in the early 1990s, much progress has indeed been made.
Ten years ago:
• Africa’s GDP growth rate stood at 2.6 percent in 1994, after averaging less than one percent in the previous four years;
• Its per capita income gain was only a tenth of a percent while having declined at a rate of 1.8 percent in the previous four years;
• Its average inflation was 41 percent, with over half of the countries having inflation rates exceeding 25 percent;
• Its average fiscal deficit, including grants, was close to 5 percent of GDP, with 10 countries having fiscal deficits of above 10 percent, and with little concern shown about its impact on economic stability and growth;
• Its current account deficit stood at 2.7 percent, with over 20 countries experiencing much higher deficits exceeding 5 percent;
• Its exchange rates were not market based; and
• Its privatization program had hardly begun with state-owned enterprises still dominating the modern sector of the economy.
It was against this background of macroeconomic imbalance and very low or negative growth that African countries embarked on the implementation of their reform programs. Although controversial at the time, I believe that the shift in development paradigm embodied in the reform agenda has now gained widespread acceptability. It is now axiomatic that wealth creation – and indeed poverty reduction – cannot take place under conditions of macroeconomic instability and excessive government interventions. Governments best promote growth by creating an enabling environment for private enterprise. Long term social sustainability requires that economic growth be inclusive, by enabling the poor to contribute and benefit from it.
The adoption of these basic tenets of development by an increasing number of countries and the continued support of the international donor community — including the international financial institutions (IFIs) — have brought a sea change in economic structures, institutions, and conditions across much of Africa. Most countries have lifted price controls and exchange rates are mostly determined by market forces. And nearly all countries have launched privatization programs with a considerable number making significant headway. The pace of privatization in the telecommunications sector perhaps best exemplifies this trend, where some 18 African countries have privatized their fixed-line operators, and 45 countries have licensed private cellular operators.
While welcoming the progress that many countries have made in their first-generation reforms, it is also essential that second generation reforms aimed at creating the conditions for higher grow are pursued, by making improvements in the environment for private sector development. In particular, it is essential that domestic savings are increased by deepening financial sector reforms, and that the required investments in infrastructure and human capital development are made. In addition the required legal and judicial reforms should be enacted.
Africa’s progress in the economic domain has been matched by the remarkable changes that have taken place on the political front as well. At the start of the 1990s, only 5 African countries could be described as being democracies. Currently, more than 20 countries have democratically elected governments and more than a dozen are in a transitional phase toward democracy. Clearly the synergy between political and economic liberalization will undoubtedly lead to improved prospects for development.
While welcoming the progress that many countries are making in improving governance, public accountability and transparency in government, of particular importance in this regard is redoubling the efforts being made to fight corruption. Corruption undermines public trust and business confidence; it leads to enormous waste in public expenditures; and it also leads to a severe misallocation of resources. The poor, perhaps more than other social group, are most affected by corruption as even the limited resources that governments could deploy to improve their welfare are reduced and diverted. African governments should therefore adopt a policy of zero tolerance for corruption. Indeed, the international donor community is demanding such an approach, and the degree to which it will scale up ODA in individual countries will very much depend on it. The failure to root out corruption could therefore jeopardize the ability of some of our countries to achieve the MDGs.
As African countries take the lead in drawing up and implementing their own reform programs, the international donor community should step up its assistance. Indeed, enhanced support is critical for Africa’s success. This is the essence of the call by African countries when they launched the NEPAD initiative in 2001. It is also the essence of the compact reached at Monterrey in 2002 wherein developing countries committed themselves to implement the required reform programs and the donor community pledged to scale-up its support.
In the last two years, there are signs that the donor countries have begun to honor their pledges to increase official development assistance (ODA) to Africa. After falling continuously for over a decade, ODA to Africa increased significantly in 2002, although largely accounted by debt relief. It is estimated to have continued its rise in 2003. The Millennium Challenge Account of the United States Government has identified eight African countries as the initial recipients of additional assistance and several European countries have begun to increase their ODA allocations. In addition, a number of innovative approaches, such as the proposal of the United Kingdom and France to set up the International Financing Facility (IFF), with the goal of scaling up ODA, have been made.
While all these developments and initiatives are welcome, we still must note, however, that the volume of ODA to Africa is still considerably below the desired levels and below the absorptive capacity of most countries, as reflected in the recent report of the World Bank to the Development Committee.
With respect to debt relief, much has been done under the HIPC initiative to reduce the external debt of 23 African countries that have to date qualified. However, new approaches with respect to future assistance will be required to help these countries achieve long-term debt sustainability and avoid falling into new debt problems. In this regard, it should be noted that the ability of these countries to shoulder loans even on concessional terms is increasingly being questioned. It is also essential that HIPC debt relief is extended to the remaining nine African countries and that appropriate action be taken with regards the HIPC sunset clause. Most of these are emerging out of conflict and have built up significant arrears. Concerted action by the international donor community, including arrears clearance schemes, will therefore be required to help these countries rehabilitate their economies and create the conditions for economic growth.
In the area of trade, the international donor community will need to address urgently the issue of increased market access as well as the problem of agricultural subsidies that hinder the exports of African countries. Some of the recent trade initiatives taken by developed countries indicate that improved market access does lead to increased investments and exports, as foreign capital seeks to take advantage of new opportunities. The increasing volume of exports by African countries in non-traditional sectors also demonstrates that they can compete in the global market, given a level playing field. It is thus crucial that the WTO trade negotiations on the Doha Development Agenda are resumed and concluded as soon as possible. In this regard, we are encouraged by some of the recent steps taken by developed countries to re-start these negotiations.
Bank Group Activities in 2003
Permit me now to report to you on the state of the African Development Bank and its activities in 2003.
Lending and Grant Operations
Total lending and grant operations for the Bank Group in 2003, excluding debt relief, stood at $2.6 billion, as compared to $2.2 billion in 2002 – a 21.5 percent increase. Of this total, the non-concessional ADB window accounted for $ 1.1 billion – a slight decrease from 2002. Operations under the private sector window, however, increased from $ 270 million in 2002 to over $ 305 million in 2003.
The share of the African Development Fund (ADF) in 2003 stood at $ 1.5 billion – an increase of over 56 percent from 2002. And in line with the new policy framework for ADF operations, grants increased significantly and accounted for over 17 percent of total approvals, and we expect to reach the agreed 18-21 percent range in 2004. The surge in ADF operations – our concessional window for the 38 countries that cannot at present borrow on market terms – is explained by the resumption of full operations, following the conclusion of the consultations for the Ninth Replenishment of the Fund (ADF-IX) in September 2002. As 2004 represents the third and final year of ADF-IX, we expect that all the resources mobilized under this replenishment will be utilized fully by the end of the year.
And in this connection, I would like to express my appreciation to the ADF donors for having agreed to start the tenth replenishment of ADF in February 2004 in Geneva, kindly hosted by the Government of Switzerland. The consultations will continue in Kampala, following these Annual Meetings, and we expect them to be concluded by the end of the year. In this connection, I would like to appeal to ADF donors for a sizeable increase in the ADF-X replenishment to enable us to make a significant contribution to meeting the financing needs of our low-income countries.
Operations through the third window of the Bank — the Nigerian Trust Fund (NTF) — increased significantly to $33.5 million from $13.5 million in the previous year, following the accord reached with the Nigerian Government on a revised protocol for the NTF. I would like to take this opportunity to express my appreciation to President Obasanjo and the Government of Nigeria for the flexibility and understanding shown in both revising the NTF protocol and in establishing the Nigerian Technical Cooperation Fund, the largest such Fund administered by the Bank.
In addition to its own lending and grant operations, the Bank Group, through its co-financing operations, succeeded in 2003 in significantly increasing the total volume of resources mobilized. These stood at $3.7 billion – which represents an increase of 26 percent over 2002. Thus, the total resources generated for our regional member countries — including our own resources — stood at $6.4 billion in 2003 as compared to $5.7 billion in 2002.
With respect to actual disbursement of resources for approved projects and programs, these stood at $1.5 billion in 2003 — as compared to $1.4 in 2002. Disbursements for ADF countries were lower in 2003 in relation to 2002 on account of the difficulties that some of our low-income countries are facing in meeting the conditions for loan effectiveness and in the timely implementation of approved projects and programs.
Improving the Quality of Operations and Enhancing Development Effectiveness
I believe it is important to stress that the lending and grant operations of the Bank Group in 2003 were in line with the priority areas that the Bank had set in its Vision Statement and in its Strategic Plan. As Honorable Governors are aware the overarching objective of all our operations is to assist our regional member countries achieve the MDGs. In addition, our interventions were guided by the comprehensive policy framework that the Bank Group has developed in recent years, although some important policies, such as the one for private sector operations, are currently under review.
Accordingly, the focus of Bank operations in its middle income countries was on enhancing the competitivity of their economies by financing major reform programs and related infrastructure projects and by providing direct finance to the private sector. In the low-income countries, the priority areas of operation — which focus on poverty reduction — continued to be agriculture and rural development – including rural infrastructure — education and health. In addition, support was provided to reform programs to promote good governance and efforts continued to mainstream gender and environmental concerns in all Bank Group interventions.
It is also important to stress that the increase in the volume of operations of the Bank Group were accompanied by important actions to improve their quality. Towards this end — and to ensure the development effectiveness of its interventions — much attention has been given to four guiding principles: first, ensuring country ownership; second, attaining greater selectivity in our interventions; third, continuing the use of participatory approaches, and fourth, working closely with our other development partners.
Accordingly, each country’s poverty reduction strategy paper (PRSP), where available, has provided the basic framework for all our interventions. Thus, the new generation of CSPs that we approved in 2003 for ADF countries have been closely aligned to each country’s PRSP. In addition to the inherent selectivity contained in the Vision Statement, the Bank Group’s intervention is now normally restricted to 2-3 sectors in a given country; indeed in some cases it is limited to only one. Such an approach has been adopted following close consultations with governments and civil society organizations as well as with our other development partners.
A major initiative that the Bank launched in 2003 is the introduction of its Results Measurement Framework at the project/program, institutional, and country levels. This will enable the Bank to evaluate more clearly the impact of its interventions and to assess better the progress that countries are making towards achieving the MDGs. The Bank works closely with OECD/DAC and the other multilateral development banks in this important area. A major event in this regard was the Second International Roundtable on Managing for Results held in Marrakech in February this year and which the Bank co-hosted. Core principles and an action plan were adopted at the meeting.
The various actions that the Bank Group has taken to improve the quality of its operations as well as the management of its portfolio have led to a substantial decline in the number of projects classified as problem projects. I am pleased to note, in this regard, that the progress that the Bank Group is making in terms of improving the quality of its projects and in introducing a results measurement framework is increasingly recognized by the international donor community.
Despite the progress made, a major source of concern of the Bank remains the long time it takes for projects and programs to be implemented. Currently, it can take as long as three years between the approval by the Boards of Directors of a project and the start of its implementation. In addition, a further 6 to 7 years may be required for project implementation and completion. To address this issue, we have developed an action plan, including more delegation of authority to its field offices. We also call on all our regional member countries to cooperate with us more fully and take the necessary legal and other reforms required for the timely implementation of projects and programs.
Launch of New Initiatives and Support to NEPAD
In addition to its regular lending and grant operations, the Bank launched three new initiatives in 2003.
First: the Rural Water Supply and Sanitation Initiative which has as its objective accelerating access to sustainable water supply and sanitation to rural Africa by increasing coverage from the present 47 percent to 66 percent in 2010, and to 80 percent by 2015. The Initiative will operate under the broad framework of NEPAD and the Africa Water Vision and contribute towards the achievement of one of the MDGs as well as contribute to others. The investment requirement up to 2010 for the Water Initiative is estimated at around $11 billion and is expected to be raised by leveraging additional resources from multilateral, bilateral, as well as public, private and community sources. The proposal has garnered the support of a number of governments such as Canada, France and the Netherlands as well as the European Union.
A related initiative with which the Bank is involved is the African Water Facility – an initiative spearheaded by the African Ministerial Council on Water (AMCOW). The goals of the Facility are to create an enabling environment to strengthen water resources management and to attract the large amounts of investments necessary to achieve national and regional objectives. AMCOW has requested the Bank to host the Facility and work with it to implement the Initiative. A proposal to establish the African Water Facility as a Special Fund of the Bank has been submitted to you for your consideration and approval.
Second: the post-conflict initiative that aims at enabling counties coming out of conflict to re-engage with the international financial community by helping them clear their arrears with the Bank Group. The Board of Directors has submitted, for your approval, a proposal to begin to set aside over three years UA 100 million from the net income of the Bank – with an initial UA 45 million to be allocated from the net income of 2003. This sum is expected to be supplemented by an allocation of UA 100 million from the tenth replenishment of the African Development Fund, as well as contributions from the Nigerian Trust Fund, bilateral donors and the European Union. The funds would be used on a case-by-case to assist post-conflict countries that meet specific criteria. These would include: an active program of reconstruction supported by the international donor community, including an internationally recognized program, The Bank Group would only be expected to engage in arrears clearance should normal operations leave a gap and where the overall financial viability of the operation is sufficiently sound.
Third: decentralization of Bank Group operations. The proposal is based on the recommendations of an independent consultant and favors the establishment of strengthened country offices that will have two primary functions: a greater role in policy dialogue and greater authority in matters of project implementation. The proposal also foresees a greater but gradual delegation of authority on procurement and disbursement matters, in line with the practice of sister institutions. Within this new proposal, the Bank will continue its program of opening some 25 country offices, with eight already having been opened or planned to be opened shortly. Clear and transparent criteria are being used in opening additional offices, taking into consideration matters such as the size of the Bank Group’s portfolio in the country.
In addition to these new initiatives, the Bank has continued with its program of support to the NEPAD initiative. I am pleased to note that much progress has been made in this regard.
As Honorable Governors are aware, the Bank Group’s support to NEPAD continues to focus on regional infrastructure and banking and financial standards, in line with the leadership role that was assigned to it by the NEPAD Heads of State Implementation Committee. In banking and financial standards, the framework which had been developed earlier, and which, as you will recall, African Central Bankers had endorsed, has been incorporated into the design of the African Peer Review Mechanism (APRM).
In infrastructure, the preparation of projects within the short term action plan has proceeded with the Board of Directors approving four projects in 2003 and five more are expected to be approved in 2004. Additional projects are being considered for financing by other donors. Work is also proceeding in preparing a medium to long-term action plan in close collaboration with the regional economic communities and in cooperation with the World Bank and the European Union.
Projects and programs identified in the short-term action plan are estimated at $7 billion. Under the ADF window, some $500 million had been earmarked for multinational projects – of which close to $200 million was committed in 2003. We are using these resources to help mobilize additional funding for multinational projects. In addition, the Bank Board of Directors has approved the creation of a dedicated facility to assist regional economic communities and countries in the preparation of bankable infrastructure projects. The fund was seeded with a grant of C$10 million from the Canadian government and work is underway to make it a multi-donor facility to assist countries in infrastructure development under NEPAD. A first contribution has been received from Denmark and let me take this opportunity to thank the Governments of Canada and Denmark for their kind gesture and support.
In line with its designation as a strategic partner, the Bank expects also to provide technical assistance to the NEPAD African Peer Review Mechanism, primarily in the area of economic analysis and governance. We believe that the African Economic Outlook that the Bank produces annually in close collaboration with the OECD Development Center could be of great use in this respect. To enable it to undertake all these various tasks, the Bank has also created a small unit of experts, entirely funded from its administrative budget, to work solely on NEPAD-related issues.
The Temporary Relocation of the Bank’s Operations
With respect to the temporary relocation of the Bank to Tunis, the Board of Directors has submitted to you its recommendations on the matter. It has concluded that conditions for the return of the Bank’ operations to its Headquarters are not yet conducive and that the temporary relocation period should be extended by one year. In this regard, let me reaffirm that, in line with your decision, the Bank’s headquarters remains in Abidjan. Let me also take this opportunity to thank the Governments of Cote d’Ivoire and Tunisia for their assistance in this important matter.
I would like to add that the Board of Directors will continue to conduct biennial comprehensive reviews of the situation in our host country and submit its recommendations for your consideration and approval. In this regard, I should note that the Bank, in conformity with the decision taken last year, will be expected to be given a one-year notice should the Board of Governors decide that conditions do allow for the Bank’s operations to return to its Headquarters in Abidjan.
The temporary relocation and the stabilization of the Bank has reduced staff anxiety and helped to mitigate the relatively high staff turnover seen in recent years. It has also enabled the Bank to re-launch its recruitment drive to allow it to fill its vacancies and give it the capacity to fully implement its Strategic Plan. We are indeed confident that the Bank will fill most of its staff vacancies in the coming months.
Financial Outcomes of the Bank Group in 2003
Ladies and Gentlemen,
Permit me now to report to Your Excellencies on the financial outcomes of the Bank Group in 2003. The Bank Group continues to strengthen its financial ability to provide development assistance. For 2003, the Bank Group, as a whole, reported earnings of $243 million, comprising strong positive earnings for the ADB and NTF windows but a loss, for the first time since 1996, for the ADF. In 2002 the Bank Group had earned a total of $280 million. The lower earnings in 2003 were due to a number of factors: first, the overall low-interest rate prevailing in the international financial markets, contributing to a lower interest income on the Bank Group’s earning assets; second, the effect of the pre-payments of certain higher-yielding loans by some of the Bank’s larger borrowers; and third, the increase in administrative costs due to the temporary relocation in 2003 of the Bank Group from Abidjan to Tunis.
To mitigate the negative impact on the ADF’s development resources, owing to the increased expenses of the temporary relocation, the Board of Governors in June 2003 approved an exceptional allocation of approximately $21 million from the ADB to the ADF.
I am delighted to report that although earnings were lower for 2003 compared to 2002, the overall financial standing of the Bank has continued to steadily improve. The key leverage, gearing and liquidity ratios, already among the best in relation to other MDBs, have strengthened even further in 2003. Buoyed by the solid financial position, the Board of Directors has recommended the allocation of 64 percent of the operating income for financing important development initiatives, including HIPC and the post-conflict initiative,
It is also worth noting that in recognition of the solid financial position of the Bank as well as the strong shareholder support, Standard and Poor’s in July 2003 upgraded the Bank’s credit rating to “AAA” with a stable outlook, from “AA+”. As a result, the Bank now enjoys the highest possible credit ratings from all four rating agencies, Moody’s, the Japan Credit Rating Agency, Fitch IBCA and S&P. The confidence of the capital markets was further evidenced by the Bank’s successful launch of its first $1 billion global bonds issue in 2003. I am pleased to note that the issue was well received by both institutional and private investors.
Ladies and Gentlemen,
Let me conclude by noting the significant parallel changes that have taken place in our regional member countries as well as in the African Development Bank. Indeed the two are linked and mutually reinforcing. A strong bank is essential for the development of Africa, and strong African economies in turn underpin the strength of the Bank.
Many of our countries have indeed come a long way in reforming their economic structures, institutions and policies. Those that have gone the furthest are now clearly reaping the benefits, as evidenced by improving economic fundamentals, high economic growth rates and significant reductions in poverty. And with the return of peace to many of the countries that were for a long time in conflict, they too can now hold on to the promise that sound policies and reforms would indeed lead to improved economic circumstances.
Your Bank Group has undergone a similar and profound transformation. It is now a more focused institution; it has built up its institutional capacity; it has attracted some of the best minds on the continent and beyond; and it is now financially sound. When viewed from the perspectives of 1994, I am sure we would all agree that the Bank Group has indeed come a long way.
The progress that the Bank has made is in large part due to the continued strong support of its shareholders and, in this regard, I would like to express my deep gratitude to our Honorable Governors and to our Boards of Directors. The progress is also due to the continued support of ADF donors as well as the strong partnership it has established with the World Bank, the IMF, the European Union, the UN agencies and bilateral donors. I would like to thank them all for the fruitful partnership and solid support. In addition, I would like to commend the staff of the Bank for their dedication and hard work.
With the continued support of its shareholders and its partners, I am confident that the African Development Bank Group will continue to be a major player in helping its regional member countries seize the bright future that surely lies before them.
I thank you for your kind attention.