tag:theconversation.com,2011:/au/topics/african-development-bank-17956/articlesAfrican Development Bank – The Conversation2022-02-24T15:01:02Ztag:theconversation.com,2011:article/1776432022-02-24T15:01:02Z2022-02-24T15:01:02ZSouth Africa and international financial institutions: a liaison group could recalibrate relations<figure><img src="https://images.theconversation.com/files/447744/original/file-20220222-13-f65vjm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa has borrowed US$7bn from international financial institutions since the start of COVID.</span> <span class="attribution"><span class="source">Beata Zawrzel/NurPhoto via Getty Images</span></span></figcaption></figure><p>Since the onset of the COVID pandemic in 2020, South Africa has borrowed a total of about US$7 billion (about R106 billion). The money has come from the <a href="https://www.imf.org/en/News/Articles/2020/07/27/pr20271-south-africa-imf-executive-board-approves-us-billion-emergency-support-covid-19-pandemic">International Monetary Fund</a>, the <a href="https://www.news24.com/fin24/companies/health/sa-gets-new-1bn-loan-from-brics-bank-to-support-economic-recovery-20210408">New Development Bank</a>, the <a href="https://www.afdb.org/en/news-and-events/press-releases/south-africa-african-development-bank-approves-first-ever-crisis-response-budget-support-r5-billion-fight-covid-19-36964">African Development Bank</a>, and the <a href="https://www.worldbank.org/en/news/press-release/2022/01/20/south-africa-s-covid-19-response-gets-a-750-million-boost#:%7E:text=WASHINGTON%2C%20January%2020%2C%202022%20%E2%80%94,development%20policy%20loan%20(DPL)">World Bank</a>. </p>
<p>The country has assumed these debts without any transparent or accessible process of public consultation or publicly available studies of the expected impacts of these loans on poverty, public health, job creation and social welfare in the country.</p>
<p>This is concerning. The government’s obligation to repay these loans has financial, economic, social and possibly political implications for all South Africans. It could affect how much money the government can spend in the future on creating jobs, dealing with poverty and inequality in South Africa and on supporting the just transition to a carbon free economy.</p>
<p>It could also change the relationship between South Africa and these institutions, known collectively as the international financial institutions (IFIs). Instead of being merely organisations from which South Africa can obtain technical advice, they are now important creditors of the country. This can influence the balance of bargaining power and the tone of the government’s engagements with these institutions. It may also have important implications for South Africa’s long-standing efforts, together with partners in Africa, the <a href="https://infobrics.org/">BRICs</a>, and <a href="https://www.g77.org/doc/">G77</a> to <a href="https://www.pulp.up.ac.za/images/pulp/books/edited_collections/foreign_policy/SA%20Foreign%20Policy%20Book%20Chapter%2010.pdf">promote fairer governance of the global economy</a>.</p>
<p>A group of civil society organisations and academics, including myself, have responded to these concerns by proposing that <a href="https://www.timeslive.co.za/sunday-times/opinion-and-analysis/opinion/2022-02-20-sas-international-loans-an-open-letter-to-enoch-godongwana/">the government establish a South African IFI Engagement Group</a>. We maintain that such a group will enhance the efficacy of South Africa’s relations with the international financial institutions. This in turn should help the country extract the maximum possible benefit from its membership in these organisations while minimising the associated costs.</p>
<h2>How it would work</h2>
<p>Controversies relating to international financial institutions finance have two components. </p>
<p>The first focuses on the borrowing government’s own decisions and actions. Formally, the international financial institutions only provide financing to support the policies or the projects that the government is promoting. This means, for example, that the South African government decides on its policy response to the COVID-19 pandemic, and then decides that it will borrow money from the IMF or the African Development Bank to support this response. </p>
<p>Similarly, the state power utility Eskom and the government decide to build the <a href="https://www.eskom.co.za/eskom-divisions/gx/coal-fired-power-stations/medupi-projects/">Medupi coal-fired power plant</a> and then approach the World Bank <a href="https://documents1.worldbank.org/curated/en/945661577445675366/pdf/Disclosable-Restructuring-Paper-Eskom-Investment-Support-Project-P116410.pdf">to fund the project</a>.</p>
<p>Consequently, the government is the appropriate target of any criticism of these decisions. This includes its decision to accept the terms on which the institutions offer the financing.</p>
<p>The second set of considerations relate more to the international financial institutions’ own responsibilities. Most have policies that inform both their staff and the public about how they will assess and manage the impacts of the projects and programmes they finance. </p>
<p>For example, the local communities may contend that they have been harmed because the World Bank did not comply with its own policies <a href="https://www.worldbank.org/en/news/press-release/2012/05/25/world-bank-board-discusses-inspection-panel-report-on-south-africas-eskom-investment-support-project">when it made the decision to fund Medupi</a>. </p>
<p>The South African government is clearly not responsible for these decisions by the international financial institutions even though they directly affect communities. Nevertheless, it should have an interest in learning about these community concerns. Communities are not passive participants in the policies and programmes promoted by the government. They can influence their success and can complicate the government’s ability to access financing.</p>
<h2>A solution</h2>
<p>One way for the government to mitigate these risks is to create an engagement group.</p>
<p>The aim of the group would be to facilitate an exchange of views between the government and interested civil society stakeholders about the country’s relations with the international financial institutions.</p>
<p>The members of such a group would include representatives of National Treasury, other government departments and civil society. The civil society representatives would be selected from a range of organisations. These could include think tanks, and trade unions, interested in international financial institutions issues. </p>
<p>To promote a frank and open exchange of ideas, these meetings should be held under <a href="https://www.chathamhouse.org/about-us/chatham-house-rule?gclid=CjwKCAiAsNKQBhAPEiwAB-I5zdyxXCa4zr9HMMPlCEoGLr-RzbqwKEL23kCsjQWb50aOnV3WJahgtBoCVdIQAvD_BwE">Chatham House rules</a>. These are that those at the meeting can share the information they receive, but they don’t reveal the identity of who said it.</p>
<p>The agenda for the meetings could include any issue relating to South Africa’s engagement with any of the institutions in which South Africa is a member.</p>
<p>The group could provide a mechanism through which government could learn about concerns of affected communities before it finalises its borrowing plans. Or before they become potential threats to the success of a project. </p>
<p>For example, the civil society representatives would be in a better position to learn from local communities what their views are about a proposed renewable energy project to be funded by international financial institutions. They may be strongly opposed because they suspect that the jobs created by the project require skills that the community does not have. They may also be concerned that construction would adversely affect their current income generating activities. </p>
<p>The engagement group would provide both the government and the local communities with a forum in which to discuss these concerns. This would help the government develop a more accurate assessment of the risks and benefits of the project. In turn, this would enable it to make a more informed decision about whether to borrow the money. </p>
<p>It could also educate the civil society representatives about the rationale for the project. This would help the local communities and their supporters make more informed decisions about the project.</p>
<p>Another example is that one of the international financial institutions may be considering changing its policies on climate change, and need member state approval for the changes. The engagement group would provide a forum in which government can learn about the views of non-state actors. This would help the government make informed decisions. It would also help South African representatives advocate more persuasively for the government’s position at the institutions.</p>
<h2>Precedents</h2>
<p>Such engagement groups are not unprecedented. They exist in countries such as the US and the Netherlands. They operate informally and have not been written about. But in our engagements with individuals involved in them – or who have worked with them – we learnt that they have contributed to enhancing the efficacy of their country’s engagements with the institutions as well as promoting accountability and operational reforms.</p>
<p>There is no reason to think that a South African engagement group would be any less effective in enhancing the efficacy of the country’s engagement with these institutions. In fact, it would contribute to the president’s <a href="https://theconversation.com/south-africans-are-feeling-more-insecure-do-ramaphosas-plans-add-up-176991">stated aim</a> of forging a stronger bond between government and society so that they can all work to create a more just and equal society.</p><img src="https://counter.theconversation.com/content/177643/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow SARCHI chair is funded by the National Research Foundation. His current research is funded by Oxfam SA and the Open Society Initiative of Southern Africa.</span></em></p>A liaison group with large financial institutions has worked in the US and the Netherlands.Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1721782021-11-26T13:21:14Z2021-11-26T13:21:14ZAfrican development banks need scale, urgently. Here’s how it can be done<figure><img src="https://images.theconversation.com/files/434122/original/file-20211126-15-j8nx86.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The African Development Bank Group headquarters in Le Plateau, the business district of the Ivorian capital Abidjan.</span> <span class="attribution"><span class="source">Issouf Sanogo /AFP via Getty Images</span></span></figcaption></figure><p>Developing countries in general, and African countries in particular, confront an enormous financing challenge to meet the UN’s sustainable development goals. This financing gap featured prominently at the 2021 United Nations climate change conference (<a href="https://ukcop26.org/cop26-goals/finance/">COP26</a>) and has been intensified by the impacts of the COVID-19 pandemic. </p>
<p>Even prior to COVID-19 the prospects of mobilising the annual US$2.5 trillion needed to meet the sustainable development goals by 2030 was <a href="https://www.lse.ac.uk/granthaminstitute/news/how-to-finance-a-global-green-new-deal/">rapidly receding</a> despite a global savings and liquidity glut.</p>
<p>The bulk of funding is needed to close gaps in electricity, transport and water <a href="https://unctad.org/osgstatement/unctad-economic-development-africa-report-2020-press-conference">infrastructure</a>. This must be done in ways that place the continent on a decisive trajectory towards net zero emissions. At the same time, substantial funding is required for <a href="https://www.project-syndicate.org/commentary/african-free-trade-area-ignores-limited-capacity-by-nimrod-zalk-1-2021-04">agricultural modernisation and greener industrialisation</a>.</p>
<p>The moral case for international provision of large-scale concessional funding to Africa is overwhelming. Countries on the continent are projected to feel the impacts of climate change the most. This is despite the fact that they account for a <a href="https://oecd-development-matters.org/2021/01/04/europe-and-africa-need-to-see-eye-to-eye-on-climate-change/">minuscule share</a> of cumulative global carbon dioxide emissions.</p>
<p>Climate funding from multilateral development banks has been growing. But it comes nowhere near the estimated annual African financing gap of <a href="https://unctad.org/osgstatement/unctad-economic-development-africa-report-2020-press-conference">$200 billion</a> to meet the development goals. Figures for the whole continent are not readily available. But the <a href="https://www.afdb.org/en/documents/financing-sustainable-development-goals-contributions-multilateral-development-banks">$7.4 billion of commitments by multilateral development banks</a> to sub-Saharan African countries in 2019 is reflective of the scale of the gap. </p>
<p>Ambitious recommendations have gained little traction. These include the proposal by the <a href="https://www.un.org/development/desa/financing/post-news/2021-financing-sustainable-development-report-released">UN’s Task Force on Financing for Development</a> for the development of long-term financing instruments. An example is the 40-50 year bonds, necessary to fund a global <a href="https://www.annpettifor.com/topics/green-new-deal/">Green New Deal</a>.</p>
<p>Emphasis is also being placed on the role of <a href="https://www.oecd.org/dac/financing-sustainable-development/blended-finance-principles/">“blended finance”</a> to plug the financing gap by leveraging scarce low-cost funding via multilateral development banks and overseas development assistance. In the World Bank’s conceptualisation, billions of dollars of such concessional funding can be used to attract trillions of private investment by reducing the risk of projects aligned with the sustainable development goals to render them attractive to private investors.</p>
<p>But blended finance projects have <a href="https://www.economist.com/finance-and-economics/2020/08/13/blended-finance-is-struggling-to-take-off">failed to take off</a> at scale. They have only reached about $20 billion per annum for all developing countries combined.</p>
<p>In my view, far more effort is needed to increase the capacity of African national and regional development banks to mobilise public and private investment for structural transformation.</p>
<p>This has been done successfully <a href="https://www.ucl.ac.uk/bartlett/public-purpose/patient-finance-state-investment-banks-and-public-finance">elsewhere in the world</a>. Examples include the European Investment Bank, Germany’s KfW, Brazil’s BNDES and China’s policy banks.</p>
<h2>The potential</h2>
<p>Development banks have played a <a href="https://unctad.org/webflyer/role-development-banks-promoting-growth-and-sustainable-development-south">pivotal role</a> in mobilising long-term finance for industrialisation, developing new industries and project de-risking through developing capabilities to undertake project development, implementation and monitoring. </p>
<p>Effective development banks act as important voices for shaping favourable economic policy for productive investments. They crowd in private finance directly and unlock private investment up and down-stream from catalytic projects.</p>
<p>Africa in fact has a <a href="https://www.afd.fr/en/ressources/identifying-and-classifying-public-development-banks-and-development-finance-institutions">lot of development banks</a>. There are 95 of them, representing 21% of national and regional banks worldwide. But a <a href="https://odi.org/en/publications/financial-performance-and-corporate-governance-evidence-from-national-development-banks-in-africa/">handful dominate</a> assets and financing. They are the regional African Development Bank and African Export and Import Bank (Afreximbank) and national banks in Morocco, South Africa and Egypt. </p>
<p>The rest are mostly small and under-capitalised. Hence African development banks collectively account for <a href="https://www.fitchratings.com/research/banks/the-revival-of-african-national-development-banks-19-04-2021">only 1%</a> of development bank assets worldwide.</p>
<p>African countries cannot afford to tread water waiting for the global multilateral and private financing system to become more equitable or responsive – although they do need to fight for this in the medium to long term. Rather they should rapidly raise the capitalisation of their development banks to enable higher levels of lending. </p>
<p>How is this to be achieved when <a href="https://www.imf.org/en/News/Articles/2021/06/23/sp062321-the-road-ahead-for-africa-fighting-the-pandemic-and-dealing-with-debt">public debt</a> in sub-Saharan Africa is at a two-decade high and viewed as unsustainable by ratings agencies and multilateral finance institutions? </p>
<h2>What needs to be done</h2>
<p>First, there is a strong case for the consolidation of fragmented and under-capitalised national banks into larger sub-regional development banks. </p>
<p>Second, shareholding from other development banks in the global south with proven scale and expertise should be encouraged. A prominent example is the New Development Bank. Founded by Brazil, Russia, India, China and South Africa in 2014, it has rapidly <a href="https://www.economist.com/finance-and-economics/2018/09/29/the-beleaguered-brics-can-be-proud-of-their-bank">scaled up loans</a> to member countries.</p>
<p>Third, proceeds from periodic commodity booms need to directed towards development banks. And there needs to be a clamp down on illicit financial flows. </p>
<p>Fourth, governments can lower the cost of borrowing by guaranteeing repayment of bonds issued by their development banks.</p>
<p>Fifth, budgetary transfers at appropriate points in the sovereign debt cycle should not be ruled out. </p>
<p>Finally, if central banks are serious about ensuring long term financial stability they need to support financing instruments that address long term social and climate risks. For instance, they can lower the cost of climate finance by purchasing <a href="https://cdn.odi.org/media/documents/ODI_role_of_central_banks_in_tackling_climate_change.pdf">green bonds</a>.</p>
<h2>Added bonuses</h2>
<p>The scaling up and consolidation of African development banks would also improve governance and developmental capacity. A broader range of shareholders would make it more difficult for crude <a href="https://odi.org/en/publications/financial-performance-and-corporate-governance-evidence-from-national-development-banks-in-africa/">political appointments</a> at managerial level that are closely associated with poor performance. Other Southern development banks bring technical expertise critical to building capabilities needed to de-risk projects, including project development, monitoring and enforcement. </p>
<p>In addition, the scaling up of African development banks could well induce multilateral development banks to raise their own financing efforts in Africa.</p>
<p>Rather than crowding out private financing, the scaling up of African development banks offers the most promising route to attract long-term private finance to achieve the sustainable development goals and structural transformation.</p>
<p><em>A version of this article was first published by <a href="https://blogs.lse.ac.uk/businessreview/recent-posts/">LSE Business Review</a> under the heading, <a href="https://blogs.lse.ac.uk/businessreview/2021/11/17/africas-development-banks-the-urgent-need-for-scale/">Africa’s development banks: the urgent need for scale</a>.</em></p><img src="https://counter.theconversation.com/content/172178/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nimrod Zalk does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>African countries can’t afford to tread water waiting for the global multilateral and private financing system to become more equitable.Nimrod Zalk, Associate Professor at the Nelson Mandela School of Public Governance, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1159272019-04-29T10:37:57Z2019-04-29T10:37:57ZEntrepreneurship funds in Africa: distinguishing the good from the bad<figure><img src="https://images.theconversation.com/files/271157/original/file-20190426-61887-1xli7gx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Access to finance is consistently listed as the biggest obstacle for start-ups Africa.</span> <span class="attribution"><a class="source" href="https://creativecommons.org/licenses/by-sa/4.0">Wikimedia Commons/The Wot-If? Trust</a></span></figcaption></figure><p>Entrepreneurs have a pivotal role to play in Africa’s unemployment crisis. Today over a third of the continent’s young workforce (those aged 15-35) are <a href="https://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Africa%20Capacity%20Dev%20Brief_Africa%20Capacity%20Dev%20Brief.pdf">unemployed</a>. Another third are in vulnerable employment. By 2035, Africa will contribute more people to the workforce each year than the rest of the world combined. By 2050 it will be home to 1.25 billion people working aged.</p>
<p>To absorb these new entrants, Africa needs to <a href="https://www.imf.org/%7E/media/Websites/IMF/imported-flagship-issues/external/pubs/ft/reo/2015/afr/eng/pdf/_sreo0415pdf.ashx">create over 18 million new jobs each year</a>. Governments need to put in place policies that drive economic growth and competitiveness. These in turn, will enable the growth of small and medium-sized enterprises (SMEs). This is important because they currently play a significant role in low-income countries, representing nearly <a href="https://www.weforum.org/agenda/2016/05/lessons-in-entrepreneurship-from-two-of-africa-s-most-successful-business-leaders/">80% of jobs. They are also responsible for 90% of new ones created each year</a>. </p>
<p>The challenge for countries is how to support the growth of SMEs. Various African governments have experimented with ways to help address the <a href="https://www.lseg.com/sites/default/files/content/documents/Africa_SMEfinancing_MWv10.pdf">US$140 billion funding gap for startups and SMEs</a>. For example, one approach has been to set up entrepreneurship funds.</p>
<p>Based on my experience of watching their performance over the past 18 years, I would issue some words of caution. Some entrepreneurship support models work better than others. And how they are set up – particularly the governance structures put in place to manage them – is key to their success, or failure.</p>
<h2>Funding gap</h2>
<p>Access to financing is consistently listed as the <a href="https://www.brookings.edu/blog/africa-in-focus/2018/11/30/figures-of-the-week-financing-for-small-and-medium-sized-enterprises-in-sub-saharan-africa/">biggest obstacle to business for SME’s in African countries</a>. They often face double digit interest rates from local banks. And venture capital penetration is still extremely low. Top end <a href="https://weetracker.com/2019/01/04/what-a-year-the-state-of-venture-capital-in-africa-2018/">2018 estimates put it at about $725 million</a> for the whole continent. </p>
<p>To tackle the problem, African countries continue to start new entrepreneurship funds. In July 2017 <a href="http://www.ghana.gov.gh/index.php/news/3837-govt-launches-national-entrepreneurship-programme">Ghana launched the National Entrepreneurship and Innovation Plan</a>. The aim is to provide integrated national support for start-ups and small businesses. </p>
<p>Almost a year later, Rwanda secured a <a href="https://www.afdb.org/en/news-and-events/rwanda-innovation-fund-project-to-receive-us-30-million-loan-from-african-development-bank-17956/">$30 million loan from the African Development Bank</a> for the establishment of the Rwandan Innovation Fund. This will focus on investments in tech-enabled SMEs.</p>
<p>As new funds are started, African countries must look to the successes and failures of both global and regional funds to replicate best practices and avoid common pitfalls. African governments should explore replicating models similar to <a href="https://www.seaf.com/overview/">Small Enterprise Assistance Funds</a> and the <a href="https://www.foreignaffairs.com/articles/2001-09-01/doing-good-while-doing-well-unheralded-success-american-enterprise-funds">USAID backed enterprise funds</a>. Both include robust investment selection criteria for funds. </p>
<p>In doing so, African government-backed entrepreneurship funds would operate as fund-of-funds – where a fund invests in another private equity or venture fund rather than directly in businesses themselves – as do many development finance institutions globally such as the UK’s CDC or FMO of the Netherlands.</p>
<h2>The what and the how</h2>
<p>The <a href="https://ecdpm.org/great-insights/financing-development/public-funds-commercial-capital-ifc-catalyst-fund/">fund of funds structure</a> creates an arm’s length relationship between the government agency that houses the entrepreneurship fund and the businesses that eventually receive investment. In between, sits a professional fund manager that earns the majority of its income from making good investments, growing companies and exiting them after a period of five to seven years. In this way, there are natural disincentives for corruption and market-based selection criteria for the entrepreneurs who receive investment. </p>
<p>How the fund managers are selected also matters. To ensure true investment independence from the government, fund managers and board members must be chosen in a transparent and competitive process. And once selected, representatives of the government entrepreneurship fund agency can sit on the investment committee for oversight purposes but should respect the fund managers’ independent decision-making. </p>
<p>There are examples of funds being set up without the necessary independent, accountable fund managers. One is the YouWin program in Nigeria. Created in 2016, it was set up to help youth entrepreneurs grow businesses. But <a href="http://saharareporters.com/2017/03/28/probe-uncovers-massive-fraud-youwin-program">senior civil servants handed out awards to friends and relatives</a>.</p>
<p>Government supported fund managers through the FoF model can also catalyse additional investment. By operating in markets and sectors often ignored by traditional private equity funds, Small Enterprise Assistance Funds and enterprise funds have mobilized additional <a href="https://csis-prod.s3.amazonaws.com/s3fs-public/publication/180907_TimeForAThird.pdf?08YeHSkQpRymhFHkPjZmG39bX55Bhrc9">capital for investment-starved companies.</a> African government-backed entrepreneurship funds could do the same by participating in blended finance deals with development finance institutions, social-impact investment funds, local banks and other market players to back growing firms.</p>
<h2>Measuring success</h2>
<p>While not actively managing the funds’ portfolio investments, governments have a key role to play in guiding the funds priorities. Priorities may vary by country and given Africa’s growing rates of unemployment, funds should prioritise job creation by evaluating investment on key performance indicators. These would include the number of jobs created per dollar invested, indirect jobs created per dollar invested, and average salary of job. In addition to job creation, governments can direct funds to focus on specific sectors either in need of increased capital or high-growth areas in local economies.</p>
<p>Beyond establishing investment criteria, government-backed funds should prioritise rigorous measurement of investment results and long-term data tracking to inform future investment decisions. The UK British Bank regional growth fund found the cost per job created varied considerably by project <a href="https://www.nao.org.uk/report/the-regional-growth-fund/">from £4,000 to over £200,000</a>. It concluded that a better allocation of funds could have led to thousands more jobs created for the same resources. </p>
<p>Data driven investments can not only lead to a better results, but further curtail issues around potential mismanagement of funds.</p>
<p>Tackling Africa’s job creation challenge requires innovative thinking and initiatives that support private sector-led growth. Looking to the model of Small Enterprise Assistance Funds and enterprise funds, African governments can spur local ecosystems and drive new private capital to regions today seen as unfriendly or too risky to outside investors. </p>
<p>Properly structured investments today could yield much larger dividends tomorrow.</p><img src="https://counter.theconversation.com/content/115927/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Aubrey Hruby does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Some entrepreneurship support models work better than others. Governance and structure is key to their success, or failure.Aubrey Hruby, Senior Fellow, Africa Center, Georgetown UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/842292017-09-20T14:17:17Z2017-09-20T14:17:17ZBRICS needs a new approach if it’s going to foster a more equitable global order<figure><img src="https://images.theconversation.com/files/186830/original/file-20170920-16391-6hkn42.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Brazilian President Temer, Russian President Putin, Chinese President Xi Jinping, South Africa's President Zuma and Indian Prime Minister Modi.
</span> <span class="attribution"><span class="source">Reuters/Kenzaburo Fukuhara</span></span></figcaption></figure><p>The formation of the <a href="http://economictimes.indiatimes.com/articles/brics-and-the-new-emerging-economic-order/brics_show/53946132.cms">BRICS</a> – the bloc made of Brazil, Russia, India, China and South Africa – was supposed to be the harbinger for a new approach to global economic governance. The leading emerging markets and developing countries were becoming major players in the global economy. And they expected to play a commensurate governance role. </p>
<p>BRICS leaders have now been meeting annually for nine years. They recently met for the <a href="https://brics2017.org/English/">ninth BRICS Summit</a> in Xiamen, China. They have positioned themselves as a force for <a href="https://brics2017.org/English/Documents/Summit/201709/t20170908_2021.html">transforming</a> global economic governance so that it’s more responsive to the concerns of developing economies. They are seeking a more just and equitable global economy. </p>
<p>The question is: how effective have they been in reforming global economic governance and the fairness of the global economy? </p>
<p>The honest answer is that as a group, BRICS hasn’t been an effective force at all. This is for a number of reasons.</p>
<h2>What’s not happened</h2>
<p>The following examples illustrate the point. </p>
<p>At least formally the G20, which consists of 20 major economies including the five in BRICs, has supplanted the G7, made up of Canada, France, Germany, Italy, Japan, the UK and the US, as the premier forum for global economic governance. But the agenda in these meetings is still largely set by the most powerful countries which now include China but not the other BRICS. </p>
<p>The IMF and World Bank have both changed their voting arrangements to give a louder voice to developing economies and emerging economies. This has particularly benefited China, India and Brazil. But BRICS hasn’t supported South Africa’s call for a third African seat on the board of the IMF. This has left Africa as the most underrepresented region on the board.</p>
<p>BRICS countries, together with other G20 developing countries, have become more active participants in organisations responsible for developing international financial regulatory standards. This means that they now can participate in the writing of standards that guide the international financial system. But the system continues to be more responsive to the interests of the rich and powerful than those of the developing world. </p>
<p><a href="http://www.saiia.org.za/opinion-analysis/the-brics-new-development-bank-and-contingent-reserve-arrangement-at-a-glance">New international financial institutions</a> have been created, including the BRICS’ New Development Bank and the Contingent Reserve Arrangement, which provides financial support for BRICS countries experiencing balance of payments problems. Unfortunately, the New Development Bank operates in a less transparent and less accountable way than other multilateral development banks. For example, it’s harder for outsiders to access information on the operational policies and practices of the bank than those of the World Bank or the African Development Bank. Unlike those other banks, there isn’t yet a mechanism to hold the New Development Bank accountable if it causes harm. </p>
<p>The New Development Bank also risks repeating the tragic mistakes of these other institutions, which for many years concentrated only on economic issues in their operational decision making. Following a number of scandals they began to pay more attention to the social, human rights and environmental impact of their operations.</p>
<p>Members of the New Development Bank seem to share this concern. The BRICS leaders have reiterated their commitment to achieving</p>
<blockquote>
<p>sustainable development in its three dimensions - economic, social and environmental- in a balanced and integrated manner.</p>
</blockquote>
<p>But it’s hard to see how they expect the bank to meet this commitment if it continues to place more emphasis on speed in project implementation than on identifying and managing the adverse environmental, human rights and social effects of its projects. To fulfil their commitment to promote a more just and equitable global economy the BRICS will need to up their game. </p>
<h2>How to fix the problem</h2>
<p>Achieving a just and equitable international economic order requires governments to take seriously their commitment to protect and promote human rights as set out in the UN Charter and other human rights treaties. </p>
<p>The starting point is a commitment to respect and promote the rights of each individual affected by each project, programme or policy that governments undertake or support. This requires developing a good system to forecast the impact of a project on the environment, society as well as human rights. And to have a plan to manage them.</p>
<p>Another element is accountability. Any person adversely affected by a project should have access to a mechanism that can provide them with an effective remedy. </p>
<p>Finally, the relevant decision makers must be able to show how their proposed activity is using the maximum available human and financial resources to fulfil the human rights of all the people affected by their decisions. This suggests that the relevant decision makers bear the burden of explaining why the proposed allocations are the most feasible. This includes governments, international organisations as well as private parties. </p>
<p>There are reasons to think the BRICS leaders could be persuaded to adopt a human rights based approach to making global economic governance more democratic and responsive to the needs of developing countries and for a more just, equitable and sustainable global economy. They, and their colleagues in other developing countries, are governing societies with continuing, and some cases worsening poverty, inequality, unemployment and environmental degradation levels. And they don’t seem to have an effective strategy for meeting this challenge.</p><img src="https://counter.theconversation.com/content/84229/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow receives funding from the National Research Foundation, which funds his SARCHI chair. </span></em></p>The promise of BRICS was that it would usher in a new approach to development. But after meeting annually for the last nine years there’s no sign that the old order has been challenged.Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/763652017-04-23T10:20:43Z2017-04-23T10:20:43ZIt’s time to lift the ideological haze in debates about Africa’s middle class<figure><img src="https://images.theconversation.com/files/166142/original/file-20170420-20050-7nf56g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The middle classes in the Global South gained growing attention since the turn of the century, mainly through their rapid ascendancy in the Asian emerging economies. A side effect of the economic growth during these ‘fat years’ was a relative increase of monetary income for a growing number of <a href="http://www.worldbank.org/en/news/press-release/2015/10/04/world-bank-forecasts-global-poverty-to-fall-below-10-for-first-time-major-hurdles-remain-in-goal-to-end-poverty-by-2030">households</a>.</p>
<p>This also benefited some lower income groups in resource-rich African economies. Many among these crossed the defined poverty levels, which were raised in late 2015 from US$ 1.25 a person a day to <a href="https://www.theguardian.com/global-development-professionals-network/2015/nov/01/global-poverty-is-worse-than-you-think-could-you-live-on-190-a-day">US$ 1.90</a>. As some economists had suggested, from as little as US$2 they were considered as entering the <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/4013/WPS4816.pdf">“middle class”</a>. </p>
<p>The ominous term was rising like a phoenix from the ashes to characterise this trend. It added another label to the packaging of a <a href="https://www.socialeurope.eu/2013/11/neoliberal-discourse-learning/">neo-liberal discourse</a>. By emphasising the free market paradigm as creating the best opportunities for all, it suggests that everyone benefits from a <a href="https://global.britannica.com/topic/neoliberalism">laissez-faire economy</a>.</p>
<p>But the middle class concept remained vague and limited to number crunching. The minimum threshold for entering a so-called middle class in monetary terms was critically vulnerable to a setback into impoverishment. After all, one sixth of the world’s population has to make a fragile living on US$ 2 to 3 a day.</p>
<p>The African Development Bank played a defining role in promoting the debate. Using the US$2 benchmark, it declared some 300 million Africans (about a third of the continent’s population) as <a href="http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/The%20Middle%20of%20the%20Pyramid_The%20Middle%20of%20the%20Pyramid.pdf">being middle class</a> in 2011. A year later it expanded its guesstimates to 300 million to 500 million. It also set them up as being very important.</p>
<p>Such monetary acrobatics aside, the analytical deficit which characterises such classification is seriously problematic. The so-called middle class appears to be a “muddling class”. Rigorously explored differentiation remained largely absent – not to mention any substantial class analysis. Professional activities, social status, cultural, ethnic or religious affinities or lifestyle as well as political orientations were hardly (if at all) considered.</p>
<p>But lived experiences matter if one is in search of how to define a middle class as an array of collective identities. Such necessary debate has in the meantime arrived in <a href="https://globalmiddleclasses.wordpress.com/2017/01/11/the-middle-class-in-africa-comparative-perspectives-and-lived-experiences/#more-259">African studies</a>. And the claim to ownership is also reflected in a just published <a href="http://witspress.co.za/catalogue/the-rise-of-africas-middle-class/%20and%20https://www.zedbooks.net/shop/book/the-rise-of-africas-middle-class/">volume</a> that documents the need to deconstruct the mystification of the middle class being declared as the torchbearers of progress and development.</p>
<h2>Politics, economic growth and the middle class</h2>
<p>As alerted in a paper by <a href="https://www.wider.unu.edu/sites/default/files/wp2014-101.pdf">UNU-WIDER</a>, a new middle class as a meaningful social actor does require a collective identity in pursuance of common interests. Once upon a time this was called <a href="http://study.com/academy/lesson/karl-marx-theory-of-class-consciousness-and-false-consciousness.html">class-consciousness</a>, based on a “class in itself” while acting as a “class for itself”. After all, which “middle” is occupied by an African “middle class”, if this is not positioned also in terms of class awareness and behaviour?</p>
<p>Politically such middle classes seem not as democratic as many of those singing their praises assume. Middle classes have shown ambiguities - ranging from politically progressive engagement to a status-quo oriented, conservative approach to policies (if being political at all). African realities are not different.</p>
<p>In South Africa, the only consistency of the black middle class in historical perspective is its political inconsistency, as political scientist Roger Southall has <a href="https://www.cambridge.org/core/services/aop-cambridge-core/content/view/S0022278X14000445">suggested</a>. They are no more likely to hold democratic values than other black South Africans. In fact, they are more likely to want government to secure higher order needs such as proper service delivery, infrastructure and rule of law according to their <a href="https://theconversation.com/survey-sheds-light-on-who-marched-against-president-zuma-and-why-76271">living circumstances</a> rather than basic, survival needs.</p>
<p>It remains dubious that middle classes in Africa by their sheer existence promote economic growth. Their increase was mainly a limited result of the trickle down effects of the resource based economic growth rates during the first decade of the 21st century since then in decline. This had hardly economic potential stimulating productive investment that contributes towards sustainable economic growth.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/166094/original/file-20170420-20093-1h9tmoc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/166094/original/file-20170420-20093-1h9tmoc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=388&fit=crop&dpr=1 600w, https://images.theconversation.com/files/166094/original/file-20170420-20093-1h9tmoc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=388&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/166094/original/file-20170420-20093-1h9tmoc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=388&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/166094/original/file-20170420-20093-1h9tmoc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=488&fit=crop&dpr=1 754w, https://images.theconversation.com/files/166094/original/file-20170420-20093-1h9tmoc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=488&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/166094/original/file-20170420-20093-1h9tmoc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=488&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Doubt shrouds claims that a growing middle class benefits the poor.</span>
<span class="attribution"><span class="source">Reuters/Mike Hutchings</span></span>
</figcaption>
</figure>
<p>There’s also little evidence of any correlation between economic growth and social progress, as a working paper of the IMF <a href="https://www.imf.org/external/pubs/ft/wp/2013/wp1353.pdf">concludes</a>. While during the “fat years” the poor partly became a little less poor, the rich got much richer. Even the African Development Bank admits that the income discrepancies as measured by the Gini-coefficient have increased, while six among the ten most unequal countries in the world <a href="https://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/ADER%202012%20(En).pdf">are in Africa</a>.</p>
<p><a href="https://www.cgdev.org/expert/nancy-birdsall">Nancy Birdsall</a>, president emeritus of the Centre for Global Development, is among the most prominent advocates and protagonists of the middle class. She argues in support of a middle class rather than a pro-poor developmental orientation. But even she concedes that a sensible political economy analysis needs to differentiate between the rich with political leverage and <a href="http://www.sabc.co.za/news/a/9a5242004ce34374a4d9bf271348019a/Africa%E2%80%99s-rising-middle-class:-time-to-sort-out-fact-from-fiction-20162505">the rest</a>.</p>
<p>She remains nevertheless adamant that the middle class is an ingredient for good governance. This is based on her assumption that continued economic growth reduces inequalities. She further hypothesises that a growing middle class has a greater interest in an accountable government and supports a social contract, which taxes it as an investment into collective public goods to the benefit of <a href="http://www.palgrave-journals.com/ejdr/journal/v27/n2/full/ejdr20153a.html">also the poor</a>. <a href="http://www.palgrave-journals.com/ejdr/journal/v27/n2/pdf/ejdr20153a.pdf">Dream on</a>!</p>
<h2>Time to lift the ideological haze</h2>
<p>It remains necessary to put the record straight and lift the ideological haze. Already the United Nations Development Programme’s Human Development <a href="http://hdr.undp.org/en/2013-report">2013 report</a>, which also promoted the <a href="http://d-nb.info/1045939153/34">middle class hype</a>, predicted that 80% of middle classes would come from the global South by 2030, but only 2% from Sub-Saharan Africa. </p>
<p>Recent assessments claim that it’s not the middle of African societies which expands, but the lower and higher social groups.</p>
<p>According to a report by the <a href="http://www.pewglobal.org/2015/07/08/a-global-middle-class-is-more-promise-than-reality/">Pew Research Centre</a> only a few African countries had a meaningful increase of those in the middle-income category. </p>
<p>And the Economist, which earlier shifted its doomsday visions of a “Hopeless Continent” towards <a href="https://www.howwemadeitinafrica.com/how-the-economist-changed-its-tune-on-africa/">“Africa Rising”</a> and the <a href="http://www.economist.com/news/special-report/21572377-african-lives-have-already-greatly-improved-over-past-decade-says-oliver-august">“Continent of Hope”</a>, now concludes that Africans are mainly <a href="http://www.economist.com/news/middle-east-and-africa/21676774-africans-are-mainly-rich-or-poor-not-middle-class-should-worry">rich or poor but not middle class</a>.</p>
<p>Fortunately, the debate has created sufficient awareness among scholars to explore the fact and fiction of the assumed <a href="https://www.giga-hamburg.de/en/publication/africas-new-middle-class">transformative power</a> of a middle class. This also includes the need to be sensitive towards ideological smokescreens which try to make us believe that a middle class is the cure. In reality, little has changed when it comes to leverage and control over social and political affairs. </p>
<p>The current engagement with the African middle class phenomenon is nevertheless anything but obsolete. Independent of their numbers, middle class members signify modified social relations. These deserve attention and analysis with the emphasis on social relations. </p>
<p>Cambridge Economist <a href="https://newleftreview.org/II/78/goran-therborn-class-in-the-21st-century">Göran Therborn</a> stresses that discourse on class is always of social relevance. The boom of the middle class debate is therefore a remarkable symptom of our decade. Social class will remain a category of central importance, and bringing the class back in can do no harm.</p>
<p><em>Henning Melber is the author of <a href="https://www.zedbooks.net/shop/book/the-rise-of-africas-middle-class/">The Rise of Africa’s Middle Class</a>.</em></p><img src="https://counter.theconversation.com/content/76365/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Henning Melber does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The middle class concept in Africa has remained vague and limited to number crunching. The minimum threshold for entering it in monetary terms was critically vulnerable to a setback into poverty.Henning Melber, Extraordinary Professor, Department of Political Sciences, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/593422016-05-15T14:17:13Z2016-05-15T14:17:13ZProtests surge as gap widens between reality and the ‘Africa rising’ narrative<figure><img src="https://images.theconversation.com/files/122480/original/image-20160513-10687-11fi703.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Burkina Faso is among the African countries that have experienced popular protests in recent years.</span> <span class="attribution"><span class="source">Ahmed Yempabou/EPA</span></span></figcaption></figure><p>Self-congratulatory rhetoric keeps springing from the lips of World Economic Forum elites – at the expense of reality.</p>
<p>Software executive Brett Parker <a href="http://www.iol.co.za/business/opinion/wef-leader-series-brett-parker-2019227">claims</a> that “Africa will probably remain natural resources-driven for the next two decades at least.” African Leadership University’s Fred Swaniker <a href="https://www.weforum.org/agenda/2016/05/africa-leaders-new-generation?utm_content=buffer5897f&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer">says</a>, “the Africa Rising narrative presents the most compelling argument for the continent’s prosperity.” </p>
<p>Their statements come at a time when commodity prices have crashed to <a href="http://www.graphic.com.gh/business/business-news/62378-low-commodity-prices-impeding-growth-sub-saharan-africa-report.html">record lows</a>. This has left societies like Nigeria in profound <a href="http://www.nytimes.com/2016/05/10/world/africa/frustration-by-the-hour-as-nigeria-tries-to-cure-long-lines-for-gasoline.html?_r=0">crisis</a>. And in spite of petroleum falling below US$30 per barrel earlier this year and hovering at $40 today, Standard Chartered Bank economist Razia Khan <a href="http://www.observer.ug/business/38-business/42285-uganda-s-oil-still-viable-says-stanchart-s-razia-khan">argues</a> that Uganda should keep pumping scarce investment funds into oil exploration. Production in the country will cost an estimated $70 per barrel. </p>
<p>The 2016 World Economic Forum (WEF) on Africa, hosted in Kigali, claimed the “<a href="https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/">fourth industrial revolution</a>” – the use of “cyberphysical systems” like artificial intelligence, robotics, nanotechnology and biotech – as Africa’s future. This is because the continent is “the world’s fastest-growing digital consumer market”. Yet <a href="http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentMDK:21935594%7EpagePK:146736%7EpiPK:146830%7EtheSitePK:258644,00.html">fewer than a third</a> of sub-Saharan Africans have electricity in their homes. The summit merely reinforced extractive-industry and high-tech myths.</p>
<p>But there is widespread social resistance under way in Africa. Grassroots protesters are questioning the logic of export-led “growth” and renewed fiscal austerity. They are demanding that policies meet their basic needs instead.</p>
<p>Since 2011 the continent has witnessed a dramatic spike in social protests, as <a href="http://www.afdb.org/en/knowledge/publications/african-economic-outlook/">recorded</a> by the African Development Bank. The wave has not receded. The bank said in its 2015 “African Economic Outlook” that there were five times more protests annually between 2011 and 2014 than in 2000. And after the dramatic “Arab Spring” – the 2011 North African democratic uprising that was especially acute in Tunisia, Egypt, Libya and Morocco – protesters picked up the pace in Algeria, Angola, Chad, Gabon, Kenya, South Africa, Uganda and many other countries. </p>
<h2>The power of protests</h2>
<p>Press reports <a href="http://www.afdb.org/en/knowledge/publications/african-economic-outlook/">collated</a> by the bank confirm that almost all protests since 2011 have been about inadequate wages and working conditions, the low quality of public service delivery, social divides, state repression and a lack of political reform. A few examples illustrate the impressive results of recent protests. </p>
<ul>
<li><p>In Mozambique, water and food price hikes in September 2010 <a href="http://www.ids.ac.uk/publication/hunger-revolts-and-citizen-strikes-popular-protests-in-mozambique-2008-2012">catalysed consumers</a>. Text messages proposed a mass “strike”. This paralysed Maputo for a weekend. The protesters were met by lethal police violence. But they won: a price freeze was imposed and new state service subsidies were introduced.</p></li>
<li><p>In Senegal, <a href="http://www.clashmusic.com/features/enough-is-enough-the-rap-revolution-of-senegal">sustained demonstrations</a> in 2011-12 prevented authoritarian neoliberal president Abdoulaye Wade from serving a third term.</p></li>
<li><p>In Nigeria, the International Monetary Fund imposed the doubling of local petrol prices in January 2012. This caused an uprising that, in the subsequent fortnight, nearly overthrew the government before the increase <a href="http://www.theguardian.com/world/2012/jan/16/nigeria-restores-fuel-subsidy-protests">was reversed</a>.</p></li>
<li><p>In 2014 the most spectacular protest was in Burkina Faso. In <a href="https://www.greenleft.org.au/node/57634">the spirit of</a> 1980s revolutionary Thomas Sankara, mass demonstrations overthrew president Blaise Compaoré. The protests had begun in 2011 with vigorous Burkinabé food riots. These were put down by lethal police force that left more than a dozen people dead. Compaoré’s attempt at a comeback in 2015 was similarly foiled.</p></li>
<li><p>In October 2015 South African students and low-paid university workers <a href="https://theconversation.com/only-pressure-on-south-africas-elites-can-ease-university-fee-stress-49376">won the battle</a> for a 0% fee increase for 2016 and “insourcing” of casual employment.</p></li>
</ul>
<p>Some social turmoil is localised, taking place in the vicinity of mines and oil wealth. This is correlated in <a href="http://cepr.org/active/publications/discussion_papers/dp.php?dpno=10089">recent mappings</a> by the London-based Centre for Economic Policy Research, based <a href="http://www.acleddata.com/">on data</a> gathered by University of Sussex researchers, and on more than 200 studies in the Environmental Justice Liabilities and Trade research project’s “<a href="http://ejatlas.org/">EJ Atlas</a>”.</p>
<p>Labour also regularly protests in Africa. The WEF’s “Global Competitiveness Report” authors <a href="http://reports.weforum.org/global-competitiveness-report-2015-2016/">ask businesses</a> in 140 countries each year how they rate labour-employer relations in terms of cooperation versus confrontation. Of the third most militant countries in the world, African countries typically account for 40%, far higher than any other region. </p>
<p>Since 2012 – the year in which 34 miners were killed in the “<a href="http://www.sahistory.org.za/article/marikana-massacre-16-august-2012">Marikana Massacre</a>” – the South African working class has been ranked angriest. The 2015 WEF rankings for the other most “confrontational” workers include those from Algeria, Tunisia, Mozambique, Guinea, Chad, Liberia, Mauritania, Lesotho, Morocco, Cape Verde, Zimbabwe, Tanzania, Sierra Leone, Seychelles, Ethiopia, Kenya, Cameroon and Gabon. </p>
<h2>Financial outflows</h2>
<p>The pressures on many African societies relate to the continent’s fiscal stresses, since declining commodity prices lower state revenues. These stresses also reflect the massive outflow of funds by multinational corporations via tax dodges and other illicit routes. The African Union Panel on Illicit Financial Flows last month raised the estimate to <a href="http://mgafrica.com/article/2016-04-26-80-billion-not-50-billion-loss-of-african-funds-even-worse-than-thought-mbeki">$80 billion</a> lost each year. </p>
<p>There is also the matter of licit financial outflows: the profits and dividends taken offshore legally by multinationals thanks to deregulated exchange controls, which must be paid in hard currency. In South Africa, these have driven the past 15 years of current account deficits – the trade deficit plus the outflow of profits – which in turn led to a huge increase in the country’s foreign debt: from $32 billion in 2000 to $140 billion today.</p>
<p>What to do next? The IMF’s April 2016 “Regional Economic Outlook for Africa” suggests that </p>
<blockquote>
<p>a substantial policy reset is critical in many cases … Because the reduction in revenue from the extractive sector is expected to persist, many affected countries also critically need to contain fiscal deficits and build a sustainable tax base from the rest of the economy.</p>
</blockquote>
<p>Precisely this neoliberalism – a policy “reset” that in reality is more of the same – is one reason for what US academics Adam Branch and Zachariah Mampilly term “<a href="http://africanarguments.org/2015/03/23/africa-uprising-popular-protest-and-political-change-interview-with-the-authors/">Africa Uprising</a>”. </p>
<p>Even if it is ignored in Kigali, or repressed on the ground, the popular risings against the WEF’s dubious “Africa Rising” rhetoric await the solidarity of those with a more patriotic perspective on the continent’s prospects.</p><img src="https://counter.theconversation.com/content/59342/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick Bond does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Grassroots protesters are questioning the logic of export-led ‘growth’ and renewed fiscal austerity pushed through the ‘Africa rising’ narrative. They want policies that meet their basic needs.Patrick Bond, Professor of Political Economy, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/539242016-02-01T04:31:26Z2016-02-01T04:31:26ZWhy the recovery plan for Mali is unconvincing<figure><img src="https://images.theconversation.com/files/109715/original/image-20160129-3880-fprxf9.jpg?ixlib=rb-1.1.0&rect=35%2C43%2C633%2C402&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Monday market in front of the Grand Mosque of Djenné, Mali.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/qiv/1544181533/">qiv/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>At the International Conference for Economic Recovery and Development of Mali, which <a href="http://www.oecd.org/development/mali-development-conference-2015.htm">took place in Paris last year</a>, commitments were made to provide the conflict-torn country with aid totalling 3.4 billion euros. </p>
<p>Despite the impressive numbers, there was little-to-no open discussion of what the money is being used for. This is by far the most important issue. </p>
<p>To better understand how we arrived here, it’s essential to explore the implicit objectives of the “international community” and to look at the root causes of the country’s <a href="https://theconversation.com/explainer-what-is-going-on-in-mali-51066">2012 crisis</a>.</p>
<h2>Who designed the plan and what’s in it?</h2>
<p>To assess Mali’s funding needs for the next few years, a Joint Assessment Mission was established. While theoretically under the aegis of the Algiers Agreement Monitoring Committee, the mission had free rein because the monitoring committee is locked down by a range of quarrels. </p>
<p>The Paris conference took place without the mission’s report being completed. What is clear is that the conference’s methodology and summary emanated from the United Nations, the World Bank, the African Development Bank and the Islamic Development Bank. It was thus international finance institutions that set the priorities.</p>
<p>As the work of the <a href="https://www.issafrica.org/countries/mali">Institute for Security Studies</a> has shown, it is precisely this abdication of authority that many Malians held against Amadou Toumani Touré, president from 2001 until overthrown by a coup d'Etat in 2012. The “international community” thus continues to discredit Mali’s political and administrative leaders in the eyes of its population.</p>
<p>The report’s summary defines four criteria for projects to aid Mali’s development: immediate impact, implementation capacity, helping the most vulnerable, and the priorities initially expressed. Any long-term development strategy is thus abandoned in favour of short-term actions that simply try to put out fires. </p>
<p>Funding areas specified by the summary include:</p>
<ul>
<li><p>Reform of the country’s security services, disarmament, demobilisation, and reintegration, plus some short-term social benefits. This is about 13% of the overall budget. Most of this goes to the security services, while legal reform gets a mere CFA seven billion.</p></li>
<li><p>Infrastructure investments and services to improve education, water and sanitation and health. The summary provides no examples of qualitative improvement in any of these services.</p></li>
<li><p>Projects to intended promote economic recovery, employment and infrastructure. These receive 1.4 trillion CFA francs, more than 50% of the total. Of this, 552 billion is earmarked for roads and 179 for air transport. On the other hand, farming, livestock, and agriculture – the real foundation of the local economy – receive a total of just 84 billion. </p></li>
</ul>
<h2>What influenced the priorities</h2>
<p>A number of less-publicised goals appear to have strongly influenced the priorities.</p>
<p>First, injecting large amounts of money into the Malian economy will quickly improve key macroeconomic measures such as GDP and short-term unqualified employment. </p>
<p>Second, businesses of donor nations will directly benefit from the infrastructure investments – roads, airports, railways, schools, hospitals, water systems and more. Obviously, Malian administrators also share these priorities, as they represent commissions, splashy inaugurations and – for some – the potential for misappropriation of funds. </p>
<p>To cite just one example, who exactly will benefit from the five airports to be built? Wouldn’t Malians’ priorities be quite different? Funders have thus clearly learned nothing from past failures: increases in external funding don’t automatically result in more development or reduced poverty.</p>
<h2>Fatal lack of awareness</h2>
<p>The plan’s disconnection from reality stems from the fact that the challenges facing Mali haven’t been clearly examined. The funded activities do not frontally attack the causes of the 2012 crisis. This is seen in three key aspects of the report’s summary:</p>
<ul>
<li><p>Decentralisation is considered as the major axis of institutional development and state reform. Yet it is not a miraculous solution. The partner countries and the IMF have not studied the lessons of Mali’s recent history. Amadou Toumani Touré was indifferent to decentralisation prior to the 2012 crisis, and the subsequent weakening of institutions, decline of public services (health and education in particular) and rising gender inequality make decentralisation even more difficult. It’s also folly to think that decentralisation can help ward off external threats.</p></li>
<li><p>No solution is proposed to the problems of employment and youth training. Approximately 300,000 young Malians enter the labour market yearly. Neither charitable programs nor infrastructure projects address this. Agriculture and livestock could – Mali has 43.7 million hectares of arable land, of which only seven million is currently cultivated – yet it receives little support. The report summary also ignores the fact that Mali’s education system must be radically reformed and rebuilt before any meaningful development can take place. </p></li>
<li><p>The need to reform the country’s legal system is also completely forgotten, despite this being an “urgent priority” for Malians, who are faced with widespread corruption and trafficking. The government clearly has a responsibility here, yet neither proposed nor asked for anything.</p></li>
</ul>
<p>In brief, the strategy for the reconstruction and development of Mali – financed and therefore imposed by foreign donors – <a href="https://blogs.mediapart.fr/joseph-brunet-jailly/blog/180116/34-milliards-deuros-pour-quoi-faire">is an illusion</a> based entirely on a financial and macroeconomic view of the economic growth. That this position is dominant in the “international community” does not prevent it from being false.</p>
<p>In his New Year’s speech to the nation, President Ibrahim Boubacar Keita highlighted the importance of the country’s agricultural and mining sectors. It was one of the few passages that evoked the future rather than the recent past, yet the commitment was timid. </p>
<p>As for the education system, the speech perfectly encapsulates the illusion that the construction of new classrooms will somehow improve the qualifications of Malian workers. For employment, it confirms the huge gap between the size of proposed projects and the country’s needs.</p>
<p>Finally, in terms of legal reform, the president was far less ambitious than he was in his 2013 inaugural address.</p>
<p>Mali’s government has no strategy to rebuilt its society, and nor do the armed groups that threaten the country. While the “international community” has committed militarily, financially and politically to assisting Mali, none of the problems that undermine it will be solved.</p>
<hr>
<p><em>Thanks to Massamba Brunet-Jailly for the translation from the French.</em></p><img src="https://counter.theconversation.com/content/53924/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joseph Brunet-Jailly ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>The international conference for the economic recovery of Mali resulted in promises of substantial aid, but the areas targeted fail to address the country’s real needs.Joseph Brunet-Jailly, Économiste, Chargé d'enseignement, Sciences Po Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/430852015-06-18T04:22:43Z2015-06-18T04:22:43ZAfrican Development Bank must gear up for a more proactive role<figure><img src="https://images.theconversation.com/files/84549/original/image-20150610-6801-1qz0sot.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The challenge for new African Development Bank President Akinwumi Adesina is to ensure that it develops its own Africa-relevant solutions to the continent's problems.</span> <span class="attribution"><span class="source">Reuters/Luc Gnago</span></span></figcaption></figure><p>Africa’s only regional bank, the African Development Bank Group (AfDB), has come a long way since its <a href="http://www.cgdev.org/sites/default/files/10033_file_AfDB_ENG_0.pdf">near collapse</a> in 1995. It now reflects its mandate to fight poverty by aiding public and private investment projects that promote socioeconomic improvement. </p>
<p>The bank’s advances under the decade-long leadership of outgoing president Donald Kaberuka have been driven by a number of factors. For example, it has joined forces with other multilateral agencies such as the <a href="http://www.afdb.org/en/news-and-events/article/afdb-and-who-sign-us-60-million-mou-to-strengthen-ebola-response-in-west-africa-13448/">World Health Organisation</a> and the <a href="http://www.afdb.org/en/news-and-events/article/afdb-and-world-bank-working-together-to-strengthen-ebola-response-in-africa-14335/">World Bank</a> to fight health epidemics such as HIV/AIDS, polio and <a href="http://www.who.int/mediacentre/factsheets/fs103/en/">ebola</a>. </p>
<p>It has also bought into programs such as the <a href="https://www.imf.org/external/np/exr/facts/hipc.htm">highly indebted poor countries</a> initiative, <a href="http://www.un.org/millenniumgoals/">millennium development goals</a>, <a href="http://www.fao.org/economic/ess/ess-fs/en/">food security</a>, sustainable growth and <a href="http://www.afdb.org/en/news-and-events/article/african-development-bank-and-mastercard-broaden-financial-inclusion-in-africa-13911/">financial inclusion</a>. And it has raised awareness about the importance of closing Africa’s huge <a href="http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2015/PDF_Chapters/AfDB__2013___At_the_Center_of_Africas_Transformation_-_Strategy_for_2013-2022.pdf">infrastructure deficit</a>. </p>
<p>As commendable as the turnaround has been, Africa’s only multilateral development and finance institution has big and urgent challenges ahead. These include how it is financed, its governance structure and its need to develop a more effective network of multilateral partnerships. </p>
<p>How can the incoming president Akinwumi Adesina ensure that the bank develops its own Africa-relevant solutions?</p>
<h2>Resources are grossly inadequate</h2>
<p>No fighter goes to war ill-equiped and hopes to win. This has been the narrative of Africa’s lone regional bank. This needs to change. By some estimates, it will cost <a href="http://www.afdb.org/en/topics-and-sectors/sectors/private-sector/areas-of-focus/infrastructure-finance/">US$93 billion</a> per annum between 2010 and 2020 to plug the continent’s infrastructure <a href="http://www.brookings.edu/%7E/media/Research/Files/Reports/2015/03/financing-african-infrastructure-gutman-sy-chattopadhyay/AGIFinancingAfricanInfrastructure_FinalWebv2.pdf">deficit</a>. Yet the bank distributes a paltry US$3 billion per annum in loans.</p>
<p>This miserly amount will not make a dent in assisting countries to meet crucial infrastructure needs. It will also be impossible for the bank to finance other urgent economic development priorities. The bank has only financed 2858 projects to the value of US$47 billion over 40 years.</p>
<p>What can be done about this? The bank needs firstly to review its sources of funding by recognising that it cannot rely on members’ contributions and grants for the bulk of its funds. Almost all banks, particularly development ones, source most of their operating funds from the public debt market. </p>
<p>Nigeria, Africa’s largest economy, contributes only about 9% of the AfDB’s total <a href="http://www.afdb.org/fileadmin/uploads/afdb/Documents/Boards-Documents/STATEMENT_OF_VOTING_POWERS_AS_AT_APRIL_30_2015.pdf">ownership capital</a>. Egypt contributes 5% and Africa’s most developed economy, South Africa, chips in a marginally lower amount. The European Union contributes 17%. </p>
<p>The current buzz about Africa rising makes this a fortuitous time to source investable funds externally. The world increasingly sees Africa as the next frontier of economic development and is willing to invest in them. One of the safest ways to do this would be through the bank.</p>
<h2>Ownership structure needs an overhaul</h2>
<p>Linked to funding is the bank’s governance structure. There is a popular saying that “he who has the gold rules”. This describes policy articulation and decision-making in the bank. </p>
<p>The bank’s ownership structure consists of African and non-African countries. A situation has developed in which only 11 African countries feature among the top 20 of the bank’s most powerful member countries. Between them, the 11 countries account for only around 40% of the vote.</p>
<p>This reflects a failure of leadership as well as a culture of dependence in which developmental responsibilities are left to chance or to grant providers.</p>
<p>There is nothing wrong with running a regional development bank on the basis of multilateralism. It is the tradition across other regions of the world. </p>
<p>Examples include the <a href="http://www.adb.org/about/history">Asia Development Bank</a>, the <a href="http://www.economist.com/news/asia/21646740-development-finance-helps-china-win-friends-and-influence-american-allies-infrastructure-gap">Asian Infrastructure Investment Bank</a> (AIIB), the <a href="http://www.caf.com/en">Development Bank of Latin America</a> and the <a href="http://www.iadb.org/en/about-us/about-the-inter-american-development-bank,5995.html">Inter-American Development Bank</a>.</p>
<p>All have significant membership from non-regional countries. But decisions are led by member countries of the region. This sensible or guarded multilateralism fosters best practice in governance, in addition to facilitating access to external funds from offshore sources.</p>
<p>What’s missing is that the AfDB has failed to retain significant voting power within the region. This means that its development priorities are not appropriately prioritised. For effective agenda-setting, the bank must revisit its ownership and voting structure with the required acceptance of responsibility this would entail.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/84551/original/image-20150610-6810-17mm39j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/84551/original/image-20150610-6810-17mm39j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=380&fit=crop&dpr=1 600w, https://images.theconversation.com/files/84551/original/image-20150610-6810-17mm39j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=380&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/84551/original/image-20150610-6810-17mm39j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=380&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/84551/original/image-20150610-6810-17mm39j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=478&fit=crop&dpr=1 754w, https://images.theconversation.com/files/84551/original/image-20150610-6810-17mm39j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=478&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/84551/original/image-20150610-6810-17mm39j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=478&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The AfDB must be alert to and respond strategically to the shifting centres of global economic development.</span>
<span class="attribution"><span class="source">Reuters/Gary Camero.</span></span>
</figcaption>
</figure>
<h2>Power is shifting towards the east</h2>
<p>The AfDB must be alert to the shifting centres of global economic development and respond strategically. Given the continent’s historical relationship with the World Bank and IMF, would Africa’s funding interest not be better served by the newly launched AIIB and the <a href="http://www.wsj.com/articles/india-taps-k-v-kamath-to-lead-new-brics-development-bank-1431331618">New Development Bank</a>? </p>
<p>Both are being championed by emerging market countries which share a lot in common with African countries. This includes frustrations about unfair and inconsiderate treatment by the <a href="http://www.economist.com/blogs/economist-explains/2014/06/economist-explains-20">Bretton Woods</a> institutions. </p>
<p>Most <a href="http://www.worldbank.org/en/news/press-release/2014/07/07/africa-world-bank-group-sets-historic-new-development-financing-record-for-region">development projects</a> in Africa are still World Bank-led, with the AfDB only on occasion playing a supporting or facilitation role. The new institutions might offer a more understanding partnership. And the bank must ready itself to be an imaginative and attractive partner. </p>
<h2>Local knowledge must be mobilised</h2>
<p>There is a need for Africa-relevant development strategies. The bank’s coming of age after 50 years must reflect in its engaged understudy of the region’s problems, development of appropriate strategies and readiness to offer technical support to implement them. </p>
<p>Collaboration with experts across African universities is a prudent way of ensuring this. Scholars who study their environment from within are best placed to point to relevant and effective solutions. </p>
<p>The AfDB can also get a bigger bang for its limited buck by adopting financing strategies that have wide impact. This would involve prioritising loans and investable funds to support projects involving multiple member countries, sub-regions or intra-regions. Roads, railway lines and electricity generation and distribution projects would fit this approach.</p>
<h2>A leader fit for purpose</h2>
<p>Serious consideration also needs to be given to provisioning loans in ways that minimises government waste or stealing. The bank can lead a crusade by ensuring Africa-relevant transparency mechanisms.</p>
<p>Given the lauded performance of Adesina as Nigeria’s Minister of Agriculture and Rural Development for the past four years, it seems that a truly round-peg has been chosen for the round-hole the continent desires and deserves.</p><img src="https://counter.theconversation.com/content/43085/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kalu Ojah does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As the African Development Bank Group changes leadership, Africa’s multilateral financier must chart a new course, including raising the contribution and voice of Africans in the institution.Kalu Ojah, Professor of Finance, Wits Business School, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.