Traditional development finance sources facing global priorities and increasing domestic pressures have led to a less-than-quiet consensus as Africa's Multilateral Development Bank (MDB) needs to play a greater role in supporting the development of the continent. This view is shared by Naldos Bekele Thomas, CEO of the African Union Development Agency – the new partnership for African development (Orda Nepad) was tasked with looking, among other things, to realize the union's agenda 2063.
Bekele-Thomas, a bystander at the World Bank and International Monetary Fund's spring meeting, highlighted it on business in Africa. The high-level conference scheduled for May 11th and convened under the auspices of Angola President João Lourenzo, the current chair of the AU, is expected to launch an era of close cooperation between the MDB, development agencies and political leaders.
“What happens now is that financial institutions come together and they talk, development practitioners talk separately. There's no place for development institutions, financial institutions and leaders to sit together and discuss,” explained Bekele-Thomas.
“Given the situation, these financial institutions need to be strengthened and we need to have a real discussion about framing the financial system and how it supports development.”
The dilemma of debt cancellation
The aim is to create a platform where financial and development institutions can coordinate their efforts and identify priority areas for funding, she said. The conference also provides an opportunity to address some of the structural issues facing African MDBs.
“They need to be (better) capital letters,” Bekele-Thomas pointed out. Equally important, she said, is creating an environment with policies and regulations that will help MDBS thrive. Again, discussions about debt sustainability, which are necessary, but not carefully handled, take potential risks for MDBs.
“There are countries that suggest that debt cancellations,” Bekele-Thomas said. “But financial institutions (I spoke) say that debt cancellations don't help, as debt cancellations place them in a very risky category.”
It also serves as a useful forum for assessing the broader regulatory framework that governs African financial institutions. “We need to actually discuss the regulatory framework for these financial institutions and how to fine-tune it to strengthen the development efforts of the continent.”
One thing she pointed out is that many of the continent's MDBs are relatively small, meaning that funding is fragmented and insufficient in size.
“We can't have the capital necessary to fund these megaprojects,” says Bekele-Thomas. “How do you integrate? How do you put them together so that you can fund such programs?
Thoughtful deliberations on these issues said they stand on the continent to ensure beneficial results for all parties and to face a future where they must face a future that appears far more inward than has been done since the era of independence.
“We need to have subtle discussions to avoid causing problems for these institutions. They are an integral part of the development of the continent, and we will not provide international development assistance for songs we have had in the past, whether we like it or not. We need to find a strategy on how to really stand up.”
Investment fund discussed
One of the issues in the table is the creation of an investment fund discussed by Auda-Nepad. According to Bekele-Thomas, the feasibility study on the fund has been completed and MDB has been invited to support and manage the fund, and her organization is not prepared for the task.
“It would be very difficult for Auda-Nepad to have a development fund and grow it. Rather, the fund operates as an investment vehicle, paying funding at concessional fees to key sectors, and there is initial capital coming from member states through the MDB.
The fund's purpose is to direct funding to sectors and projects that are essential to the growth of the continent. “We're reorienting funding for priority programs that are highly catalytic for the continent. It's number one,” she said.
“Secondly, there are some programs that are not ready as MDBs are primarily affiliated with individual governments. However, some local programs require funding and this fund is created to address that.”
Some specific areas of focus may expand local production in key sectors such as health.
“We want to make sure that the 24 essential medical products we have identified and the 45 small and medium-sized businesses that we mapped on them receive the funds they need to produce on a scale,” explained Bekele-Thomas.
Funding will be made available through the proposed special fund at concessional fees, allowing small and medium-sized businesses and major industries to access the funds without any severe debt burdens. However, the fund is open to changing areas of focus so that all sectors can benefit in the long run.
“For example, this year we can focus solely on energy projects. Then, two years later, we will probably change focus. But the reorientation of the priority areas of funding will be directed by the Member States themselves.
The fund operates through the MDB as an investment vehicle with initial capital coming from member countries. The fund will not compete with other existing funds and MDBs on the continent, but will increase strategic efforts to tackle the shortages of infrastructure funds currently experienced in various sectors.
Of course, infrastructure has become a long-standing concern through the Continental and African Infrastructure Development Programme (PIDA), and Order Pad is trying to induce funds to close the continental infrastructure gap. A comprehensive review of the PIDA program is on the card, and perhaps if the US government pulls back its support, it could incorporate new strategic projects, including the Lobito corridor project.
“We create an ecosystem that believes Lobito needs to meet the standards of the PIDA program,” says Bekele-Thomas.
At the same time, Auda-Nepad is considering ways to mitigate the impact of potential change on Africa's growth and opportunity law (AGOA), explained Bekele-Thomas.
“We have to prepare for that,” Bekele-Thomas said. He said the African continental free trade area is one of the tools the continent has to deal with the potential impact of Agoa ending.
“We drive AGOA, but in the meantime, alternative strategies are very important to us,” she emphasized.
