Claiming Africa's Share of IDA

Remarks by Callisto Madavo, Vice President,
Africa Region, The World Bank
June 7, 2000

IDA Deputies Meeting
Mid Term Review of IDA12 Replenishment
Lisbon, Portugal

Thank you Mr. Chairman.

Introduction:

The Africa Region of the World Bank recently completed a note on claiming Africa's share of IDA and I believe this has been forwarded to you. My comments today will largely reflect our thinking in this note -- which captures how the Africa Region is addressing the issue of IDA flows and steps being taken to expand IDA commitments.

I. CONTEXT

Let me take just a moment to put the issue of African development in the context of today's Africa. These points are based on the recent report "Can Africa Claim the 21st Century". This report is a collaborative effort between the World Bank, UN Agencies, the AfDB and the African Economic Research Consortium. Africa is therefore the single most daunting development challenges as we enter the 21st Century.

A. Africa is poor and poverty is growing.
· On average, economies have grown little in the last 30 years
· When South Africa is excluded, the region's average income is the lowest in the world – just $315 per capita
· The region's total income is just over that of Belgium – but is divided among 48 countries with median GDP of barely $2 billion
· Almost half of Africa's 600 million people live on just $0.65 per day

B. Africa's place in the World economy has eroded
· Africa accounts for less than 2% of world trade
· Africa's erosion in world trade between 1970 and 1993 represents a loss of $68 billion in export earnings annually.
· Shortcomings in governance have deterred investment. By 1990 40% of wealth was outside the continent.

C. Africa is heavily indebted
· Aid transfers since 1970s were offset by terms of trade losses and increases in debt
· By 1997 foreign debt accounted for more than 80% of GDP
· As evidenced by HIPC, many countries simply face unsustainable debt burdens

This has fueled unequal distribution of services and low investment in people:
· In many countries, one child in five dies before the age of five years
· Fewer than one rural girl in four attends primary school in sub-Saharan Africa

D. Africa is tormented by ongoing conflict
· One African in five lives in a country at war or severely disrupted by conflict

E. Now HIV/AIDS
· The modest gains in health and education made since independence are now threatened by HIV/AIDs, which has cut life expectancy by 10 years in some countries
· The response has to be rapid.

F. Why has Africa ended up this way?
· Governance – lacking rule of law; accountability
· Leadership – the Mobutus of the world….. but also Western actions have not always encouraged good leadership (cold war, geopolitical and historical links, etc.)
· Poor economic policy performance– poverty, unemployment, low education – are all factors contributing to conflict
· Terms of trade shocks

II. POINTERS ON THE WAY FORWARD FROM THE LATE 1990s

Reform in many countries is now accompanied by civil peace…..
· Political participation is on the rise
· More focused use of resources based on performance – especially since the end of the cold war.
· Globalization has made Africa more aware of its position. Of course offers great opportunities in trade, in capacity building, in "putting Africa on the Map".
· New technology provides many promises – distance education, access to information.

In short, greater African leadership and therefore ownership of development programs is on the rise.

But to reduce poverty, sustained growth is essential. Achieving the International Development Goal of halving severe poverty by 2015 will require annual growth of more than 7%. Because of high population growth, Africa needs to grow by at least five percent to keep poverty from rising. Regardless – must do better than current 4%

III. SIMULTANEOUS ATTACK ON FOUR FRONTS

The report "Can Africa Claim the 21st Century" outlines key issues facing Africa, identifies constraints and proposes potential ways to address these constraints.

1. Improving Governance and Resolving Conflict. Countries with better economic management and performance have made the greatest gains in civil rights, political liberties and growth.
· Political participation encourages accountability, transparency, and empowerment.
· Decentralized service delivery supports good governance.
· Resolving and preventing conflict promotes stability and development.

2. Investing in People. Africa's productive base is rapidly shifting from natural resources to people, and human capacity is becoming ever more important.
· Improve health status; education
· Gender equity – must provide access to financing, training, education to women – especially girls.
· Tackle HIV/AIDS

3. Increasing Competitiveness and Diversifying Economies. Africa needs to create jobs, through investment, efficient business services (infrastructure) and eliminating corruption.
· Agriculture will need to increase productivity, recapitalize and revitalize rural communities.
· Producers need to diversify exports, and markets need to expand, including access to Part I markets.
· Regional integration

4. Reducing Aid Dependence and Debt, and Strengthening Partnerships. Foreign savings are essential for higher investment to increase growth, and higher consumption to reduce poverty.
· Resolving continued aid dependence requires a radical rethinking of the relationships among Africa's civil society, governments and donors, to create partnerships for development. Donorship debilitates capacity.
· More holistic, country-driven programs – CDF and PRSPS – are addressing these problems.
· "Trade and Aid". Trade and investment creates longer term growth. More ownership.


IV. IMPORTANCE OF CONCESSIONAL RESOURCES

If Africa's decapitalized economies are to grow rapidly and raise consumption at the same time, an extended period of concessional financing will be needed. Investment rates will need to be sustained at about 30% of GDP to achieve the ambitious growth needed to reduce poverty, as detailed under the International Development Goals.
· Domestic savings rate will only meet about half the need – at approximately 13%
· Generally private flows will not account for more than 5% of GDP without risk of financial instability.
· Even under the most favorable conditions, the typical Africa country will need resources of more than 12% of GDP to cut poverty in half by 2015, or about $25 billion annually in total for the continent in coming years (excluding South Africa).

Debt relief under HIPC will total some $20 billion over the next few years. IDA will continue to contribute about 15% of needed flows, or about $3.5 to $4.0 billion annually.

The gap remains wide. The challenges go beyond just IDA flows….. overall levels of ODA must increase.

V. ROLE FOR IDA

IDAs role is multifaceted. It includes;
· Money – financial resources are absolutely essential. As noted above, $25 billion needed annually.
· But these funds must be used where there is the right policy environment– and where impact is high
· Ideas – Quality – not just quantity.
· How to use the resources effectively?
· How to develop high impact programs?
· How to deal with conflict, HIV/AIDS, and poor leaders?
· How to develop new lending instruments that are flexible and meet the needs of Africa?
· Promoting new ways of working with Africa – With Africa in the driver's seat.
· The CDF and PRSP have provided opportunities for Governments to lead the development process
· But must go further – through decentralization; through more innovative partnerships.

VI. IDAs COMMITMENTS TO AFRICA

Over the last three years, IDA commitments to Africa have flattened out and have not met the 50% target, although the number of IDA-financed projects has increased.

We have gone from 57 projects in FY98 to 66 projects in FY00.


BUT WHY have commitments lagged? There are three principal reasons.

1. VOLATILITY

One-fifth of Africa's population lives in conflict-affected countries. Others by political instability.
· Of the IDA eligible countries – nearly 2/3 are NOT getting any IDA support…. We simply are not reaching these people.
· Taken together, countries with no or reduced IDA commitments account for 40% of population. With Nigeria this number rises to 59% not benefiting from IDA.
· At present, nine IDA countries are unstable, with lending programs reduced or suspended; these countries had potential IDA programs estimated at about $800 million this year.

2. PERFORMANCE

A second reason are performance records, on which IDA allocations are based. Aid is only effective where there is good performance. In FY00, $600 million of new lending (29% of commitments) was dependent on progress with the IMF.


3. CAPACITY

Size of countries and absorptive capacity. Many stable countries are limited due to in-country capacity constraints. In some instances this reflects country size, where small populations only have a limited number highly skilled citizens.

VII INCREASING AID FLOWS TO AFRICA

(i) we need to rethink our approach to Africa.
· "Can Africa Claim the 21st Century" – first step in the re-thinking process of how support to Africa can make a difference……….
· Focused around:

Money, Ideas, new ways of working with Africa

(ii) Looking at how to increase flows and impact – Not only IDA flows, but all external flows. The CDF and PRSP can ensure efficient use of donor resources, but also partnership based on African leadership.

ACTION PLAN

Our strategy includes:
1) making the best use of existing programs and instruments
2) restructuring how we manage program delivery with closer management oversight, shifting to broader instruments, focusing on the largest and well performing countries.
3) developing new instruments
4) rethinking approaches to critical development problems

Through these measures the Region aims to increase IDA commitments in the next two years to $7.9 billion total (slightly less than the 50% allocation under IDA12). This will mean approximately 80 projects per year.


(i) Scaling Up Existing Programs and Instruments

Increase the size of planned operations ($350 million per annum).
· With constrained administrative budget and staffing requirements it is not possible to simply do more projects - we will need to increase project size (where feasible)

Provide supplemental allocations to well-performing operations ($300 million per annum).
· It is important to sustain support where performance has been good and impacts are clear. There is also the potential for supplemental balance of payments support in well-performing countries affected by recent terms of trade changes. (Senegal as an example)

Increase lending overall (number of projects), in well-performing countries ($1.5 billion in the next two years).
· In expanding lending, we would put a premium on increasing lending to countries that are well-placed in terms of CPIA ratings, and have lower per capital allocations.
· We would also increase lending to smaller countries with good CPIA ratings, such as Mauritania, Lesotho and Cape Verde.

Focus on re-engaging with major countries ($3 billion over the next three years). Three large countries (Nigeria, Cote d'Ivoire and Ethiopia), with 35% of Africa's population, have reduced or no IDA lending, due to governance or conflict.
· Nigeria is a special case for IDA. With the recent election of President Obasanjo, the Bank is re-engaging with Nigeria.
· Ethiopia has the potential to absorb more IDA resources (up to $400 million per annum based on the last CAS), but lending is currently in the low case.
· Cote d'Ivoire has also moved from $300 million annually to $25 million this year.

(ii) Restructuring program delivery

In past year, lots of work on quality, selectivity and delivery.
Will deepen this work:
· More focus on largest countries and best performing countries
· Heightened management of pipeline for large projects
· Shifting to broader and more flexible instruments that support accountability
· Supporting processes to transfer funds at lower administrative costs through partnering with our bilateral counterparts
· Continue tying fund allocations to country performance

(iii) New instruments

The Region is working on lending approaches that support programs of assistance:
· sector investment programs (of which the Region already has several)
· an HIV/AIDs umbrella credit
· Developing a multisectoral umbrella IDA program for HIV/AIDS which would be retailed at the country level with streamlined approval procedures. Borrowers would prepare country programs to access funds under this umbrella procedure. The initial overall allocation proposed is $500 million. This approach would help expedite processing of IDA support for HIV/AIDS at the country level, encourage coordination with other multilateral and bilateral partners, and provide a platform for addressing the regional aspects of the pandemic. This approach would help reduce processing time and costs over solely country-based approaches.
· community action programs (CAPs) – especially to address governance issues
· We are developing new lending vehicles, notable the community action programs (CAPs) which seek to provide resources directly to local groups, increasing participation and decentralization. We are also looking at instruments to best support improving governance, including capacity building, anticorruption programs, and public expenditure reform credits. In countries where governance is a constraint, we are focusing on these issues in a number of ways, including support through lending. Kenya and Nigeria are two examples where credits to support improved governance will be presented for Board approval in the next two months.
· capacity building projects across sectors
· programmatic credits
· adaptable program loans (APLs) – good results so far.
· how to adapt existing instruments to tie in more closely with PRSPs,
One possibility might be a Poverty Reduction Strategy Credit (PRSC), linked to the preparation and implementation of the PRSP.

(iv) Designing new approaches around key themes of Africa in the 21st Century

Investing in People:
· especially in HIV/AIDS and other communicable diseases.
· Mentioned umbrella IDA program for HIV/AIDS
Governance:
· how to get greater participation?
· New lending vehicles such as CAPS to provide resources directly to local groups
· Supporting capacity building, anticorruption programs and public expenditures from credits
· Supporting legal and judicial reforms – which provide a solid platform for additional reforms.
· Where governance is a constraint, focusing on these issues through lending, such as in Kenya and Nigeria where credits to support improved governance will be presented for Board approval in the next two months.
Conflict:
· deepening understanding through analytical work
· adding where we can within the current post conflict framework
· We have been increasing allocations to post-conflict countries on an exceptional basis and we are beginning a major examination of countries in and coming out of conflict, of how the Bank, working with other partners, can best engage, and what instruments are needed. Still major questions such as at what stage should IDA commit resources, and how much.
Regional Integration
· We propose to expand support for the impacts of regional and trade integration and we will examine how to support regional projects. At present, IDA has rarely provided support for regional institutions and endeavors.

VIII. SOME INTERNAL ISSUES - STAFF/BUDGET/QUALITY

This is not the forum for a discussion of internal constraints and challenges, but I will just mention some briefly – as they will be evident as we move forward with this agenda.

Economic and Sector Work – if the Bank is to maintain its leading role in providing judicious and effective assistance, we must ensure that expanded lending is based on sound knowledge of the country conditions and best practice. We have recently re-focused our ESW, but this work is outside the traditional realm of lending – and has an administrative cost.

Staffing – to expand lending we need to ensure sufficient senior staff and task team leaders. The Africa region has the smallest proportion of senior technical staff and the largest number of new staff. We are working on a number of fronts to ensure we have the right staff with the right skills.

Quality has been one of our number one priorities over the past year. We will continue more proactive management at the sector level, quality assurance programs for each operation, and better integration of knowledge management.

Finally, expanded lending also increases costs and the budget. Our action plan focuses in the first instance on expanding commitments through no or low-cost means. However , expanding the programmatic lending will lead to additional costs for lending, supervision and expanded ESW. [Estimate need $8 million in the next two years].

CONCLUDING REMARKS

The problems of Africa may seem daunting. Almost impossible. But we will not retreat into Afropessimism – because those of us working in Africa, also know its potential.

That is not to say we underestimate the difficulties. We are not naïve.

We need to create a platform through:

1. Expanding IDA lending – $7.9 billion over next two years
2. Using ideas to reformulate programs and utilize new instruments
3. Developing deeper relationships based on common commitments
· With our clients – put them in the driver's seat.
· With our partners – to create synergies, increase impact, lower costs
· Internally – to build the internal capacities and budgets to respond adequately

Our action plan to raise IDA dollar commitments is very ambitious – but we believe it can be done. BUT money will not be enough. Africa needs much more -- it needs more ideas, more technical support, more capacity, and more access to developed country markets.

We must work together to reduce Africa's poverty. We look forward to working WITH YOU in this endeavor.