The African Development Bank Group’s mission is to promote economic and social development. James Eedes reports on some of the projects it is helping to fund and finds the bank has developed a solid financial standing.
In May, the African Development Bank (ADB) announced a $88.1m-equivalent loan to the Tunisian government to finance the modernisation of the country’s railway infrastructure.
In addition to infrastructure rehabilitation and modernisation works, the loan will go towards funding four technical studies: the organisation and sizing of the railway management support units; the reorganisation of cost accounting in the Tunisian National Railways Corporation (SNCFT); the preparation of a medium-term railway equipment strategy; and the improvement to maintenance functions.
The physical infrastructure modernisation component will involve upgrading and consolidation of the lines to improve the traffic safety of trains and reduce accidents; fencings; construction of pedestrian overpasses; development of trading activities to improve the SNCFT’s share in the freight sector; construction of maintenance depots; renewal of tracks; and installation of level crossings.
Speaking at the signing ceremony, Theodore Nkodo, vice-president of the ADB said: “The bank’s support is aimed at enhancing the efficiency of the Tunisian transport system with a view to improving the competitiveness of Tunisian exports.”
Such a loan typifies the role and purpose of the ADB Group, whose mission is to promote economic and social development through loans, equity investments and technical assistance.
The ADB Group is a multinational development bank supported by 77 nations, or member countries, from Africa, North and South America, Europe and Asia. The group consists of three institutions: The ADB, the African Development Fund (ADF) and the Nigeria Trust Fund (NTF).
Other recent interventions include $3.55m-equivalent grant to the government of Chad to finance improvements in school infrastructure, strengthen the quality of teachers, and improve the capacity of the education sector to monitor and evaluate performance. The Education Sector Support Project will, at the primary level, provide for the construction of school modules comprising classrooms, latrines and wells. About 225 classrooms will be built, offering 12,000 new vacancies.
The group also approved a $2.59m-equivalent grant to finance a study of the irrigation and drainage of the eastern Nile, aimed at enhancing food security, reducing rural poverty and preserving the environment through sustainable natural resource management. It will contribute to the agricultural sector goals of the two participating countries, Ethiopia and Sudan, and enhance efforts towards an integrated approach to irrigation and drainage development in the eastern Nile sub-basin.
Attention to integration
In its operations, the bank is required to give special attention to national and multinational projects and programmes that promote regional integration.
For the 12 months to the end of 2003, the total lending and grant operations of the group stood at $2.6bn, compared with $2.2bn in 2002 – a 18.2% increase. The group was able to deliver on the lending and grants programme that had been approved by the board of directors in 2002. This was despite being forced to relocate temporarily to the Tunisian city of Tunis amid a worsening security situation in Abidjan, Cote d’Ivoire, where it is usually headquartered.
Overall, total approvals, including debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative, declined from the $2.8bn registered in 2002 because the group did not approve any new debt relief under the initiative in 2003.
Only one additional country, the Democratic Republic of Congo (DRC), became eligible for such relief in 2003 and the bank is still in the process of deciding what its share of debt relief for the DRC will be. The decision has been postponed to allow sufficient time for consultations between the bank, donor countries and the HIPC Trust Fund on arrangements for financing the ADB’s share of debt relief because it will be the largest debt relief extended to any African country. The bank’s share is estimated to be more than $1.8bn.
ADB windows
With regards to lending and grant operations, the ADB window accounted for $1.1bn – a slight decrease from 2002. The share of operations under the private sector window, however, increased from $270m in 2002 to $306m in 2003.
The share of the ADF – the concessional window for the 39 countries that cannot borrow on market terms at present – stood at $1.5bn, an increase of more than 50% from 2002. In line with the new policy framework for ADF operations, the share of grants increased significantly and accounted for 17% of total approvals in 2003.
Operations through the NTF increased significantly to $33.5m from $13.5m in the previous year, following an accord reached with the Nigerian government on a revised protocol for the NTF.
In addition to its own lending and grant operations, the ADB Group, through its co-financing operations, succeeded in significantly increasing the volume of resources it mobilised for its regional member countries in 2003. The total volume of resources mobilised from other multilateral and bilateral development partners for ADB-financed projects and programmes in 2003 stood at $3.7bn, which was a significant increase of 26% from $3bn in 2002. Thus the total resources generated for the regional member countries, including the group’s own resources, stood at $6.3bn in 2003 compared with $5.7bn in 2002.
Actual disbursement of resources for approved projects and programmes stood at $1.4bn in 2003, the same as in 2002. Disbursements to the ADF countries, which were lower in 2003 in relation to 2002, would have been much higher were it not for the difficulties that some of these borrowing countries are facing in the timely implementation of projects and programmes. In particular, the delays that some countries have faced in meeting the conditions for policy-based loans have often resulted in the deferral of the release of the second and third disbursement tranches.
Assistance to Nepad
In addition to its lending and grant operations, the ADB continued to provide assistance to the New Partnership for Africa’s Development (Nepad) initiative. The Nepad heads of state implementation committee has assigned the bank the leadership role in infrastructure and banking and financial standards. With respect to the latter, the group has developed a framework for fostering such standards in the regional member countries and these have been incorporated into the design of the African Peer Review Mechanism (APRM). The bank is also providing technical assistance towards the implementation of the APRM.
In infrastructure, the bank has developed a short-term action plan, identifying projects worth $7bn.
The significant increase in the lending and grant operations of the ADB Group is being accompanied by further steps to increase the quality of the group’s operations. Group president Omar Kabbaj says: “In line with the bank group’s strategic plan, the basic goal of our operations has been to assist our countries in making progress towards the attainment of the Millennium Development Goals. Towards this end – and to ensure the development effectiveness of our operations – much attention has been given in all our operations to four important principles: ensuring country ownership, attaining greater selectivity in our interventions, continuing the use of participatory approaches and working closely with our other development partners.”
Despite a lower income in 2003, the overall financial standing of the bank has continued to improve steadily. The key leverage, gearing and liquidity ratios, which all strengthened during 2003, are among the best in relation to other multilateral development banks.
In recognition of the bank’s solid financial position, Standard and Poor’s (S&P) last year upgraded its credit rating, from AA+ to AAA with a stable outlook. As a result the ADB now enjoys the highest possible credit ratings from all four rating agencies: Moody’s, the Japanese Credit Rating Agency, Fitch IBCA and S&P. A further show of confidence from the capital markets came with the bank’s successful launch of its first $1bn global bonds issue in 2003.
Improvements in water supply and sanitation
The ADB seeks tangible development results in support of poverty reduction. A special area of focus is water supply in vulnerable rural and peri-urban areas.
Rural areas in Africa have the poorest coverage of safe drinking water supply and sanitation. About 400 million people (50% of the total population) lack access to a safe water supply and an even higher number lack adequate sanitation. Of these, nearly 330 million live in rural areas.
Historically, 80% of investments in water supply and sanitation in Africa had been for urban projects and only 20% for rural water supply.
As a result, rural populations endure a higher incidence of preventable water and sanitation-related diseases, and women and children in these areas suffer greater deprivation in the areas of education and economic activities due to time and effort needed to fetch water. Problems such as these combine to perpetuate poverty.
Compounding the problem, there is limited scope for private sector participation in rural areas and most of the investments required would have to come from governments, bilateral sources, multilateral agencies, non-governmental organisations (NGOs) and community efforts.
To provide access to safe drinking water and sanitation to communities, and accommodate the increase in population during the next two decades, the rate of increase in coverage in the next 20 years has to exceed 19 million rural inhabitants per year. To do this, the pace of development of the sector must accelerate with specific focus on coverage while not ignoring sustainability and effectiveness, using fast-track mechanisms and highly innovative, broad-based, inclusive and community-based approaches.
In 2003, the ADB launched the Rural Water Supply and Sanitation Initiative. The goal of the initiative is to accelerate access to sustainable water supply and sanitation to rural Africa with the aim of achieving 80% coverage by 2015 and 100% by 2025. The initiative will operate under the broad framework of New Partnership for Africa’s Development (Nepad) and the Africa Water Vision, and will contribute towards the achievement of the Millennium Development Goals.
The initiative will be based on fast-track mechanisms for preparing and implementing projects to accelerate the implementation of water supply and sanitation programmes significantly. Fast-track mechanisms mean flexible, transparent and rapid procedures for programme and project preparation, appraisal and implementation, as well as procurement, disbursements and financial management.
The initiative will, in practice, begin in five to seven countries with relatively well developed water sector policy and existing capacity to implement the initiative, and then proceed to other countries on the continent.
The investment requirement for the initiative up to 2010 is estimated to be about $10bn and is expected to be raised by leveraging additional resources from multilateral, bilateral, public, private and community sources.
The Rural Water Supply and Sanitation Initiative will collaborate with the African Water Facility to source some of the necessary funding as well as with other co-operating partners, such as The US Agency for International Development, Canadian International Development Agency, Japan International Co-operation Agency and the Netherlands government. Similarly, the initiative will collaborate with Nepad in implementing policy reforms under the ADB’s integrated water resource management policy. In addition, the initiative would use the framework of Nepad and the African Ministers’ Conference on Water to generate sustained political commitment fromcountries.
The ADB co-ordinated a stakeholders’ Conference on Water and Sustainable Development in Accra, Ghana in April 2002 to identify and establish a consensus on the main priorities for water development in Africa, and to contribute to a process for mobilising the necessary financial resources. The result was the recommendation to establish the African Water Facility to help mobilise the financial support needed for meeting urgent water needs.
