The Future of Development Finance: The Role of Regional Development Banks versus Emerging Partners

Transcription

1 The Future of Development Finance: The Role of Regional Development Banks versus Emerging Partners The Future of Multilateral Development Cooperation in a Changing Global Order NSI Ottawa Forum June 20 21, 2011 Désiré Vencatachellum Director, Development Research Department African Development Bank 1

2 The Future of Development Finance: The Complementary Roles of Regional Development Banks and Emerging Partners in Africa The views expressed in this presentation are those of the author and do not necessarily represent those of the African Development Bank, its Board of Directors, or the countries they represent. Désiré Vencatachellum Director, Development Research Department African Development Bank 2

3 Backdrop The revolutions in North Africa contain important lessons for DFIs. Pre January , Tunisia was showcased by DFIs as a success story. New buzz words: inclusive development, accountability, voice, good governance. 3

4 Poverty % of the African population living on less than 1USD/day 49 in in 2001 Headcount index below 4% in North Africa (no data for Libya) Bigger picture: equality of opportunities 4

5 Outline of presentation I. The traditional roles of DFIs II. A changing landscape stylized facts III. A new business model IV. Conclusion 5

6 I. The traditional roles of DFIs 6

7 Traditional functions of DFIs (among others) Provide funding to the public and private sectors. Such funding is unavailable on the market. Risk mitigation through formal instruments or through convening power Improve the operating environment Knowledge 7

8 ADB Sector Allocations Agriculture and Rural Development 7% Others 3% Social Sectors 6% Industry, Mining and Quarrying 3% Multisector 19% Finance 12% Power Supply 20% Transport 21% Communicatio ns 1% Water Supply and Sanitation 8% 8

9 Funding gap infrastructure Africa s total infrastructure financing needs: $93 billion a year. $45 billion financed. Even if all inefficiencies were eliminated, a $31 billion a year gap would remain. Closing it requires innovative financing. 9

10 II. A changing landscape 10

11 Emerging partners and traditional partners in Africa s trade 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% TPs EPs 11

12 Africa's total trade with emerging partners (2009) Other Emerging Partners 26.7% China 38.5% Turkey 6.5% Brazil 7.1% Korea 7.2% India 14.1% 12

13 China s FDI in Africa by sector (2009) Scientific research, etc., 3% Agriculture Others Wholesale & Retail 4% Comm. services 5.4% Mining, 29% Financing 14% Construction 16% Manufacuring 22% 13

14 Traditional partners still dominate 100% 80% 60% 40% 20% 0% Share of total African FDI inflows Developed Countries Africa 79 Latin America 72.1 Asia

15 III. Updating DFIs Strategy 15

16 Aid model DFIs Development aid allocation is based on good governance. Aid is effective only if there is good governance and poor policies. Otherwise aid is misallocated or wrongly acquired. Performance based allocation, is used by all MDBs. 16

17 Aid Model Emerging partners No strings attached and no/weak conditionality on good governance. New paradigm: from principal agent (DAC LIC) to competitive with outside options for LICs. How do you ensure good governance remains centre stage for the long term benefits of LICs. Regulated competition 17

18 Challenge Concessional funding still comes mainly from traditional donors. Excess savings in a number of emerging countries. China: USD 2.85 trillion in Jan. ODA to Africa: USD 48 to 50 billion. ODA to Africa less than 2% of China s reserves. 18

19 Options Either convince emerging countries to channel part of these excess savings through DFIs (challenging) or Cofinaning: leverage resources to crowd EP in. Ex. MOU between CDB, EximBank, and ADB 19

20 RDBs as a credible voice Shareholding characteristics Convening power Honest broker How to make the most of the increased engagement of emerging partners with Africa? 20

21 Advisory role to complement financing In house expertise, complemented by experts from other institutions, and market based ones Expertise to be pooled to provide independent advice to countries or entities. Win win proposition: Governments in a better position to negotiate Investors are assured that governments will not renege. 21

22 Attract emerging partners in key areas Rural/Urban Divide Moving agriculture up the value chain. Rising food prices has changed the terms of trade in favor of the farmer Infrastructure work with emerging partners in the design and implementation Technical assistance, knowledge transfer Agri business fair deals Risk mitigation G20 22

23 Gainful employment for all Special economic zones Tunisia unemployment rate Percentage Unemployment rate Unemployment rate of university graduates 23

24 Conclusion Business as usual is not an option. Staying out of the big deals with emerging partners is suboptimal. Encouraging emerging partners to operate within the DAC is a good first step. DFIs, especially RDBs, because of their unique shareholding and expertise can ensure that deals with EP generate inclusive development through advisory services. 24

25 Coming full circle RDBs engagement with emerging partners can further inclusive development 25

26 Coming full circle Good governance and the need to ensure equal opportunities for all. Alternative: the North Africa revolution 26