New meeting in Abidjan for ADF-14: Financing the development of a winning Africa

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This week sees the opening of the 2nd meeting for the fourteenth replenishment of the African Development Fund (ADF-14) under the aegis of African Development Bank President Akinwumi Adesina, following the first replenishment meeting in March. The gathering, held behind closed doors on June 30 and July 1, will be attended by the Deputies – representatives of donor countries to the Fund – as well as those of the governments of regional member countries, the AfDB Group and observers from peer institutions, all under the coordination of Richard Manning, Senior Research Fellow at the Blavatnik School of Government at Oxford University.

The African Development Fund (ADF) is one of the three distinct entities that make up the African Development Bank Group, along with the AfDB itself and the Nigeria Trust Fund (NTF). It is, above all else, its financial award section, that is, the heart of the sources of the AfDB Group's funding. These sources enabling the Group to continue to financially assist those of its 54 regional member countries who need help most. To date, the ADF has 38 countries in receipt of support[1] and 29 donor countries.

ADF-13, drawing to its end, is intended with ADF-14 to mobilize resources to be used for funding awarded in the three-year period 2017-2019.

A delicate situation

Nevertheless, this resource mobilization process, a sort of "call for funds" to donors, is taking place at a difficult moment when the global economic and financial situation is far from positive and official development assistance is being cut. Donor countries are having to address the headwinds of the current international situation and stronger budgetary constraints while at the same time recipient countries, the most vulnerable, are seeing their needs growing and becoming more pressing, only sharpened by domestic and external economic pressures. This means that conduct of ADF-14 is a delicate matter, particularly in view of the ambitions of the new Sustainable Development Goals (SDGs) adopted in mid-2015 after the great Addis Ababa international conference on financing for development held in July of the same year, the global climate deal reached at COP21 and the High Five priorities the Bank has subsequently set itself to accelerate the development of the continent.

ADF-14: Focus on the High 5s to finance inclusive development

The majority of people living in ADF countries live in extreme poverty, on less than US$ 1.90 a day. On average, only 25% of them have access to electricity – and even less than that in 19 of the 38 ADF countries. Average electricity consumption in these countries is less than 200 kW/h per year, in comparison with the 12,954 kW/h used in the United States or the 6,520 kW/h in Europe. In ADF countries, energy shortages are estimated to cost between 2% and 4% in annual growth, on top of their consequences for employment, health, education, security and so on. This situation is intended to be tackled by the first of the AfDB’s High 5s: Light up and power Africa. With ADF-14, AfDB is planning to invest nearly US $2.9 billion in energy in ADF countries between early 2017 and late 2019 in order to install up to 4,600 MW of capacity – enough to connect 23.6 million Africans to the power grid. 

According to estimates, nearly 158 million people suffer from undernutrition (particularly leading to delayed growth) in ADF countries. And this is despite enormous agricultural potential. Agriculture is a sector that is still too inefficient, as emphasized in the second of the Bank's High 5 priorities: Feed Africa. AfDB invested US $4.3 billion in ADF countries in agricultural and agribusiness projects between 2006 and 2014 and this ADF-14 will make it possible to further invest up to US $2.1 billion by the end of 2019, given the Bank’s planned projects in this sector (the creation of agricultural development clusters and infrastructure in rural areas, water management and improved irrigation, capacity building, technology transfer, etc.) This will lead – among other benefits – to improved agricultural production, growing incomes for rural populations, reduced poverty and lower import bills.

The countries of the continent, and particularly ADF countries, need to diversify and strengthen their economic frameworks and thereby develop their private sectors. As of now, Africa’s only has a 1.5% share of the global value chain and only 19% of its exports are in manufactured goods. In several ADF countries, industrial GDP is only US $100 per capita.

Industrialise Africa is, therefore, the third of the Bank’s High 5. However, given the profile of the ADF countries and especially the most vulnerable of them, the role of the ADF is even more crucial in this area: in granting concessional funding, the ADF provides viable budget resources to the public sector while supporting the financing of the private sector through a range of risk mitigation instruments, guarantee products and mixed funding mechanisms intended to attract other finance to fill the funding gap. For ADF-14, operations targeting the industrialization of the ADF countries amount to more than US $1.7 billion. The Bank is also planning for ADF-14 to particularly strengthen support for the development of the private sector by increasing allocations to the credit enhancement facility for the private sector, which provides guarantees for non-sovereign operations conducted by countries eligible for ADF.

Integrate Africa is the fourth of the Bank’s High 5 and its justification can be found in these figures: at 15%, regional trade in Africa is the weakest in the world and this lack of integration is estimated to cost the continent between 1% and 1.5% in GDP every year. ADF countries are among the most fragmented and isolated markets. The African Development Fund, therefore, has a budget dedicated to regional integration whose investments are targeted at the elimination of non-tariff barriers that impede trade, material infrastructure (roads, rail, transport corridors), and cross-border water management, in addition to building the capacities of Regional Economic Communities (RECs), harmonizing investment codes, quality standards and certifications, overhauling the visa regime to facilitate free movement of people, the implementation of trade facilitation agreements made under the aegis of the WTO, and more. ADF-14 already has regional integration projects in the pipeline to a value of US $2.7 billion. Among other benefits of ADF-14, 73 million people will have better access to transportation by the end of 2019.

Although the ADF countries have had somewhat higher growth rates over the past decade, their poverty rates also remain high, as do inequality between men and women and between rural and urban areas. In some vulnerable ADF countries, youth unemployment is at 50%. In these countries, nearly 333 million people lack access to clean, safe water and some 772 million do not have sanitation facilities worthy of the name. To foster inclusive development in this context there is, therefore, a need to create jobs (made all the more acute by the challenges of population growth) and to promote entrepreneurship, provide economic opportunities to meet the expectations of the people and curb migration, to strengthen health systems using lessons learned from the recent Ebola crisis and to build capacities for resource optimization in social spending, to develop safety nets and, lastly, to increase access to clean water and sanitation services. And these are precisely the objectives of the fifth of the Bank's High 5 priorities: Improving the quality of life for the people of Africa

Under ADF-14, the Bank is, therefore, planning to invest around US $1.9 billion in the ADF countries, through which 9.5 million school textbooks and teaching materials will be produced, 5,000 health workers will be trained and 17 million people will receive better access to health services. The Bank's new Jobs for Youth in Africa initiative (JfYA) is also intended to create 17.5 million jobs in ADF countries and provide 50 million young Africans with economic and professional skills by 2050.

US $45 billion invested over 40 years

At their first meeting, held in March 2016, the plenipotentiaries agreed that the ADF was “anchored in the Ten Year Strategy of the Bank” and that the accent would be on the five key priorities, the High 5s, that the Bank has set itself. Three innovative financing instruments were endorsed: donors’ concessional loans, bridge loans and buyback mechanisms. This was also the case for the new model for development and service provision that the AfDB Group has begun deploying to accelerate the pace of Africa’s transformation and to promote a results culture.

Debate at this second meeting will centre on implementation of the AfDB’s High 5s, the framework for measuring the AfDB Group’s results by 2025, the role of ADF-14 in specific support for fragile states and for the development of the private sector, the proposed new financial instruments, the ADF liquidity policy and the ADF-14 funding and resource allocation framework.

A third and final meeting to be held in late November 2016 will conclude the ADF-14 replenishment process. Forty-two years after the very first replenishment of ADF resources in 1974, ADF-14 is not only maintaining but developing its ambitions. ADF-13, agreed in September 2013 and devoted to financing the Fund’s activities for the period 2014-2016, achieved the equivalent of US $7.3 billion.

The cumulative investments of the Fund on the African continent over its 40 years of existence amount to approximately US $45 billion.

[1] Eligibility for ADF is determined by a country’s gross national income per capita (GNI per capita) and its solvency.