The Impact of Project Cost on Aid Disbursement Delay: The Case of the African Development Bank
In the December 2007 African Development Bank (AfDB) Report on its project portfolio to the Board of Directors, it is shown that the average delay between the Board approval of an investment project and the first disbursement is about 24 months. This delay may have important implications, especially in terms of project effectiveness at the country level. This paper aims to explain the causes of the delay and to assess its cost for affected countries. It uses data of more than 3,800 projects from the AfDB project portfolio (ongoing and closed). The preliminary empirical evidence shows that the delay is higher than the average delay involving other multilateral development banks, such as the World Bank, and that it is mainly driven by the sector of the project. It is also established that the cost of such delay to a country is on average one percent of the project total cost. This is very high, given the financial situations of many African states. Furthermore, with the current financial crisis and its implications in terms of scarcity of resources, coupled with the competition AfDB is facing from other financial institutions, this paper recommends policies that should guide AfDB decision makers and portfolio managers in reducing delays to improve effectiveness of projects.