Ousmane Diagana (World Bank): “We do not discourage all subsidies”

By Joël Té-Léssia Assoko, Nicholas Norbrook
Posted on Friday, 24 June 2022 13:44

Ousmane Diagana is the World Bank's vice-president for West and Central Africa since 1 July 2020. (rights reserved)

Ousmane Diagana, the West and Central Africa vice-president of the World Bank explains the Bretton Woods institution's positioning and priorities on the continent. In this long interview, he pushes back against the familiar critique of rigidity and economic orthodoxy.

Ousmane Diagana was in Paris before heading to Germany for discussions of the Sahel Alliance, which brings together more than 15 bilateral and multilateral development institutions. He was interviewed at the World Bank’s offices in Paris. The Mauritanian-born executive has been in charge of World Bank operations in 22 countries in West and Central Africa since July 2020, overseeing a portfolio of projects worth more than $38bn dollars.

The 30-year veteran of the multilateral institution spoke about the operations of the bank in the Sahel, its policy in terms of subsidies, responses to the agricultural challenges of the continent but also on the issues of education, promotion of national champions and delicate relations with Nigeria. Two weeks before the official launch, in Dakar, of the new financing cycle of the International Development Association — which has brought $93bn dollars in commitments from donor countries for the period 2022-2025 — the vice-president also outlined the priority investment sectors of the World Bank on the continent.

The Africa Report: How can the Sahel Alliance continue to function when Mali and Burkina Faso have experienced coups d’état and Chad is going through a complicated military transition? Who are your interlocutors?

Ousmane Diagana: Whenever there is a constitutional breakdown, we take a break from our interventions in the country concerned and make an institutional assessment of the fiduciary risks and the capacity of the actors in place to manage the programmes effectively. It is at the end of this assessment that we determine whether or not to resume our programmes. And if so, how to do so.

We have resumed our interventions in Burkina Faso and Guinea. In the case of Mali, following ECOWAS financial sanctions, the country was unable to honour its financial obligations to our institution. This led us to stop our disbursements. If Mali now repays the instalments that have not been paid to the bank in recent months, disbursements can resume.

There are several reasons – as we know – to invest in the Sahel: demographic needs, agricultural and solar potential, and the climatic impact. But there is also the question of the financial profitability of investments. What determines your financing decisions in the Sahel?

We see the Sahel as a space of opportunity, including in the larger geographical area in which it is located. We cannot envisage the development of agriculture and livestock in the West African region if Mali is not involved: its contribution to the development of these sectors is vital for Côte d’Ivoire and Senegal, for example.

Similarly, if a road programme is to be financed, economic profitability is not the only criterion to be taken into account; the road must also be considered as a factor of social cohesion, which unlocks development opportunities and connects populations that do not necessarily share the same social background, to shorten the distance between production and consumption areas. If funding is not provided, simply because of the profitability of investments, we are not helping to create the conditions for social cohesion essential for viable and sustainable economic development.

Let’s talk about inflation, which is reaching record levels on the continent. African farmers will have to decide in the coming months on their fertiliser and agricultural input purchase programmes, in the context of soaring prices. Should exceptions be made in the face of the reluctance often displayed with regard to agricultural subsidies? Shouldn’t we change our perspective until the risk of hunger crises recedes?

The current crisis is a worsening of a pre-existing situation because the problems of food insecurity and the development of African agricultural potential are not new. For years, in our partnerships with African countries, we have focused on agriculture. Whether it is a question of the reforms to be carried out, the necessary modernisation of agricultural structures, or the more significant role to be given to the sector (small farmers as well as agro-industrial groups).

We have also supported this sector both in the framework of our budgetary support and through major programmes aimed at setting up more efficient food systems, which have received substantial funding in West Africa.

However, we must always take into account the long-term effects. If we feel that public subsidies are not sustainable or effective and may jeopardise the future, we try to advise states to be careful. This is done in a dialogue that takes into account the specificities of each country. We do not have a rigid approach.

So what are the broad lines of ‘good subsidies’?

It is important to protect people’s food purchasing power and to prevent famine from setting in. We do not discourage subsidies for a number of food products. But we must also draw conclusions from these crises and see how to reorient or strengthen agricultural systems so that these problems do not continue indefinitely. This is what we are doing in our agriculture programmes.

The fundamental problem is the targeting and effectiveness of subsidies. The data clearly shows that in many countries it is not the most vulnerable populations that are the beneficiaries of these subsidies.

You said earlier that the Bank should not be systematically opposed but should propose solutions. Do you have specific examples of such solutions? And of their effectiveness on the ground?

In the case of Niger, concerning agriculture and small-scale irrigation, we carried out pilot experiments a few years ago that enabled us to move to a larger scale, within the framework of the 3N (Nigeriens feed Nigeriens) programme launched by President Issoufou. Until a few years ago, the risk of famine in this country was always in the news during the lean season [before the first harvest]. This is no longer the case.

In order to ‘reach scale’ in the case of Niger, it was necessary, firstly, to have a very strong, assertive political will. Secondly, it is a question of setting up a permanent system, rather than an ad hoc mechanism created to respond to a crisis situation and abandoned as soon as it is resolved. Third, there must be a mechanism for mobilising and allocating sufficient resources, led by the country with the support of its partners. Fourth, it needs to be managed by nationals with real skills. These four elements must at least be present. This is what Niger has managed to do.

But there are other examples of scaling up, notably in the area of human capital development, in access to education at least at the primary and secondary levels.

Certainly, but the quality of this education and its adequacy to the needs of the labour market is far from being unanimously agreed upon…

Investments in the “soft factors”, in improving quality, are not always made. I am thinking in particular of the training and supervision of teachers, but also of their motivation (remuneration, assignments, etc.), as well as of the guidance of pupils and the strengthening of curricula, which do not always receive the attention they deserve. In our dialogues with governments, we try to help reform education systems to emphasise technical education. In Senegal and Côte d’Ivoire, we have major projects underway which we will evaluate with the hope, in the long term, of making this type of programme the mainstay of our interventions to strengthen education in this region.

We have just passed two projects through the board for the development of ‘resilient tourism’ in The Gambia and Cape Verde. They contain a strong training component in the field of hospitality and services. Each country has an economic structure, and the training model must be adapted to this reality, but it must also be defined in such a way as to be evolutionary.

Let’s look at the case of Nigeria. For seven years, the government has implemented an economic vision that is sometimes considered to have echoes of the 1970s: closing borders, import-substitution, energy subsidies, etc. How do you view the results of this policy?

I fundamentally believe in the sovereignty of states in defining their economic policies.

However, the World Bank is a partner institution with unique experience and expertise that we can share with states that wish to do so. With Nigeria, with regard to the review of the subsidy regimes and the exchange rate system – which is the defining factor for a stable macroeconomic framework and for stable and effective financial governance – we have made some progress in the dialogue, but have had fewer results in terms of formal agreements. As a result, we have not been able to put in place a budget support programme of significant size as was under discussion with the country authorities.

However, in parallel, we have tried to increase our interventions in the area of governance and power distribution, in agriculture and livestock, with the different states of the federation and with the private sector. In terms of development-oriented investments, we have increased our interventions to unprecedented levels.

Another criticism of ‘economic nationalism’ or protectionist programmes is that they may encourage the emergence of monopolies or oligopolies. This is what happened in Mexico, particularly in the 1990s, and made the fortune of a billionaire like Carlos Slim. Some African countries – Angola, for example – have embarked on vast plans to privatise public monopolies. Do you think we should fear a “Mexican-style” scenario?

Let’s just say that competition for business creation and the diversification of entrepreneurs in different economic niches are the best guarantors of quality services. Any monopolistic tendency – state or private – is a brake on the creation of better-shared wealth. Let us not forget that the absence of such competition not only leads to corruption but also to the exclusion of certain groups within the population from access to certain services.

More broadly, it is important to have a strategy for identifying and supporting sectors that will enable Africa to move forward quickly and sustain the transformation of its raw materials. The World Bank has identified four: energy, digital, human capital and agriculture. They will be at the heart of the discussions planned with African heads of state in Dakar on 7 July for the official launch of IDA 20, the new financing cycle of the International Development Association.

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