Economic reforms must taper into political reforms says Kaberuka

By Nicholas Norbrook and Patrick Smith in Tunis

Posted on June 9, 2011 12:10

President of the African Development Bank Donald Kaberuka unpacks the complex relationship between African countries and their emerging partners on a changing political map, and explains why legal expertise in drawing up contracts is key

China is not rushing to rescue Tunisia after its economy was laid low by the revolution. The European Union’s comparatively miserly loan of €150m ($215m) offered a great chance for Beijing to outflank the West again and deliver on its South-South solidarity promise. In fact, it was the African Development Bank (AfDB) and the World Bank, each offering Tunisia loans of €500m, that stepped into the breach. For AfDB President Donald Kaberuka, the case shows the complexity of Africa’s relations with its emerging partners, often far from the ‘win-win’ rhetoric: “China is interested in oil and minerals. If you have no oil and minerals, they take a long time for you.” ?

Kaberuka is more interested in the practical benefits that these partners can bring. Where a decade ago the AfDB was using Chinese contractors for 20% of its road projects, the Chinese now build 60% of all Bank-funded roads. This pragmatic shift risks offending European funders hoping their contractors would get a bite of the procurement cherry. But Africa has no time to lose. “To reach where China has got to today, Africa has to grow at double digits for two decades,” says Kaberuka.

The AfDB takes a twin-track approach to helping its African states get the most out of their encounters with emerging Asia. The first is to reap the benefit of their collective knowledge and experiences. The second is to ensure that African countries cut better deals when they sit down to negotiate with new partners hungry for their raw materials.

“The growth patterns in the world are changing, but from around 2000, and especially 2003, that’s when we really saw the shift towards emerging economies,” says Kaberuka, who accepted an invitation to bring the AfDB meetings to Shanghai in 2006. “You have the Gulf countries, you have India, China, Brazil, Indonesia, all the G20 members. And we are trying to learn from all of them.” ?

At the most recent meeting of the G20 in Seoul in November 2010, the Koreans put forward a paper on how to support low-income countries. Known as the Seoul consensus, it explains how there are many possible paths to development that are different for each country. The AfDB is putting together a policy unit at the bank to look at all these different experiences. “We are working very hard on it with the Koreans. We are very keen to be the transmission channel for these experiences and knowledge,” says Kaberuka.

Wriggling free from the Washington consensus of untramelled free market economics has been a liberation in itself. Rising middle classes in China, India and Brazil are pushing up food prices, but a rigid application of free market doctrine under structural adjustment programmes destroyed the ability of African farmers to benefit from this. “The state has to come back and provide for farmers. I’m not an advocate of subsidies at consumption level. But I’m in full support, if need be, for support at production level. To do what the Malawians have done for example, providing targeted timed subsidies to the farming system.”

Kaberuka also believes there are political lessons to be learnt from Asian countries – but rejects the argument that a strongman will lead to salvation. He takes Tunisia as a perfect example of a “scientific dictatorship” that delivered 92% house ownership, 84% access to water and electricity, and the education of girls, but finally exploded. “This revolution was not just about bread and butter. It was about internet, it was about freedom, it was about opportunities, it was a fight against graft and kleptocracy. People like to say that authoritarianism can deliver development, but it is not sustainable. At some point, the economic reforms have to taper into political reform.”

The problem with the development delivered by authoritarian governments, he explains, is that it is too often development only for a thin crust at the top of society. For an example of how to reform economically while not leaving the people behind, Kaberuka urges an understanding of Brazil, with the attainment of price stability under President Fernando Henrique Cardoso, and the social inclusion of President Luiz Inácio Lula da Silva. “Lula has succeeded in creating safety nets. Every middle income country that doesn’t work on social inclusion gets stuck in a trap. When parts of society move forward, and others get left behind, that is what creates tension.”?

But the key to getting the best out of emerging partners, says Kaberuka, is to ensure the contracts for resource exploitation are drawn up by top professionals, and enforced by African governments. To help with contract negotiations and tracking stolen state assets, the bank has launched the African Legal Support ­Facility, an independent body whose acting director is Mamadou Deme.

DOs & DONT’s
DO make sure all deals are structured by international law firms with expertise in the relevant domain.DON’T allow emerging partner companies to misbehave without consequences, or they will reoffend.DO build up safety nets to ensure benefits of growth are felt by all and not just the elite.DON’T endlessly revise previous agreements or this will deter investors from returning to your country.

The facility, which charges competitive fees for its independent legal advice but offers legal training for free, started operations last year. Already Tanzania, Uganda, Niger, Burkina Faso and Rwanda have sought its expertise in contract negotiations, many in the shaping of complex offset and counter-trade deals with China, India and Brazil in the agribusiness, oil and minerals sectors. It helps hire international law firms to scrutinise the deals on behalf of the African states and ensure they do not repeat the mistakes of the Congolese government in its multibillion-dollar iron ore for infrastructure deal signed with Chinese companies in 2008.

For Kaberuka, it is only through better dealmaking that Africa will manage emerging partners’ demand for its resources. “It cannot be like in Sierra Leone in the past, where investors came, and went, leaving only a big hole in the ground.” He is equally adamant that African leaders have to create stability. “I have seen too much recently of bad agreements being struck, only to be reversed by the new governments coming in. It kills investor confidence.”?

The starting points, he says, are better governance and the integration of Africa’s markets to take advantage of the continent’s diversity and economies of scale. Africa has to integrate regionally, to be able to deal better with these larger partners, and kickstart Africa’s domestic economy. “If you add up Africa’s foreign reserves, they are larger than India’s!” The quality and distribution of economic growth is critical, Kaberuka insists. Social inclusion is not just a luxury, it is an integral part of development. He wants the AfDB to play a leading role in boosting Africa’s negotiating position – both with the emerging and the traditional partners. A much stronger skills base and more accountability across the board are all part of the equation.

This article was first pubished in the June 2011 edition of The Africa Report

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