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The World Bank: does it pass the test?

By Taimour Lay
Posted on Friday, 17 September 2010 00:00

As the World Bank embarks on one of its biggest increases in lending to Africa, The Africa Report evaluates the institution’s practices across the board, from agriculture to diversity.

On our Typrighter blog, Taimour Lay explains how our probe into the Bank’s record on racial diversity caused it to change its website. Read the transcript of our interview with the Bank’s chief economist for Africa Shanta Devarajan, and the Bank’s responses to our extra questions on agricultural policy. Plus, reaction to a new report from the Bank’s Independent Evaluation Group on its loans to agriculture.

Every World Bank president, from former US defence secretary Robert McNamara to the latest incumbent, former US trade representative Robert Zoellick, has declared Africa to be the Bank’s top priority. Billions of dollars in loans and equity investments are channelled to the continent every year through a complex maze of programmes designed and approved in Washington DC. They totalled $11.5bn in 2009/10, with conditions attached that reflect the neo-liberal economic philosophy of the Bank and its main Western shareholders.

This year, the Bank seeks the biggest replenishment of the International Development Association (IDA) concessional financing facility: an increase of $8bn to more than $50bn over three years, half of which will go to Africa.

In terms of direct financing of social needs, seed money for education and health projects, and funds to build roads and power plants, this money should make a key contribution to Africa’s development. To sound out public and private opinion about the Bank’s performance, The Africa Report spoke to teachers, doctors, civic activists and businesspeople in Africa as well as several Bank officials.

The Bank is set to become more important to Africa as Western governments cut back aid in the wake of the recession. It has emerged as a key gatekeeper and facilitator in the ?global aid system and its orthodoxies have been largely accepted by African finance ministers for more than two decade.

World Bank Report Card– First Semester 2010
Health – D
A poor result. Serious remedial work to be undertaken, and little signs of having taken on last term’s recommendations.Environment – D
The Medupi incident has cast doubts on the student’s commitment to progress, even if there is willingness to try a new approach.Diversity – F
Unwilling to play with the others, and some concerns about behaviour in class – we ask the student to recognise there is a serious problemm here.Corruption – C
Some encouraging progress since last term but the student can be secretive and disingenuous when discussing these issues.Agriculture – B
Committed, but recent results do not match aspirations, and ambivalent in places – a new syllabus may help performance.

What alternative?

Any assessment of the Bank has to look hard at the alternatives to multilateral development financing, such as: much more fickle private investment or expensive commercial loans, more opaque barter-style financing from other developing regions, and more politicised bilateral aid programmes. Like the Bank’s programmes, all of these have their own shortcomings.

For the next decade at least, most African countries will use a mix of these financiers with the Bank playing a key role in raising funds, giving policy advice and designing projects. That’s why its stated commitments to reform, accountability and decentralisation of its policy and research capacity to Africa and other developing regions is of such importance to governments and citizens across the continent.

Public health – Needs emergency care?

Rating: D

“Across the portfolio areas the World Bank’s record on public health is the poorest. And Africa is where it has performed worst,” says Paul Jensen at Advocacy to Control Tuberculosis Internationally. In 2009, the Bank’s Independent Evaluation Group (IEG) published a damning 10-year audit of the negligible progress made in the sector, finding that project evaluation was “almost non-existent” and that results were hard to find or measure. A previous review in 1999 used similar language.

Failures on health have hit Africa hardest. Civil society groups criticise loans made by the International Development Association and financing from the International Finance Corporation (IFC) for promoting private solutions to the eradication of disease and for failing to reach the poorest populations.

Overall, around one-third of World Bank lending has failed to produce results, according to the Bank’s own reporting.

“The performance of AIDS projects in Africa has been particularly weak,” the IEG report found. ”Only 18% have had satisfactory outcomes.” Such criticisms led to a ”reshuffling of the bureaucratic pack”, as one Washington observer put it, but no change in direction.

While the IFC continues to chase private-equity cash, critics say that such funds are only weakly answerable to the Bank’s performance standards on accountability, monitoring and transparency, exactly the areas the reports on health investment have highlighted as being in desperate need of reform.

Others critics say that the Bank should leave the crucial health work to focused initiatives such as the Global Fund for AIDS, Tuberculosis and Malaria and the Bill and Melinda Gates Foundation. While there are partial success stories on the continent, there are many failures. In Ghana, evaluators struggled to find any improvements as a result of World Bank loans

There is also a World Bank and IMF inheritance at work: aid and policy prescriptions for the past 20 years have hampered the ability of governments to provide health in a comprehensive and equitable way. Structural adjustment policies led to cuts in public sector health spending in sub-Saharan Africa, and lending conditions that required the introduction of fee payments for health services – the elimination of which the Bank is still delaying.

Energy and environment- Coal-coloured clouds?

Rating: D

The truth behind the World Bank’s decade-old public relations work on environmental sustainability is being exposed yet again by its support for a controversial fossil fuel project. This time it is a record $3.75bn in loans granted in April to the Eskom plant in Medupi, South Africa. Despite its claims that Eskom will use ‘clean coal’, the Bank is facing a storm of criticisms for financing without regard for the environment and instead guaranteeing cheap electricity for big companies at the expense of the poor.

The same story repeats itself across the continent in major energy, mining, forestry and infrastructure projects, including the Chad-Cameroon oil pipeline (from which the Bank withdrew in 2008), the Bujagali dam in Uganda, the West African Gas Pipeline and the Ahafo gold mine in Ghana. In May, campaigners forced the Bank to reconsider investing in Ethiopia’s Gilgel Gibe III dam over concerns about its social and ecological impact.

The Bank’s environmental protections are weak and it pays little attention to long-term sustainable development, according to the latest Independent Evaluation Group (IEG) report on International Finance Corporation investments. The IEG found that more than one-third of projects had “inadequate environmental and social supervision manifested mainly in unrealistic safeguards ratings and poor or absent monitoring and evaluation”.

Investment in renewable energy remains low. From 2003-2010, the Bank spent $6.3bn on coal projects alone, while spending $4.9bn on new renewable energy projects. World Bank energy spokesman Chris Neal says that efficiency projects can be just as important to environmental sustainability and that “some observers assume that whatever is not specifically ‘renewable’ in energy lending must be ‘non-renewable’. In 2010, 28% of the Bank’s energy budget is devoted to renewable energy and efficiency projects.

The Bank is positioning itself to be the manager and trustee of climate-change finance for Africa and is also one of the major promoters of the expansion of the carbon market. “The Bank argues that it is the only institution with the reach and experience to handle the money,” says Janet Redman, co-director of the Sustainable Energy and Economy Network. “But it has a terrible record on the environment in Africa and even now fails to assess the impact of its own energy lending.”

Diversity and merit – Snail’s pace?

Rating: F

Apartheid Avenue’ is what some black African staffers call the walk from the Farragut North Metro station to the Bank’s headquarters on H Street in Washington DC. White senior managers emerge from the station around nine in the morning and head south to the heart of the institution, while many of their black counterparts peel off to the separate Africa regional office, where many will spend the rest of their careers. Africa may be a top priority for the Bank, but employees complain that there are far too few opportunities for African professionals to build experience in other regions.

Almost every year, the Bank’s African shareholders ask the management to look more seriously at the hiring of African senior managers and to use more African expertise on the ground. Civil society groups echo these concerns, arguing the Bank has done far too little in response to criticisms of the homogeneity of its leadership: white, middle-class, male US-educated economists who share a neo-liberal view on economic policy.

Pressure for more diversity is mounting. The Governance Accountability Project’s (GAP) Beatrice Edwards says perceptions of racial bias against black Americans and Africans in recruitment and promotion have damaged the Bank’s reputation in developing countries. After an interview with The Africa Report, the Bank released statistics of the numbers of African and Caribbean staffers in senior managerial and decision-making positions. The latest figures still show Africans substantially under-represented in the higher echelons of the Bank despite the appointment of high-flying Nigerian former ministers, Obiageli Ezekwesili and Ngozi Okonjo-Iweala as vice-president for Africa and managing director, respectively. GAP also refers to an incident in May 2009 in which a racist slur was daubed across the Bank’s legal affairs office. One unnamed World Bank vice-president told the Bank’s diversity review: “We are not likely to treat our clients better than we treat one another.” In 2008, there were four African-Americans out of the 3,500 professionals hired by the Bank, a lower percentage than when The Washington Post investigated the Bank’s recruitment policy in 1979.

Corruption – The accountability gap?

Rating: C

When former World Bank President Paul Wolfowitz was forced to resign from the Bank in 2007 after arranging a generous pay package for an employee who happened to be his girlfriend, it was a sea change in the Bank’s history. For the first time, the most senior official in the institution was being held to account, thanks initially to a revelation from a whistleblower in the bureaucracy.?

Much less publicised and less investigated is the Bank’s performance on anti-graft commitments in its loan and investment portfolio. It lent $7.3bn under concessional terms through the International Development Association (IDA) to Africa in the 2009/10 fiscal year alone. The IDA and the International Finance Corporation are under pressure to step up disbursements to Africa. That can mean a lack of effective due diligence on projects, which can lead to failure and losses borne by citizens of the lending countries.

Bank Milestones

1944 World Bank created by the victorious powers at the Bretton Woods conference as part of the new global institutional architecture following World War II

1968 In the post-independence period, lending focuses more on poverty alleviation, but contributes to rising levels of debt

1981 The Berg Report is published and structural adjustment adopted as the new policy stance. This leads to drastically-reduced budgets to avoid balance-of-payments crises

Post-1990 Bank thinking shifts towards ensuring that governments take ownership of the reform process, which it credits for recent economic progres

Half of the IDA’s funds go to Africa, and it has failed to address the risks of fraud and corruption in its assistance programmes, according to a review by the Bank’s Independent Evaluation Group (IEG) published last year. The IEG report found a “material weakness” and six “significant deficiencies” in the IDA’s compliance with its articles of agreement and operational policies. That could mean the loss of millions of dollars through collusion, overpricing, underdelivery and bribery.

Beatrice Edwards of the Governance Accountability Project is scathing about the Bank’s response: “As is typical with the Bank, there is transparency about the problem but no accountability or attempt to fix it.” She accuses the Bank’s Department of Institutional Integrity of underplaying its investigation into the corrupt award of mining contracts in the Democratic Republic of Congo in order to protect the bank’s difficult relationship with President Joseph Kabila’s government.

This year it emerged that an Eskom power project in South Africa backed by the World Bank may yield a $135m profit for the ruling African National Congress. The South African ruling party’s investment arm owns 25% of a Hitachi subsidiary which received a $5bn contract under the deal.

Critics ask how the Bank’s rules permit such conflicts of interest. However, the current head of the Bank’s Integrity Department is the well-regarded Leonard McCarthy, who headed the Scorpions anti-corruption unit in South Africa when it was investigating Jacob Zuma on racketeering charges, which were subsequently dropped.

Agriculture – Maize and market failures

Rating: B

Agriculture remains the great conundrum of African development. For some critics, the Bank’s record mirrors the decades of neglect by other donors who got tired of poor results and intract-?able problems. The Bank’s Agriculture Action Plan 2010-12 aims to address smallholder productivity, food security and climate change, but it is easier said than done. There has been a recent return to focusing on productivity and rural poverty. More than $1bn of the Bank’s agricultural lending went to Africa in 2009, but the Bank is still seen as an opponent of public intervention to end ?rural ‘poverty traps’.

This ambivalence about funding agriculture through the public or private sphere can best be seen in the response to the Malawian fertiliser subsidy. Malawian officials say the Bank opposed the idea at the outset, expressing concern about the cost, while applauding the “efforts of the government of Malawi to invest in food security”. The Bank says subsidies have in some years consumed more than 75% of public spending on agriculture and 16% of the entire national budget.

In Mali, the Bank continues to promote liberalisation, which NGOs say threatens the livelihood of hundreds of thousands of small farmers. The SAPs in the 1980s closed down many of the marketing boards responsible for delivering extension services to farmers because they were ‘fiscally unsustainable’. The end result was a lowering of direct and indirect taxes on farmers, especially through a revaluation of currencies like the cedi in Ghana, according to chief economist for Africa Shanta Deverajan.

The Bank now admits that “the increased incentives did not lead to the expected upsurge in private investment, and private firms did not step in to fill gaps left by the withdrawal of government agencies.” The result is unaffordable input prices, inadequate seed production, poor transport and limited access to credit. The failure of the market to ‘step in’ in Africa is a theme common to Bank ?interventions of this period.

Read the investigation in the October-November edition of The Africa Report, on sale now. Or subscribe to The Africa Report via our online store.

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