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The CGD Podcast
Ten Years of Progress at the African Development Bank – Donald Kaberuka
00:14:06
The African Development Bank is widely praised these days as one of the premier financial institutions in Africa. The past decade saw it place much greater emphasis on infrastructure financing, a change brought about in part by the instincts of its...
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- [00:05]
A
Hello, I'm Rajesh Merchandani. Thanks for joining me for this edition of the CGD podcast. My guest today led the African development bank for 10 years, stepping down just a few months ago. Before that, Donald Kabiruka was Rwanda's finance minister, helping that country recover after its horrific civil war. Now he's a member of CGD's High Level Panel on the Future of Multilateral Development Banking. And he's also joined the Centre for Public Leadership at the Harvard Kennedy school for government. Dr. Kabaruka, it's great to have you on the podcast. Thanks very much for joining us.
- [00:37]
B
Thank you.
- [00:37]
A
Now, the African Development bank is widely praised these days as an effective development institution, one of the premier financial institutions in Africa. Often that is credited to you. What did you do to make it that successful?
- [00:53]
B
When I came in 2005, Africa was beginning this long march, turning a corner after decades of negative per capita growth, so to speak. And so we laid in place a new strategy for the institution by the which CGD helped us a lot. And I think those strategic choices around economic growth, around infrastructure, economic integration, private sector, fragile states turned out to be exactly what Africa needed at the time. And so the bank grew in legitimacy, in franchise value, were able to mobilize about $25 billion for the software window to triple the capital of the institution. And when the crisis came, financial crisis in 2008, I think the powerful countercyclical action by the bank enabled even greater franchise value. So I do think now the bank is positioned as a premier organization. But Africa is changing rapidly too, and so the change has been permanent.
- [02:05]
A
What would you say were your biggest achievements and perhaps your biggest disappointments during your tenure?
- [02:13]
B
I think my biggest achievement, not me alone, but all of us, the bank was to focus the institution. International financial institutions, MDBs suffer a genetic problem, what Nancy calls the mission creep. You want to resolve all the problems of the world with limited resources. And it is very hard for international institutions to focus, to select things for which you have comparative advantage. And we were able to do that. It was, I think, the first time when an organization of this size was able to say, there are many things to be done, but this is what I'll do, and do it well. It was not easy, but it was a choice which had significant consequences for the institution. Now 60% of the bank's work is around infrastructure, around private sector economic integration, the kind of things which the continent requires for its transformation. Now, disappointment is not the word I like. I prefer lessons learned. What could I Do differently. The thing which kept me awake at night when I was at the bank was the whole range of countries where we kept starting going back. Places like South Sudan, the Central African Republic, you do think finally you are there, you begin operations back to square one. Now that was not within the control of the institution. But as a leader, as an African leader trying to ensure that these countries move on, they minimize the spill of effects on the neighborhood. It is an issue for which I feel that until we can resolve it, in other words, countries making progress, not three steps forward, two steps back.
- [04:13]
A
I mean, that's one of the kind of concerns, if you like. One of the issues that's sort of central to the SDG process, this idea that poverty has changed. And there are some countries that really struggling. For those aid is going to still be very, very important. For others, there are other sources of development finance. But let's talk about those strugglers, if you like. How did perhaps your experience in Rwanda post conflict help you understand the particular challenges or needs of helping a post conflict or fragile state move on?
- [04:51]
B
You know, each country is different, each country is different. Although there are lessons to be learnt and to be shared. First of all, the case why dealing with those countries is important, number one is that millions of people are trapped there. Number two, the spillover effects are enormous, whether it is refugees, epidemics, small arms. And also the brand of our continent pays a high price. And so I deem it important to. What do you mean by that last point? Look, the image of Africa, it's brand what investors look at.
- [05:30]
A
And so the image is still the poorest.
- [05:33]
B
So our countries pay premium, say on borrowing money, because the image of Africa is captured in the west from those few countries with the largest spill of effects penalizes all of us. So we set up a dedicated facility, about a billion dollars for those countries, rebuild capacities, kickstart their economies and help them regularize their international debt. And we have been enormously successful in some of them. But I guess what I'm telling you is that places like Burundi, Central African Republic, South Sudan, we have to go back and pick up the pieces. From the beginning, that issue of Brand.
- [06:15]
A
Africa is really interesting because you look at something like the Ebola crisis. It was in three countries on one edge of Western Africa. And yet for many people in other parts of the world, it seemed like the whole continent was a no go zone. So that's the problem of Brand Africa, isn't it?
- [06:37]
B
You got it. This tragedy of Ebola in the Mano river area, that is less than 2% of Africa's GDP. That is less than 1.5% of the population. But for the outside viewers, this was Africa and Ebola. It was Ebola. In Africa. People are canceling their flights. Airlines stopped flying to the region. I had myself to take a decision which I feel proud about. When I saw these things happening, almost a de facto embargo on the region. To travel to the region at the height of the epidemic to try and psychologically break the embargo, I knew the risks. But as a leader, sometimes you have to lead from the front. So I traveled the region. When I came back, I had to be quarantined for 21 days. But I had to show that here is a problem we have to deal with, but the rest of Africa is still open for business. And that is a brand issue. I'm referring to one of the choices we made in 2005 on private sector development. What I decided to do was to increase dramatically the role of the bank in the private sector. Lending, not simply lending to governments, lending to businesses. You know, when I came in, they were doing what, $300 million a year. They're now doing $2.8 billion. I had to show that Africa is safe for business. It's a place you can make money. But it was not enough to say it. I had to put on beef on the table. And because of that, we're able to leverage our dollars one to six for every dollar we put out there, there were six dollars from the markets we're able to create, to participate into almost 45 new private equity firms in five years. And so changing the brand is about talking about it, but it's about behaving in a manner which shows that you actually believe it.
- [08:42]
A
That focus that you say you put on increasing private sector lending, I mean, that brings us to talk about the focus of the SDGs, of financing development. The huge cost of the SDGS is not going to be paid for largely out of government aid. It's going to require more funding. Is there enough? Is it available? How is Africa going to raise that kind of money? Because the majority of poor countries in the world now are still in Africa.
- [09:13]
B
Put it this way, development is about money, loads of it. But it's more than money.
- [09:20]
A
It's about policy.
- [09:21]
B
It's about money. It's about policy, it's about implementation capabilities. If development was simply about money, Libya would be the most developed country in the world. So let us focus on all what we need to get outcomes. The SDGS aims at peace and stability, developing Regional markets, reducing the cost of doing business, dealing with the capital flight effect, mobilization of domestic resources, better management of natural resources. It's a whole combination of things we will do which together provide the fiscal space we need to fund the SDGs. I dislike the idea that implementation of the SDGs, for example, giving women the same rights as men, how much money does that cost? So there are many things we have to do and money will be the least constraint. Now, when you come to things which cost money, building roads, building dams, it is important we understand that public money is there only to leverage private money. So create space for the private sector. Create space for the public sector and the private sector to work together for particular outcomes. A simple example, energy. You know, to produce a megawatt of electricity would be about a million dollars at least if you do hydro. Now, given the gap we have in Africa, there's no way public money, either local or aid money, can do this. But if we reform our power sector, the national off takers, the regulators, the tariffs, the subsidies then make it possible for independent power producers to come and produce electricity. And the state then provides some degree of assistance to those who require it. But at the same time, private people making money out of resolving a public problem.
- [11:21]
A
Do you think you can apply that same model though to things like providing basic health care, basic education, vaccinations, things like that?
- [11:28]
B
Do you know today that much of secondary education in Africa is provided by private sector?
- [11:36]
A
I didn't know that. Tell me more.
- [11:38]
B
Do you know that in many countries now, universities, there are more private sector universities than public universities in almost every sector can imagine. If the policies are right, there will be opportunity for someone to say here I can make money, but also provide a social good.
- [11:57]
A
Let's talk a little bit about the work that you're doing here at CGD as part of the high level panel on the future of Multilateral Development banking. I imagine you probably have a lot of experience in this and you have.
- [12:08]
B
A lot to say.
- [12:09]
A
Yeah, much to say. What are the issues?
- [12:15]
B
Put it this way, the current ecosystem of the international financial institutions is a child of 1945. So the Bretton woods institutions were created in the aftermath of World War II to deal with problems of their time. Along the way they have evolved, certainly they've done a very good job along the way. Regional banks were created as countries were getting independent, but it's still on the model of 1945. So the world has moved on, countries have moved on, and it's time now we ask the question, what kind of organizations fit for purpose do we need for this century? What kind of MDBs do we need for the SDGs now? That be issues which are institutional issues of governance, issues of how do you deal with the new emerging economies, how do you deal with the global public goods epidemics, climate change and the rest of it. And so this reflection is important to accompany the decisions of New York, which has put in place an ambitious agenda. But someone has to glue all this in place. And I feel that ifis international financial institutions have a major role to play, but not with the genetic makeup of 1945.
- [13:36]
A
Donald Kabiruka, it's been great to have you on the podcast. Thank you very much for joining me.
- [13:39]
B
My pleasure, my pleasure.
- [13:40]
A
You can find out much more about the work of the High Level Panel on the Future of Multilateral Development Banking on our website, cgdev.org, all the rest of our work is on there as well. And as usual, please join me, Rajesh Merchandani, for the next podcast from the center for Global Development SA.