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This Week in Global Development
Development banks pivot strategies as global volatility deepens
00:30:04
At this year’s annual meeting of the https://www.devex.com/organizations/european-bank-for-reconstruction-and-development-ebrd-20085 in Riga, Latvia, discussions...
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- [00:00]
A
Foreign. My name is Rumbi Chakamba and you're listening to this week in global development hosted by myself, Ada Saldinger and David Ainsworth. And I'm joined by Anna Goel and Jesse Chase Lupit. Thank you guys both for joining me this week. And this week we're talking all about bank meetings. Jesse, you were at the EBRD bad meetings last week and that seemed like quite an interesting experience. I actually had FOMO when I was reading about it and invested this week. It sounded like it was such an interesting setting to be in. And we'll get into the discussions, but first tell us about the vibes.
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B
Yeah, it was a very, very fun weekend. They were based in Riga, Latvia, which is a really beautiful small city. And the country itself put on this sort of welcome performance on the first day to sort of open the meetings. And it was, it was really impressive. It was like hundreds of singers and dancers on stage taking the audience through the history of Latvia. So there were like tribal dancers. Apparently Latvia has these traditional sort of bagpipe type instruments which were really, really interesting to listen to. You could kind of watch the performance go through the Soviet era with like dancers wearing all black and really kind of harsh music. Yeah, it was wild at the end. I think there were like 300 people who came out in a procession to. It was insane. Like we didn't know where everyone was coming from, but they were all singing the Latvian national anthem. And yeah, it was a really kind of intense introduction to some Latvian culture. So I was only there for like three days, but I was grateful that I got to see some of that, that traditional energy.
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A
Yeah, I low key love it when my smaller countries host conferences because I think they give it their all. But another interesting thing about the location is its proximity to Russia, Ukraine and everything that's going on there. And that ended up playing like a central role in the discussions around bank. Can you take us through how the bank is sort of changing because of the war in Ukraine?
- [02:06]
B
Yeah, absolutely. So, yeah, Latvia is on the border with Russia and has a really strong sort of past. As a Soviet, former Soviet member, you could see just every other building had a Ukrainian flag on it. So that the politics there were very present. And EBRD has been the largest multilateral financier in Ukraine since the start of the war. So there's, there's a whole lot of focus on Ukraine. There's a lot of, a lot of people from Ukraine who are there who are very grateful for the, for the presence that the EBRD has had. And, you know, this is a bank, so they're largely there to help the economy continue to thrive despite the war. And because this war has gone on so long, the EBRD has sort of become this, this crisis financier and developed a little bit of like, background knowledge now on how to deal with economies in crisis. Of course, normally development banks would go in after a war has ended to help rebuild and reconstruct and, you know, carry a nation forward. But this war, you know, as we know, has been going on for five years and that's, that's not really an option yet. So I talked to a lot of people about that and how their, the knowledge that they've gathered from their role in Ukraine can be translated to other crisis zones in the world. We know that we're in a situation right now with multiple wars going on, especially in the Middle East. And the EBRD actually, at the conference announced that it would be expanding more into the Middle East. It has it recently, I think Iraq recently joined in September as a member. But it also has these smaller agreements through trust funds in other countries that aren't kind of official shareholders. So that, that they're active in Palestine and Lebanon. And in Palestine in particular, they've been. They have this trust fund that helps with liquidity, it helps with trade finance, guarantees it lend. They lend to small, medium enterprises, green finance programs, women, business lending, that kind of thing. So there's, you know, the other banks are, are in these zones as well. Ifc, they're there. But ebrd, like I said in Ukraine, it's still the largest. And from what I gather, they've also been the most helpful in Palestine and in the west bank in particular as well. So, yeah, it was. I wrote a story about sort of what does it mean to become a crisis bank. And they were very clear, you know, we're not trying to become a humanitarian organization. They're not there. They're not created to only function in crisis zones, but they want to be prepared to help the member states that they have deal with crises as they come along.
- [04:47]
A
I found that really interesting, like them developing this kind of playbook of what to do in a crisis and not waiting until it's over. Because I imagine I've been lucky enough not to live in a crisis zone, but I imagine life kind of needs to go on while you're in it. But this brings me to you, Anna, because you are currently attending the World Bank's Fragility Forum, and we have a very interesting quote in this Week and it's actually from the governor of South Guhu. His argument is the bank needs to stop financing the drc, which is also like in conflict, because the conflict is continuing, because there is no pressure to actually stop it. And if funders actually stop funding this country, it'll force the leaders to kind of engage and actually commit to ending the conflict that's there. I understand the argument, but I also think it's probably a difficult thing to do because if you do actually cut off funding, you're affecting the, it affects the people who are on the ground and you need that support. What are some of the discussions that you're hearing around fragility and financing these countries from the World Bank?
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C
Sure, yeah. And I'll get to the kind of government question in a bit. But you know, basically it deals with the fact of this whole concept of fragility, conflict and violence. So fcv, there always has to be a acronym for, for everything but you know, it's very much a multi layered long term issue that like the World bank for instance, they have a very tiered approach and it's not instantly going and fund the government. So there are some parallels to what drc, which is very much a fragile state, obviously conflict affected. But basically I think it deals a lot with, you know, it doesn't always, FCV doesn't always get the appreciation it should for its connection to extreme poverty. The World bank estimated that in 2024, for the first time ever, FCV affected countries. It's where half of extreme poverty lived. So increasingly you're going to see extreme poverty concentrated in these fragile conflict afflicted regions, not even just countries. So, so that was the, that's been an overarching theme of the Fragility Forum here in dc. One of the big things which isn't surprising is jobs. For anyone who knows World Bank President Ajay Bonga, that's like his centerpiece policy, but certainly it makes sense. You know, he pointed out in other statistics that within 10 years 250 million young people will be of working age in FCV countries. And he put it plainly, if there's not going to be a job for them, bad things will happen. And I mean, you know, we're talking not just crime, but you know, violence, social unrest, terrorism, mass displacement, illegal migration. So, you know, the consequences are huge. This can be kind of a wonky topic, but it has a lot of real life repercussions. So anyway, to get into the jobs theme, you know, obviously you're not, you need the private sector to generate large scale employment. But it's not like the private sector is just going to come into the world's like most tumultuous hotspots. So this going back to financing the government, the bank kind of advocates this tiered approach where you want to, before you get to the private investors, you kind of start with building the hard infrastructure, bridges, roads, airports, the human infrastructure, so education, skills training, healthcare, et cetera. And then working with governments that show a true commitment to change is how the World bank puts it, and being selective about the governments that do not. So you want to put your energy into governments that are going to work with you and then governments that are not working with you. This is where you kind of rely on third party actors like NGOs and UN agencies to at least provide some basic humanitarian services and subsistence in these, in these FCV settings. So, you know, I think that that might kind of come into play with drc, which is, you know, kind of the quintessential FCV afflicted country. But you know, it does work with governments, that's part of it. And then it's a long term process. And then eventually, hopefully with the infrastructure, the governance in place, you could attract private sector investment for long term reconstruction. So it's a very painstaking process and it's very much, you know, that's kind of also one part of it, but the other part is prevent it being having approaches that deal with anticipating fcv. So a very preventative approach which obviously is a lot cheaper than going in after the fact after a conflict breaks out and state institutions collapse. So that's another kind of pillar of the meetings. But basically, you know, the overarching message, I know it's a little wonky, but you know, I, I think it's really fascinating because the real life repercussions you're looking at DRC, for instance, and this is where Ebola is spreading, this is where conflict is, you know, and climate change and all of these shocks are very much perpetuate like this vicious cycle of instability. So it's really a multi pronged problem. And that's why, you know, the World bank is trying to get a lot of actors and trying to focus attention on this because again, kind of going back to what I said, long story short, in the beginning, it's really going to be a hotbed of extreme poverty and could reverse even a lot of the gains we've made eradicating extreme poverty over the next decade. If we don't specifically focus on fcb.
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A
I find what you said interesting about trying to find the drivers and preventing it in advance because I also found, one interesting statistic that I found was that the bank has actually increased its funding in these areas from like 4 billion in 2015 to 30 billion last year. And this shows that basically things are getting worse. There are more conflict areas and these more of a need as things are happening. But yeah, I actually want to jump a little bit back into EBRD because as we're talking about drc, it got me thinking about another thread that you highlighted, Jesse, which was the bank's sort of move to move into Africa and sort of the challenges that are like coming up there. So the bank is making this attempt to move into Africa, but there are questions around whether it's actually equipped to work in such an environment. What were some of the discussions that you heard around this at the meetings?
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B
Yeah, yeah. So last year eBRD moved into six African sub Saharan African countries. Ghana, Kenya, Nigeria, Senegal, Benin and Cote d'.
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C
Ivoire.
- [11:23]
B
And this was a huge expansion like this. This bank is really a post Soviet Eastern European kind of Balkan Baltic bank. And they had been in Central Asia and some North Africa and Middle East. But this was a big move of, you know, going into a place that a lot of other banks are, are focused on, of course, but you know, this European focused bank hadn't been. And the challenges are obviously therefore very different. You're not looking at just transitioning economies from middle income to, you know, you're kind of helping with these issues of serious poverty like Anna was talking about and fragility and conflict zones and climate change. And a lot of the people I spoke to in the leadership were saying we have a good model, we're a bank, we're going to look at bankable projects. And of course there's learning to do and there's every country has different needs and we're in the process of doing that. But overall, you know, they don't have a new wing of the EBRD that's just kind of formatting a whole new approach of how they're going to do development and you know, maybe that will work again. It's just been one year, but they've already been coming up against very different problems. For my favorite example that really kind of stuck with me was that they, some high level representatives went to Cote d', Ivoire, I think, and were kind of figuring out how to help this cocoa farm become more efficient. And normally they deal with agriculture in a place like Ukraine where it's like vast you know, open fields and you can bring in tractors and whatever equipment you need pretty easily. But this, they go there and the person I was interviewing showed me a picture of the path to the cocoa farm and it's just like a tiny hiking path just covered in absolutely beautiful greenery. But like he, his quote was, you would be hard pressed to even get a wheelbarrow to this farm. So this bank has a whole lot of learning to do. And there was a person, a business, like an innovative business owner there who's not supported yet by the bank, who's saying, you know, I hope that they're going to be able to take a lot more risk in Africa because there's a lot of companies that maybe aren't profitable yet, but they have really, you know, solid business plans. Is EBRD going to be willing to go towards these innovative companies that aren't fully established yet? He also said, you know, we need a lot of infrastructure to get to that point. We don't have the warehouses we need, we need help with the warehouses. Whereas that's not really an issue in Eastern Europe. The infrastructure, the transportation infrastructure is already there. So I mean, it's hard to know right now, so early in the process how effective this very kind of European focused approach is going to be. But I think there's going to, there's going to be a lot of hurdles that maybe they aren't, they haven't faced in the past. On the other side of that though, they, they did say the level of impact they can have is a lot bigger because they can bring, you know, the challenges come down to electricity, connectivity and health. And you know, some of those things are not so hard to do. And with the right amount of resources and funds, you can connect 600,000 people to electricity, which is a thing you need to do in Europe. Everybody's connected already and so it's the amount of impact they can have, even with maybe slightly less effort, could be a lot bigger. So we'll see. And then I just wanted to add at the end, this meeting, as I said, was in Riga. It was very Ukraine, Eastern Europe focused that there were only about 30 representatives out of over 2000 people from sub Saharan Africa. And this was in part a question of logistics. It's harder to get EU visas for a lot of Sub Saharan African members. It's further. They just had the AFDB meetings where EBRD was present. The President is planning to go to Kenya soon, I believe. And last year they had these annual meetings in London where there was more of a sub Saharan Africa focus, although there were also visa issues getting to London at the time. So not a huge amount of representation there, I would say. And we'll have to see if that improves. Next year it's going to be in Egypt, so hopefully there'll be a bigger emphasis and a bigger showing of sub Saharan African representatives there to explain what they need to see from the ebrd. But these meetings really didn't take that on super heavily.
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A
Yeah, I think in the coming weeks it'll be in, in the coming years, actually, probably it'll be interesting to hear, to see how much listening happens within this, because I found it interesting when you're like, they're looking for bankable projects, but it's like, how do you judge? Are we judging this on European standards? Are we judging this on African standards? And that could be two completely different things. So it'll be interesting to see how much learning happens and then also, like, if there's any discussions with other banks that are operating like in Africa already to see like, what challenges they've actually gone through and how they've been able to navigate those. But this actually brings me to an interesting point. You highlighted all this in Tuesday's edition of Invested, but we actually have another edition of Invested coming up which now, which will be coming out on Thursday. So tell us a little bit more about Invested and the two editions that we now have.
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B
Yeah, absolutely. So we've had our Tuesday edition for several years now, focusing on the, the sort of the banks and the finance side of development. And now we started a few weeks ago now a second edition on Thursdays that's focused specifically on Africa. And the link is in the description, so you can subscribe there. But it's a great kind of addition to our financial coverage because it really touches on exactly what you were saying, what is bankable in Africa, what's needed in Africa. And it's a really important source of information. So please do subscribe.
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A
Yeah, and I think one of the driving factors about this is just the need for development finance in Africa and then looking at like the landscape and how development finance is just going down from so many other the sources. And one big thing that we constantly cover in this issue of Invested is domestic resource mobilization. It feels like one of those. Feels like one of those like sort of like keywords that we're now just banding around in development circles. And I'm really hoping this turns into something. But I know you've had, you actually attended a congressional meeting around this and what are the, the discussions that are happening because I know that the Trump administration is really big on this and this is one of the things that like African countries are also really big on. So what were the discussions around this and are we seeing any movement on that front? Sure.
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C
So the acronym drm, again, there has to be an acronym, is kind of part of this overarching focus on self reliance. You know, the aid industry putting itself out of business. You know, all of this. These aren't really new concepts. You know, most USAID administrators stress DRM and self reliance. But the event that I went to featured Mark Green, who is a former USAID administrator under the first Trump administration, and he really articulated this vision of journey to self reliance. So now he's not in the second Trump administration, especially because it got rid of usaid, but he is president and CEO of the ONE campaign. And he's really stressing that the, the administration's kind of America first foreign policy aligns very well with his efforts at self reliance. And what a lot of developing countries want, which is self reliance, and a key pillar of that is the drm, is domestic resource mobilization. I'm sure most everyone knows, and it's kind of self explanatory, but basically it's about governments being able to mobilize their own domestic resources to fund their own development. So these are kind of practical things like improving tax collection, broadening the tax base, improving the government's administrative capacity, curbing illicit financial flow so that, you know, money's not going out of the country, but rather staying in in terms of investment. So these are kind of unglamorous things to do, but they're, they're incredibly critical reforms if a government is going to wean itself off foreign aid dependency. So, but here's the one catch about DRM that a lot of the experts at the event went ahead and pointed out, which is that it's very much easier said than done. You know, again, this isn't a new concept. You know, one, it takes a lot of time. It can be very painstaking. One of the experts pointed out that it was. It took 16 years for Nigeria to allocate 3.7% of its GDP toward health. 16 years later, the amount is roughly 5%. So just as a diet is 15, so you can see it's a very, very long term process. Maybe that's an extreme example, but time is definitely a major factor. Another is political will. You know, a lot of these reforms are not politically easy. I mean, you look at even wealthier countries like Especially on taxes, try raising taxes, see what the response is. You know, and then you look at lower income countries where people are already on economic brink and this could push them over the edge. You know, collecting taxes has resulted in, you know, social unrest, deadly protests, and obviously people, you know, there's this fundamental dilemma of is the government going to wind up with these increased taxes, funding the kind of social services that people want to see with their money? And that's a big question. Again, that comes back to political will and whether governments can kind of get their act together. So that was kind of the gist of the discussion. And I think just to end with, I think it's important to note that DRM has a lot of implications with President Trump's America first global health strategy, you know, where he signed these bilateral health compacts with over 30 countries, many of them are in Africa. So the key to a lot of these agreements is co financing mechanisms where, you know, you kind of give the recipient governments, you make them have skin in the game, they have to put up a certain amount of financing in order to access the US funding. And you know, it's similar to DRM in the sense that critics of these agreements point out that time is a factor. You know, you need to give governments enough time to mobilize these resources so that they can co finance these agreements. And most of these agreements are about a five year time span, I believe, and there's no explicitly mentioned like support even after the five years. So people really wonder how realistic it is to expect, you know, people to countries to mobilize these resources in such a short amount of time. And it's ironic because the entity that really helped countries with domestic resource mobilization with these kind of transitions supporting them after they gained more independence was usaid. But that's obviously no more. So now we've got a, you know, everyone, the international community is in this situation where, you know, it can't just be on governments that are, you know, struggling economically or unstable to mobilize their resources. It's easier said than done and it will take some support just to do, to get to that level where they can be independent.
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A
Definitely easier said than done. And when you are speaking there, I put on like my citizen hat. And I was thinking it's like almost like a chicken and egg situation because if I'm going to pay more taxes, I expect to go in a hospital and be able to access medication. I expect to drive on a road and not jump into a pothole. I'm very like passionate about portholes because I recently went into one. So. Yeah, so you have all these expectations from citizens as well. And it's like they need to be trust that like your taxes are actually going to be used in a sufficient manner and you kind of need to build that capacity, build trust before you can actually make this happen. And a lot of people, we actually have a story coming out on the changing global health architecture are just basically saying that five years is not enough. It's impossible to be able to expect certain countries. And it's also different levels as well. You can't expect certain countries to be able to build their capacity within this short period of time. There are countries that may be able to do it within five years, although five years already sounds like a short amount of time. But the expectation is that it'll be really, really difficult for a lot of countries to do this. So definite. Something else that we should be on the lookout for. But Jesse, I wanted to go back to EBRD because there's one thing I forgot to mention which was the bank's interest in nuclear energy. It seems like nuclear is no longer a dirty word in terms of investment. What are we hearing around that?
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B
It's a great question. Yeah, I mean EBRD in the past has really stayed away from doing anything that directly finances the nuclear energy. It's largely just a safety and security bank. So it works towards helping either decommission plants or helps to maybe keep them going longer in a safer way. It has this huge project rebuilding this sort of shelter over the Chernobyl site that got bombed by Russia. They had built, wanted to contain any nuclear waste that was coming from it. It got punctured and so now they're kind of rebuilding it or fixing it, which, which they're very proud of. There's a whole like VR thing that you can look at, at the, at the bank to, to kind of see how that works. But what they have is put money towards new nuclear plants. And now especially with these small modular reactors, a similar is another acronym for ASANA that there's a lot of talk about. You know, these are, they're cheaper, they're safer, they're easier to kind of put into old plants. You don't have to like build an entire city around them. And while they haven't committed to doing anything yet at the meetings, there was a lot of positivity around it. There was a whole panel that included a high level EBRD person as well as someone from the World bank and other banks. And they were talking about how, you know, this is a real necessity, especially now that there's a huge energy crisis as a result of the Iran war, although it didn't start with that. I mean, people have been talking about kind of ramping up nuclear since before the war. And the World bank allowed it to kind of start investing in these projects last year. So I do feel like there could be some movement on that. Nothing certain yet. And it's definitely a more sensitive topic for the EBRD because of the region and because of Chernobyl. And there are, there are NGOs as well who are actually against this, which is new for me to see. I think in Eastern Europe, especially a lot of civil society, there's a big divide in civil society because many people just don't think that the fear and the potential kind of catastrophe that can result is worth the investment, while others feel like it's one of our best options for a green energy transition. Of course. So, yeah, again, nothing yet. And I also will say that their kind of head of environment was saying there's, there's something that's going to happen soon on this. Just the amount of time it takes to build them, the amount of time you need to get the permits for each country. Every country has its own restrictions. It's going to be a long time before we see real benefit from this. But I don't know, that doesn't mean we shouldn't start. So I don't know. It's something to watch. And I think this was the first time we heard some real positivity coming out of the bank about getting into nuclear energy. So it was exciting on that front.
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A
And Anna, what sort of things will you be looking out for for the rest of the week?
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C
That is a very good question. Well, we just actually, I'll put a plug for our colleague Michael Igoe. He has a new podcast, Theory of Change, and he just interviewed Seth Berkley of Gavi the Vaccine alliance and all about pandemics, which Rumbi, as part of the checkup team, you know all too well of what's happening with Ebola. So obviously there was that urgency on the Ebola crisis that the checkup team has been covering so well in Michael's podcast, but then also kind of a long term look on pandemics, how we got into this situation, some very scary future scenarios. So Michael's newsletter also comes out on Saturday. So there'll be a little, a few maybe takeaways. But I would urge people to tune in obviously to our podcast this week in global development, but absolutely tune into Theory of Change because it's kind of an hour long look at taking a more deep dive into an issue like pandemics, which is so timely.
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A
Yeah, it's got some scary information there about AI and the potential that it has to create sort of like pandemic threats. So interesting, very interesting lesson there. And I actually have it lined up. And Jesse, I know that you have an interesting story coming out on Germany and German aid and then you've got London Climate Week coming up.
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B
Yeah, yeah. So we've got, we've been doing more coverage in the eu, more coverage on Germany in particular and we're going to have a story out soon about the kind of major figures in German development to help our readers get situated on that. And then later in the year, one on EU figures as well. And then, yeah, I'm heading to London in I guess a week and a half now for London Climate Week. We're going to have an event there and we're going to go to the Hamburg Sustainability Conference. So a lot of climate coverage ahead and hopefully we'll get a better sense of kind of what people are talking about in the lead up to COP31, which should be an interesting cop, especially because it's run by two different presidencies this year. So, yeah, keep a lookout for our coverage and if you're in London, definitely come to our event. I think it's on the 25th, so yeah, it should be very interesting. We have a great lineup.
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C
Okay, thank you both so much for
- [29:45]
A
joining me and yeah, thank you for listening.
- [29:48]
B
Thanks, Ranvi.