During the meeting of Board of Governors of the African Development Bank (AfDB) Group last month in Abidjan Dr. Donald Kaberuka was re-elected to serve a second term as President of the institution. The Governors also approved a 200 percent sixth general capital increase for the institution. Kaberuka who previously served as Rwanda’s Finance Minister was first elected President of the bank in 2005. In an exclusive interview with The New Times’ Berna Namata, the AfDB chief talks about his two terms of office. Below are the excerpts.
In the last five years of your term of office; the Bank has registered significant achievements including doubling the portfolio from $8 billion dollars to $ 15.6 billion in four years, decreasing non-performing assets of the Bank significantly. Looking ahead, five years what are the key issues that you are going to consolidate?
My five year term of office had three objectives; I wanted to consolidate the finances of the Bank and as you can see they are very strong at the moment. Even with the global financial crisis the Bank remained financially very robust. Now with this increase in capital it will even be stronger.
The second aim was to make some strategic choices for the Bank. We had to look at ways of consolidating the finances, via making strategic choices for the purposes of being effective. Everything the Bank has been doing in the last five years is centered on these three domains.
Now in the coming five years; first of all we shall deepen these particular areas that I have mentioned. However, we must draw lessons from the global financial crisis in terms of what the Bank does for Africa in the post crisis world; I want to make sure that I incorporate them in my new strategic plan.
What are some the key lessons from the crisis for Africa?
One key lesson was that the state has a role; it is the state which has saved the banks in North America. Today the financial system which was almost being “buried up” during the crisis has been saved by the state. Now, I am not suggesting that the problems are the same but I am saying that for markets to function well and for the economies to function well; you need strong effective states.
That is a state which regulates the market; this is very important lesson. Of course the state can also fail like the markets fail; like it happened in this crisis. But in the past we have also had states also fail, so the lesson is; Get it right; the markets and the state.
The second lesson is that during the crisis the regions which survived the external shock much better than others ;are those which do not depend heavily on a narrow range of commodities for export; for instance a country like Botswana which largely depends on diamonds suffered enormously.
Zambia and DRC which depends on cooper and a few other products suffered a lot during the crisis. However countries which have a wider range of products which appear to have more diversified the economies were able to withstand the external shocks in a better manner.
The other group of countries who withstood the crisis better were those that had much better background conditions. Some countries held up quite well including the East African region countries like Rwanda, Tanzania, Ethiopia, Kenya, and Uganda.
I think the background conditions such as the state of public finances, the external position, and the investment climate helped. We call this policy buffers; they were able to help the country to withstand such shocks.
Over the years the Bank has greatly decentralized its operations opening up field offices in member countries, what has been the impact of this?
It has been incredible; it has increased our efficiency. I found a very highly centralized bank and it is now decentralized. This is important to improve the quality of the portfolio. It is also important to reduce the transaction costs and from our evaluation it is already having a very big impact on the implementation aspects.
For instance the disbursements under African Development Fund alone increased by 5 percent last year, and this is largely because of these field offices.
They are important in terms of identifying programmes, implementation, disbursements and ensuring good governance of the projects.
How would you describe the level of partnership between the AfDB and other international development financial institutions?
It varies from organization to organization; for some it is working very well and for others it is work in progress. In some countries we work better with the World Bank, in other countries it is much better with the European Union; the European Investment Bank but much of it depends on the local dynamics.
It is part of our business model; I do not want to do everything; because if you begin wanting to be everything to all men that is signature for inefficiency.
So you begin by wanting to focus on a few things. We assess the needs of the country; what is happening, who needs what and when, how much is committed and identify how to work together.
It is one thing to have the money; do you have the capacity to manage these additional resources that the shareholders of the Bank have approved?
For the last five years, the staff of the Bank has increased by 47 percent. Over 40 percent of the staff of the Bank have been recruited in the last three years.
This is because when I came in ,there were issues of capacity and so I made an agreement with the shareholders to do two things ; First of all I sought an increased budget to recruit staff –which they granted. We agreed on how many people I was going to recruit and they increased the budget; Secondly with additional staff what was left was the opening of field offices for the purposes of boosting capacity.
But I have to point out that I made my side of the bargain with shareholders owing to the fact that you can have high capacity but you stretch yourself too far. I had to consider the fact that if you want to do everything irrespective of the size of your budget, you will end up being inefficient.
This is a criticism made on many international organizations; that they try to be everything to all men and end up basically doing nothing.
Where I need to build the capacity now is in risk management. It is one thing to put money out there; you must manage the portfolio, you have to do better risk management. Last year I commissioned an external American firm to review our risk management systems and practices.
Not surprisingly, they confirmed our systems are robust but made recommendations for improvements which the Bank will implement. However much as we have a portfolio of $12 Billion, we intend to grow it to more than $30 billion by the time I leave office.
We have to strengthen our risk management capabilities; we are reviewing our internal systems and processes, getting more staff in the field and considering a decentralization road map to strengthen the ability of the field offices. And also probably also lighten our procedures; the bank is still bureaucratic in some ways ….the thinking is still very old.
A Bank traditionally makes money from lending; what innovations is AfDB exploring now that you have more resources?
There are two major initiatives for innovation; we are negotiating a product called Partial Risk Guarantee under the African Development Fund (ADF).
I will illustrate this point by giving a case for Rwanda. For instance in Rwanda , if you want to develop the Methane Gas in Lake Kivu, to whom will you sell electricity? Power will be sold to Electrogaz (RWASCO).
But Electrogaz will have to give the power producer a long term agreement, what we call Power Purchasing Agreement(PPA) to the investor. The rationale is that if I want to invest my money I want to know that someone is going to buy my electricity and that the power produced should be bought for a long term to justify my investment .
That agreement can be done but I want to be sure that Electrogaz can pay. since I have doubts whether Electrogaz can pay; typically in this PPA you also want Electrogaz to add a government guarantee so that in case Electrogaz which is a state company defaults, government as owner of Electrogaz will pay me.
So how do we sort out such a challenge? We are trying to come in with a Partial Agreement Guarantee instrument which reassures such investors. In other words we will give such a guarantee to a local bank say, The Bank of Kigali(BK); so that if an investor wants to borrow money for a power project, BK will give them the money easily because there is an AfDB Guarantee that gives comfort to all parties for such a deal to be done.
These are instruments to be negotiated between AfDB and government. And this will boost investment inflows to a given African country. We are innovating not only around such products but we are also going to continue private funding within areas such as the energy sector.
We are keen to work with national governments to try and see if such products will be interesting to them. Certainly for Rwanda it will be interesting.
In a nutshell, how would you describe the future of the Bank during your second term of office?
I think the bank is making a qualitative leap, when I came in 2005 I found a bank that was doing $3 billion a year in projects and we are a $12.8 billion Bank.
As I mentioned I found 14 percent Non Performing Loans (NPLs) within the Bank’s books. We have since trimmed this down to just under 4 percent. So the volume and the quality of the Bank’s portfolio is now very good and assured.
Now we are concentrating on the key areas which Africa needs. We will be consolidating these areas taking into account the impact of the global financial crisis.
If you ask me to sum up this what this bank is – we have what it takes to make this Bank Africa’s premium development institution and I think we are very close to that. We are on the way to become leaders but we will have to manage that.