The World Bank's Diminishing Role in Africa

Article excerpt

Ideally, the World Bank should work toward the goal of putting itself out of a job in Africa.

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Two recent African events illustrate how much the landscape for development finance has changed -- and what role the World Bank will play in the future.

In May, the bank's president, Jim Yong Kim, pledged $1 billion to help bring peace to the Great Lakes region. Mr. Kim's pledge was made in the Democratic Republic of Congo's capital, Kinshasa, on a trip in the company of the U.N. secretary general, Ban Ki-moon, that also took in neighboring Rwanda and Uganda. Earmarked for financing health and education services, hydroelectric projects and cross- border trade, the loan is intended as an incentive to end Congo's violence, despite the country's endemically poor governance: The D.R.C. ranks behind only Somalia in Foreign Policy's Failed States Index.

Only a month before, in April, Rwanda went to the international capital markets to raise $400 million. In Kigali's debut bond offering, orders reached $3.5 billion, over eight times the bond's issue. Rwanda is far from alone in finding a new source of capital. African countries are slated to offer $7 billion in fresh government debt this year, as more governments, including Tanzania and Kenya, get access to private money. Once viewed as the preserve of autocrats and corruption, some countries in Africa are now seen as the new, high-yield investment frontier.

Low returns in the developed world have led to investors to look elsewhere for higher yields. Many African countries have had substantial growth in recent years (albeit off of extremely low bases) and are becoming attractive bets, even if risks are higher. Rwanda's economy, for example, has grown about 7 to 8 percent a year over the last decade.

Thus, for the first time in many years, African countries are able to raise capital independent of donors and their governance and political conditions. Rwanda, with about 40 percent of its budget provided by donors, has been particularly vulnerable to international mood swings. It faced a cash-flow crisis when donors switched off the taps because of Kigali's support for Congolese rebels, an issue BNP Paribas and Citigroup (co-managers of the April offering) are less likely to be concerned with.

China has also provided Africans with new options. While its African investment stake officially stands at $15 billion, this figure may be three times as much if money flows from tax shelters are factored in.

The decline in the World Bank's importance as a tool for development can be seen in its own figures. In 1990, at the end of the Cold War, World Bank grants and loans ($17.7 billion) were in the ballpark of private investment flows to developing countries ($21.1 billion). By 2000, this had changed dramatically, with $18.5 billion from the World Bank, compared with $144.5 billion in private financing. By 2011, foreign investment far outstripped World Bank spending by a factor of 19 to 1 ($612 billion to $32 billion). In Africa, considered the investment laggard among developing countries and the most in need of aid, World Bank spending was just $5. …