African Development Bank and Fund

CRS Report for Congress
Received through the CRS W eb
African Development Bank and Fund
Specialist i n International Relations
Foreign Affairs, Defense, and T r ade Division
The African Development Bank Group, including the Bank itself (AfDB) and its
“s oft-loan ” affiliate, t he African Developmen t Fund (AfDF), i s a developmen t finan ce
institution bas ed in Abidjan, Côte d’Ivoire. The Bank has 53 African members, as well
as 24 non-regi onal m embers, i ncluding the U nited S tates. In the mid-1990s, t he Bank
faced m a n a gement problems and difficulties arising from non-performing l oans, but
reforms l aunched i n 1995 by a n ew Bank pres ident, Omar Kabbaj, brought new p ledges
of support from t he non-regi onals. U.S. contributions to the Fund resumed i n FY1998
and t o t he Bank in FY2000. This report will be updated as events warrant.
The Afri c a n D evelopment Bank Group, including the Bank itself (AfDB) and its
“s oft-loan” affiliate, t he African Development Fund (AfDF), i s a multilateral devel opment
finance i nstitution based in Abidjan, Côte d ’ Iv o i re. 1 Both the Bank and the Fund are
supported b y t he United S tates, and when funds are p rovided t hey m ust b e authoriz ed and
appropriated b y C ongress.
The B a n k m akes “non-concessional” loans — that is, l oans on terms t hat
approx imate those o f commercial l enders — t o cre d i t worthy borrowers, i ncluding
governm ent s, offi ci al agenci es, and t o an i n creasi n g d egree, t h e p ri vat e sect or. T he Fund
makes l oans on high ly concessional t erms to the poorest African countries, which do not
have access t o commercial credit. These l oans, regarded as a form of economic
assistance, bear no interest, although t here is a .75% annual s ervice charge on outstanding
balances. T hey m ay be repaid over 5 0 years, including a 10-year grace period.
The Bank h as 53 Afri can m em b ers, i n cl uding both t he North African and t he sub-
Saharan countries, as well as 2 4 non-regi onal m embers, i ncluding all o f t he major donors

1 T he Development Fund for Africa (DFA) a nd the African Deve lopment Foundation ( ADF) a re
U.S. bilateral a ssistance programs f o r A frica. CRS Issue Brief IB95052, Af ri ca: U.S. Forei gn
Assistance I ssues.
Congressional Research Service ˜ The Library of Congress

of development aid to Africa. The Fund has 27 contributing m embers, i ncluding 25 non-
regi onals and S outh Africa, in addition t o t he Bank itself. In 1999, the Bank and Fund
approved 93 l o a n s an d i n vestments t otaling $1.7 billion i n both North Africa and s ub-
Saharan Africa. The Bank Group lent approx imately the s ame amount in 1998, but the
total numb e r o f l oans in that year was 133. Of total Bank Group lending in 1999,
concessional l ending by the Fund amounted to $630 million t hrough 70 l oans, down from
$810 million and 115 loans i n 1998. The Bank Group had 967 employees at the end of

1999, including 481 professionals. 2

Origins. The African Development Bank was founded as an ex clusively African
institution i n 1964. Most African countries had j ust b ecome independent amid great
optimism about the continent’s economic prospects. The Ban k ’ s c h a r t er reflected the
belief t hat t hese prospects could b est b e furthered by self-reliance and cooperation among
Afri can st at es, rat her t han b y reliance o n outsiders. 3 Nigeria, the l eading contributor to
t h e Bank, and s om e o t h er m em b ers w ere v ery concerned t o m ai nt ai n t he Bank’s “Afri can
charact er,” but i t soon becam e cl ear t h at t h e ex cl u si vel y Afri can m em b ershi p of t h e Bank
was limiting t he amount of capital t hat co u l d b e r ai s e d . Consequently, i n 1973, the
United S tates and other donor countries from outside Africa w e re invited t o j oin t he
African Development Fund, which h ad been created in 1972.
The s harp oil p rice rises o f t he mid 1970's w orsened Africa’s capital s hortage while
making it impossible for most African countries to consider in creasing t heir contributions
to the Bank. In 1976, oil-rich Nigeria d id establish t he Nigeria Trust Fund at the Bank t o
m a k e development l oans, p articularly to low-income countries, but the Bank s o u g h t
additional capital t o hel p m em bers cope with mounting economic difficulties. Fi nal l y,
in 1982, non-regi onal countries were invited t o j oin t he Bank itself, although Bank policy
limited t hem t o a one-third share.
Resources. The Bank h as t w o t yp es o f r e s o urces: p ai d-i n capi t al and cal l abl e
capital. Paid-in capital consists of funds a c t u a lly transferred t o t he Bank by member
countries, while callable capital, representing b y far the l argest par t o f t h e Bank’s t otal
capitaliz ation, is a p romise b y m ember countries to provide funds to t h e Bank, in the
event l enders to the Bank s hould d emand t o be repaid. These t wo resources make the
Bank a high-quality borrower, enabling i t t o borrow m oney on world capital m arkets on
favorable terms i n o rder to lend to African borrowers.
If the Bank’s l enders should l ose confiden ce in it for s ome reason, the United S tates,
a l o n g w ith other donors p ledging callable capital, could conceivably b e called upon t o
assist the Bank from t heir pledges. S u ch an event would b e unprecedented, however. T he
United S tates has never had to ex p e n d cal l a b l e capital despite pledges t o a number of
international financi al institutions.4 Callable capi t a l p l e dges are p rovided only t o t he

2 T he i nformation i n t his paragraph is from Afri can Deve lopment Bank Group annual r eport f or

1999, the most r ecent r eport a va ilable.

3 E. Philip English and Harris M. Mule, The African Development Bank (Boulde r , C o l o r a do:
Lynne Rienner, 1995), 19-20.
4 Howeve r, the House r eport ( H.Rept. 106-254) on the origi nal FY2000 Foreign Operations bill
(H.R. 2606) noted “many c oncerns” a bout U.S. participation i n r eplenishing t he Bank’s

Bank and not to the Fund. The Fund’s resources consist entirely o f contributions from t he
m em b er st at es, w hi ch are norm al l y repl eni s hed o n a t h ree-year cycl e.
Voting. At the Bank, every m em ber s tate is represented o n t he Bo ard o f Governors,
the h ighest decision-making body. M embers are s hareholders in the Bank , a n d t h e i r
voting power is largel y det ermined by the size of t heir contribution. H e n ce, t h e n o n-
regi onals have about one-third of the votes, while the regionals have about t w o -thirds.
A t the Fund, the non-regi onal m embers have contributed nearly all o f t he lendab l e
resources but cont rol 50% of t h e vot i n g power, d i s t ri but ed accordi n g t o t he si z e of t h ei r
contribution. The remaining 50% is controlled b y t he Bank.
Crisis in the M id-1990s
In the mid-1990s, t h e A f r i can Development Bank faced what has b een called a
“mid-life crisis,” after non-regi onal m em bers lost confidence in its lending policies and
management practices. M any African countri es had b een ex periencing severe economic
and budgetary p roblems for years, resulting in p art from i nappropriate economic policies
and i n p art from ex t ernal fact ors, i n cl udi n g hi gh oi l p ri ces and l ow pri ces for t hei r
com m odi t y ex port s . T hey w ere b ecom i n g i ncreas ingl y uncreditworthy; yet t he Bank had
continued t o e x t end t hem non-concessi onal l oans. By 1994, arrears h ad reached $700
million, twice t heir level i n 1992.5 The F u n d was al s o s hort o f resources and m ade
virtually no loans i n 1994. Yet t he non-regi onals were unwilling t o replenish the capital
of either institution until there were reforms. In April 1995, the U.S. General Accounting
Office issued a report t hat called t h e Ban k “s olvent but vulnerable” and criticized a
governance syst em t h at al l o wed bo rrowers to control d ecision-making. 6 The report noted
t h at t h e Bank enj oyed a t op credi t r a t i n g i n worl d credi t m arket s b ecause of t h e p ai d-i n
and callable capital p rovided b y t he non-regi onals, yet the non-regi onals were unable t o
prevent l oans they regarded as unsound because they were outvoted.
Standard & P oor’s lowered t he Bank’s cre dit rating s lightly in August 1995, citing
concerns over governance and m anagem ent . The downgradi ng cam e aft er a l ong st ruggl e
at the Bank over t he choice of a n ew president, but on Augu st 26, 1995, after n ine rounds
of vot i n g, Bank m em b ers h ad fi nal l y el ect ed Om ar Kabbaj , a M oroccan fi nanci al o ffi ci al
who advocated management and fiscal reforms at t he Bank.
Kabbaj Reforms. P resi d ent K abbaj h as won w i d e p rai s e from fi n anci al anal ys t s
and non-regi onal governm ent s for hi s s uccess i n i m p l em ent i n g p rom i s ed reform s. In i t s
1999 budget request, t he U.S. Treasury, which h ad led t he non-regi o n a l s in demanding
reforms, lauded t he “aggressive new P resident” for restricting poor country access t o non-

4 (...continued)
resources. While expressing support f or reforms at t he Bank, t he Committee on Appropriations
did not fund the paid-in capital r equest because it was accompanied by an $80 million callable
capital r equest. In f inal action, Congress partially funded both t he FY2000 paid-i n a nd callable
capital r equests ( see below).
5 English a nd Mule, p.29.
6 Multilateral Development Banks: Financial Condition of t he Afric a n D e v e lopment Bank
( GAO/ NSIAD-95-143BR) .

concessional l ending, reducing t he Bank staff b y 14%, replacing 70% of managers,
reducing arrears, reforming t he Bank’s p rocu rement system, and other m easures. In M ay
2000, Kabbaj was unanimously r e - e l e c t ed for a second five-year term as Bank Group
The J oint Africa Institute (J AI), a t raining center Kabbaj has set up i n Abidjan with
the International M onetary Fund (IMF) and the W orld Bank, has also d rawn praise, as h as
the Bank’s v ision s tatement , d rafted under h is gu idance. The s tatement commits the Bank
t o being t he leading d evelopment finance institution with respect to poverty reduction
and s ustainable development i n Africa thr ough i nvestments i n agriculture and rural
development, human resource development, pri v at e s ect or devel opm ent , and governance.
Leadership in costly infrastructure areas, such as p o w er, i ndustry, telecommunications,
and t ransportation, is to be left to other l enders, principally the W orld Bank. In its 1999
annual report, the Bank Group noted that in view of the HIV/AIDS p andemic, its health
sector policy guidelines had b een revise d t o a llow l ending that will strengthen African
health care i nstitutions and promote sustai nable health care delivery.
New R e p l e n i s h ments Approved. The change i n attitude toward the Bank
Group among the non-regi onals first b ecame evident at the annual m eeting o f t he board
of governors i n M ay 1996, when the non-regi onals pledged $2.6 billion over t hree years
as the s eventh replenis h m e n t o f t he AfDF (AfDF-VII). S everal countries, t hough not
incl uding the United S tates, later m ade additional pledges to AfDF VII.
Non-regi onal endorsement of the reforms at the Bank itself came at t he May 1998
meeting, when the board agreed to the fifth general capital i ncreas e (GCI-V), representing
a 35% boost i n t he Bank’s resources. T he last 5-year general capital i ncrease h ad been
approved i n 1986, and n egotiations in the early 1990s on a n ew increase h ad stalled due
to the concerns of the non-regi onals over t he Bank’s p robl em s. The l at est i ncrease,
which i s t o b e s pread over eight years b eginning in 1999, would i ncrease t he non-regi onal
share i n t he Bank’s capital from one-third to 40%, t hus gi ving non-regi onals 40% of the
votes on the governing board. M oreover, at th e i nsistence o f t he non-regi onals, d ecisions
on Bank operations are t o b e t aken by a 6 6 % majority, while “crucial” deci sions will7
require the approval o f 70% of shareholders. Thus, t here will have to be at least s ome
non-regi onal s upport for major Bank actions. These modifications to the Bank’s “African
character” were i nitially opposed by some regi onal m embers, but Kabbaj announced in
May 1999 that GCI-V and the accompanyi ng r u l es changes had won the n ecessary
In J anuary 1999, the non-regi onals agreed to the eighth replenishment of the African
D e v e l o p m e n t F u n d ( A f D F - V III) , a $3.4 billion contribution t o b e m ade over t hree years.
The Bank h as pledged t hat n ew lo a n s from t he Fund will have a s trong poverty focus,
targeting i ncome genera ting activities for t h e poor as well as primary health and
e ducation. The Bank also p romises that the Fund will promote good go v e r n a n c e i n
b o rrowing countries, i ncluding anti-corruption efforts, and t hat t here will be a s tro n g
linkage between resource allo cation and country performance.

7 Africa Research Bulletin, Economic Series, M ay-J une, 1998, p.13455-13456.

The United States and t he Af DB Group
From 1993 through 1999, the United S tates m ade almo st no contributions to the
African Development Bank. Nonetheless, over t he course of the Bank’s h istory, t he
United S tates h as provided about 5.3% of the Bank’s capital. It is the l argest non-regi onal
shareholder and the t hird leading contribut or after Nigeria (9.1%) and Egyp t (5.5%). The
U . S . p l edge to GCI-V over eight years, if fulfilled, would m ake t he United S tat e s t h e
second leading contributor by gi ving it a 6.7% share i n t he Bank.
For FY2000, the C linton Administration had sought a $5.1 million appropriation for
the Bank t o pay the first instalment of its $40.8 million p aid-in capital p ledge. The final
Fo reign Operations Appropriations (H.R. 3194/P.L. 106-113, incorporating H.R. 3422)
provi d e d $4.1 million. The Administration had also sought an authorization of $80
million i n callable capital,8 since i t h ad pledged $640 million over eight years under GCI-
V. In stead, H.R. 3422 authorized $64 million i n callable capital. Thus, for FY2001, the
Clinton Administration s ought and obtai ned an appropriation of $6.1 million i n paid-in
capital and an authorization for $97.5 million i n callable capital for the Bank i n o rder to
put the U.S. p ledge t o GCI-V back o n schedule (H.Rept. 106-997/P.L. 106-429). The
Bush Administration i s r equesting $5.1 million i n paid-in capital and $80 million i n
callable capital for the Bank i n FY2002,9 which would m aintain t he GCI-V s chedule.
In the mid-1990s, t he United S tates l ed other non-regi onals in a d ecision to suspend
nego tiations on a n ew replenishment for the African Development Fund until the Bank
agreed to sweeping reforms. C ongress rescinded h alf o f t he FY1995 appropriation for
the Fund. In subsequent years, the Administration requested new appropriations for t he
Fund as a m eans o f s howing approval for the Kabbaj reforms and m aint a i n i n g U.S.
influence, but Congress made no appropriation for FY1996 or 1997, due to concerns over
the s ituation at t he Bank and overall budgetary constraints.
Af rican Development Fund: Requests and Appropriations
(fiscal years, $ millions)
1997 1998 1999 2000 2001 2002
Request 50.0 50.0 155.0 127.0 100.0 100.0
Appropriation 0 45.0 128.0 128.0 100.0
Contributions to the Fund resumed i n FY1998, and t he funding levels in recent years
have mad e the Fund an important component of the overall U.S. economic assistance
program for Africa. The United S tates h is torically has contributed 12.4% of the capital

8 Callable capital does not n e e d to be appropriated, but it must be authorized. See CRS Issue
Brief IB96008, Multilateral Development Banks: Issues for t he 107 th Congress .
9 Executive Office of the President, Budget of t he United States Government, Fiscal Y e ar 2002,
Appendix , p.1010-1011.

of the African Development Fund and i s t he sec ond leading contributor after J apan (14%).
The Bush Administration i s s eeking $100 million for the Fund in FY2002.
Bank Lending Policies. The s tricter l ending policies i ntroduced at the Bank with
the Kabbaj reforms mean that most sub-Saharan governments are ineligib l e t o b orrow
from what t hey regard as “thei r bank.” The t hirt y- ni ne poorest members of the Bank
Group must rely solely on the resources of the Fund. In ternational b anking ex perts note
that if lending standards were l owered, bot h t he Bank and t he borrowers would likely face
deepening economic problems. Moreover, som e p o i nt out, t he Bank has l aunched an
i nitiative aimed at i ncreas ing l ending for viable private-sect or project s arou n d t h e
continent, including foreign ex change-generating p rojects i n poor countries.
HIPC. In 1996, the W orld Bank and t he In ternational M onetary Fund launched t he
High ly Indebted Poor Country (HIP C) In itiative aimed at reducin g d eb t s o w ed by poor
countries to bilateral and multilateral l enders. (CRS Report R L30214, Debt Reduction:
Initiatives for t he Most Heavily Indebted Poor Countries ). In J une 1999, the G-7 summit
in Cologn e, Germany, endorsed an enhan ced HIPC In itiative aimed at p ro v i d i n g even
deeper debt rel i e f, i n cluding relief from debt owed t o m ultilateral devel opment banks
(MDBs). S o m e M DBs, i n cl udi ng t h e A fDB, l ack suffi ci ent resources t o forgi v e d ebt s
owed them, and will have to rely in part on contributions from t he W o rld Bank’s HIP C
Trust Fund in order t o fully participat e i n t he initiative. The potential t otal cost of AfDB
debt forgiveness i s estimated at $2.2 billion. The HIP C Trust Fund is funded b y donor
countries, and some question whether tax payers i n t he non-regi onals should b e asked to
bear t h e cost s of unsust ai n abl e l o ans m ade b y Bank m anagers i n t he past . Ot h ers m ai nt ai n
t h at debt forgi v eness i s essent i al t o A fri can econom i c recovery.
Role of the Bank G roup. The Bank Group is one of many development agencies
active i n Africa, and i t d isburses s maller amounts i n t he sub-S ahar a n r e gion each year
than the W orld Bank and t he major b ilateral donors. Thus, s ome question why there i s
a n eed for t he Bank Group or for U . S . contributions. In t heir view, t he United S tates
might better focus on its own assistance programs and p erhaps those o f t he W o rld Bank’s
IDA, where U.S. i n f l u e n c e as a s hareholder i s greater. IDA concessional l ending in
Africa totaled $2.1 billion i n 1999 – m ore t han t hree times t he amount lent by the AfDF.
Others argu e, however, t hat t he Bank Group has a unique understanding of African needs,
t h a t Afri can governm ent s m ore readi l y accept i t s advi ce, and t hat i t i s u seful fo r t h e
United S tates t o b e s een in Africa as a s upporter of an African institution. Some also see
val u e i n t he devel opm ent d i al o g t hat t akes pl ace a t t h e Bank b et ween t h e regi onal s and
the non-regi onals. By p articipating i n t he Bank and Fund, they argu e, the United S tates
is able to influence t he ways in which a sign ificant pool of resources for African
development i s u sed.