The World Bank must refocus its policy in Africa

ONE, the global movement campaigning to end extreme poverty and preventable disease by 2030, says the World Bank is operating with an outdated structure that is out of touch with today's crises in Africa. It adds that the bank's reluctance to take on more risk and engage in financial innovation has prevented capital from being allocated to crisis-hit countries in a timely manner and urges the multilateral lender to take up the five reforms recommended by the G20, which include improving credit rating agency assessments of MDB financial strength, increasing access to MDB data and analysis, and giving more credit to callable capital

THE world is currently facing a critical juncture, with the choice between investing in a better, more secure, and prosperous future for all or continuing with a cycle of crisis and breakdown. The challenges facing countries today, such as the war in Ukraine, natural disasters, climate-related catastrophes, soaring inflation, and a deepening debt crisis, are pushing many lower-income countries to the brink. The struggle is even greater for developing economies that were already struggling to provide education, food, and health services.

The failure of global financial institutions specifically designed to tackle crises and poverty is one of the reasons for the length and depth of economic challenges facing many countries today. Climate change, conflict, pandemics, and other global challenges are not going away, and we need the right tools to confront them.

The Bretton Woods institutions, the World Bank, and the International Monetary Fund (IMF), were established in 1944 to deal with times like these. Initially created to help rebuild Europe after the Second World War, the World Bank has since evolved into a global institution that has shaped the global financial architecture, reducing poverty across the world through assisted development. Africans are at the core of the World Bank, given its mandate to end extreme poverty and boost growth.

In order to address the urgent challenges posed by the Sustainable

Development Goals, these banks must deliver the development finance needed to fund infrastructure to support transformative economic growth, job creation, and the transition to Net Zero.

The World Bank (International Bank for Reconstruction and Development) was set up to disburse development finance to countries at cheaper rates than they could get on the market. But today they are too slow and too cautious in providing assistance.

Without greater support, governments have had to borrow more to deal with these crises while simultaneously trying to invest in their ongoing economic development. Debt was already a growing concern before the current polycrisis, but it has undoubtedly exacerbated that, too.

The World Bank has been attempting to reform and move work quicker with partner countries, but its success has been limited. In Africa, countries are losing patience. Some are increasingly turning to China or the private sector to borrow quicker at higher interest rates and fewer conditions.

Furthermore, the World Bank, and other multilateral development banks, are still primarily lending to country governments. Yet, we are living in a different and more complex global environment. Today’s crises are far more complicated than in the previous century. The Bank’s unsatisfactory response to Covid-19 in Africa has been remembered by the international community. The World Bank must take into account the need for investment in cross-border challenges and global public goods like reducing carbon emissions and preparing for pandemics. However, as echoed by South Africa’s finance minister Enoch Godongwana, the World Bank must ensure that it doesn’t shift focus from poverty reduction as its focus widens to include climate change.

With this being said, in 2021 just 36 percent ( $16.4 billion) of the World Bank’s global funding went to Africa. Over half of flows went to four sectors: Social Infrastructure (15 percent), Energy (14 percent), Governance (13 percent) and Health (10 percent) (Figure 2). Experts say that Africa needs to invest about $100 billion a year in infrastructure if it is to realise the African Continental Free Trade Area (AfCFTA) and make sufficient progress to prevent future crises caused by shocks such as the Pandemic.

Africa has been disproportionately affected by the effects of climate change, pandemic threats, and food insecurity - not to mention how experiencing simultaneous crises are exacerbating already rising geopolitical tensions. Climate change is continuing to have a catastrophic impact on Africa. Parts of Ethiopia and Somalia are experiencing some of the driest conditions recorded since 1981, leaving populations in East Africa with little food available. The situation in Somalia is deteriorating fast, with food insecurity levels edging closer to famine.

Traditional sources of finance are not keeping pace with what’s needed in African regions experiencing crisis, like in East Africa. Likewise, there is also less money available for these economies to invest in more sustainable, less poor futures.

The World Bank needs to step up in its assistance to the African continent.

How should the World Bank refocus its policy in Africa?

The World Bank is operating with an outdated structure that is out of touch with today's crises in Africa. The bank's reluctance to take on more risk and engage in financial innovation has prevented capital from being allocated to crisis-hit countries in a timely manner. Financial experts estimate that reform could unlock between hundreds of billions and one trillion dollars in capital. To achieve this, the World Bank needs to take up the five reforms recommended by the G20, which include improving credit rating agency assessments of MDB financial strength, increasing access to MDB data and analysis, and giving more credit to callable capital.

It’s crucial that World Bank financing goes particularly to LMICs in Africa to support long term poverty eradication and shared prosperity, but additional finance - that could be leveraged through the changes outlined above - could help to scale up investments in traditional priorities and in growing new challenges like climate. Experts see huge potential in World Bank financing addressing the climate finance gaps that the international community has so far failed to fill. Africa faces a financing gap of $41 billion per year for climate adaptation. It can also be used to create stronger agricultural systems so that African countries become food sovereign. This will mean that food security crises like the one happening across the Horn of Africa can end for good. This, paired with AfCFTA implementation, would strengthen infrastructure and health systems across Africa to advance their economies while making countries resilient to future shocks.

MDB shareholders have the power to implement these recommendations, the major shareholders being the United States, Japan, China, Germany, UK, France, Russia, India, and Canada - collectively holding 49% of voting power. Time will be of the essence. Shareholders should support all five recommendations and push the MDBs to implement them in the next two years, with a clear timeline to set expectations and ensure concrete progress.

African governments should articulate a clear set of demands for reform, including the most critical uses of new financing and for tackling the challenges of speed, flexibility, and responsiveness.

Serah Makka, Africa Executive Director of the ONE Campaign, concluded: “Multilateral development banks should begin making reforms in line with the roadmap by the end of 2024, laying out any technical or political issues for resolution. That process also needs to be much more inclusive of the lower income countries, including on how to continue the current country engagement model while growing investments in global challenges. These small, yet carefully coordinated efforts will give free rein to significant resources that could be a game changer in global efforts for a stronger African economy and a better future for us all.”