VP Gantsho Discusses Bank Role in a Futuristic United Africa
African Development Bank (Tunis)
29 August 2007
Posted to the web 29 August 2007
By Dr. Mandla S.V. Gantsho
The following interview presents an African Development Bank’s view on the development impact of a Unitary Government in Africa.
The Vice President in charge of Infrastructure, Water and Sanitation, Private Sector development, and regional integration and trade, Dr. Mandla S.V. GANTSHO who has just completed his first year in this position, discusses the idea of the Unitary Government for Africa and what he anticipates for the Bank in its regional integration activities as the Unitary Government idea gains momentum and eventually materializes.
African leaders met recently in Accra for a 3-day summit where they promoted the idea of a “Unitary Government for Africa”. You brought up the subject in your welcome speech during last month’s workshop of the Regional Integration and Trade Department of the AfDB, attended by representatives from Nepad, World Bank, RECs, etc. In your view, what does the coinage represent?
The concept of a Unitary Government for Africa represents a vision of total unity for the people of Africa, living together in lasting peace, security and prosperity. African leaders have long been unanimous on the need for continental unity and they’ve also been in broad agreement that the ultimate objective, or the destination of the African Union, is the United States of Africa with a union government. We now have the African Union (the AU) as it is currently constituted, and we’re saying, “Let’s move to our final destination, which is, the United States of Africa”. Perceptibly, to attain the U.S. of Africa, there has to be a union government for Africa. Thus, the debate is not about the destination, but rather, how to get there with dispatch. Essentially, we’re considering a number of road maps to guide us to the destination of total unity on the African continent.
You are saying that African leaders have basically agreed on three issues: the destination, the need to move to a Union Government for Africa, and to do so with dispatch. The debate is now on the process – how to achieve a union government. The President of the AfDB, Dr. Donald Kaberuka addressed the issue in a communication to the Board of Directors of AfDB, and pointed out several possibilities: a federation of 53 African States, a Union of independent states, a United States of Africa (per the U.S. model), or a European Union model. Whatever the final decision, the African Development Bank should consider this a period of remarkable transition for Africa. In your view, how should the Bank, as a catalytic development finance institution, manage this transition?
You’ve placed the emphasis on the right words – “catalytic development institution”. We’re a development institution that is predominantly owned by the African member countries. So, what African Member Countries expect from us is a catalytic role…one that will be enabled by the knowledge base that this organization possesses and continues to acquire, for fostering sustainable development. We want the African Development Bank to be the voice for Africa regarding development issues. At the micro level, we are expected to both opine on and facilitate the setting up of the right structure of sub regional institutions on the continent. Here, I’m talking about specific specialized institutions such as power pools in the energy sector or river basin authorities in the water sector. Given our knowledge base, we play a role in making sure that these institutions are sustainable going forward. At the macro level, the role is no different. We see ourselves getting involved right across the value chain of the development of the union government of Africa.
You’ve mentioned a number of available options. As I said earlier, the real debate is about how to reach the dream of a united peoples of Africa. There’re two distinct schools of thought, among others, that I’d like to highlight:
- First, the immediate formation of a continental government. Proponents of this school of thought argue, as did its first proponent, the late Ghanaian President (Dr.) Kwame Nkrumah of blessed memory, that political unity is a prerequisite for economic development. Hence, the need to establish a big continental government at once.
- The second school of thought argues that the process should be built from the bottom up. That is, we must acknowledge that we are disadvantaged in the global economy if we remain as small, landlocked and fragmented countries with relatively weak Regional Economic Communities (RECs) that are dependent on aid. As you are aware, these are weak pillars, and we cannot integrate our continent on the basis of weak pillars. This school of thought, therefore, believes in the need to strengthen these institutions first, strengthen the RECs and countries that make up the RECs. Doing so would strengthen the foundations of the (continental government) we’re trying to build. However, the immediate establishment of a continental government would be tantamount to trying to place a roof on walls of straw or on walls that are built on foundations of soft sand.
In a nutshell, the question is Do you start by building a roof instead of building a foundation and making sure that the foundations are strong enough? This is where I believe we (the African Development Bank) need to play a role….to use our knowledge base to inform the process. You may be aware that the Heads of State and Government agreed to set up a ministerial committee that would look into the definition of the relationship between the union government and the Regional Economic Communities and finally, and elaborate on the road map together with the time frames for establishing a union government. We have a role to play. We have to give technical assistance and technical support – advisory services – to a ministerial committee before they report to the heads of state government in January 2008 in Addis Ababa. That is the role I believe the African Development Bank (AfDB) should play – providing knowledge and technical assistance.
At a number of Bank-sponsored meetings, the RECs, the ECA and other external partners emphasize the need to strengthen regional integration by promoting intra-regional and international trade and physical integration, strengthening national capacities for policy making in regional integration and enhancing the capacity of the RECs to undertake more Bankable projects. In your purview as African Development Bank Vice President in charge of Infrastructure, Private Sector development, Regional Integration and Trade in what ways would a Union government strengthen the capacity of the RECs to deliver to other markets?
This is a critical question. We’re talking about the AfDB working with the RECs. I have already said most of them are weak and therefore their institutional and technical capacities need to be strengthened and, the AfDB can play a role in terms of providing human and financial support and sharing experiences between African RECs and economic groupings in other parts of the world.
I am a proponent of the school of thought that sees regional economic unions as the basis for the Union Government, where the constituent countries yield some sovereign powers to the RECs. This would fast track sub regional political and socio-economic integration through investment in regional economic infrastructure. This would also engender a more effective and efficient provision of regional public goods that are needed to catalyze both the integration as well as the development process across the entire continent. This way,
- the RECs would be empowered with sovereign authority that allows them, for example, to borrow and implement regional infrastructure pograms;
- bigger markets would emerge;
- economies of scale and scope would make large infrastructure investments viable;
- Private sector investment would be attracted.
The AfDB would play its advisory, catalytic financier and partnership mobilizer roles in these developments.
On the issue of access to markets, I believe an important step towards enhancing Africa’s competitiveness on the global market is to work with African countries to optimize the potential gains from intra-regional trade. To this end, the Bank intends to enhance its advisory and technical assistance support to the regional economic communities via capacity building, harmonization of regulatory and legal policies and ratification of protocols of agreements that have already been signed by the African countries.
Does the process for establishing a unitary government call for any changes in the Bank’s approach to its mandate?
Certainly. A more integrated Africa is the core of the Bank’s mission. Achieving such a goal would mean the RECs would effectively become regional governments or organizations with sovereign authority. A situation like that would ensure the ultimate government at the continental level is rested on strong regional pillars. The Bank would thus deal with fewer and bigger entities/governments, five or so regional governments, as compared to the fifty three individual countries. So, we’d be more preoccupied with regional policies instead of national policies and we’d also be spared the difficulty of working with countries that sometimes are regarded as non-performing within the RECs.
We’d be looking at regions instead of individual countries, and relying on countries within regional blocks to put peer pressure on one another. We haven’t lent to Zimbabwe, for example, because the country is in arrears on its loan repayment obligations to the AfDB. But if we were looking at Zimbabwe as a part of a viable region we’d find a way of delivering development to the people of that country by working with the regional government and then relying on member countries of that sub-region to deal with their weakest link through peer pressure. They’d turn to the country concerned and say, ‘Listen, you’re actually slowing down the pace of development in our sub-region …You are making it difficult for us to get assistance for our regional development programs from the African Development Bank. So, please, let’s address your problem head-on’.
Consequently, this would empower member countries of a sub-region to deal with one of their own, and, therefore, make the work of the AfDB and other development partners much easier. Of course, in this framework, instead of the current country-based allocation system, we would have to contend with the issue of the regional performance-based assessment and resource allocation system. In other words, we would need to tilt the balance from individual country ownership and commitment to joint ownership and commitment, because we would be dealing with regional states instead of individual countries and, this will allow us to lend to regional entities.
Although this would lead to a more optimal development process, the regional entities generally find it difficult to borrow from us because they don’t have balance sheets, or borrowing powers due to the lack of sovereign authority. Thus, if we were to work towards this vision from a regional perspective, empower the RECs to be sovereign bodies, our lending for regional projects and programs would be facilitated. The private sector would also benefit from a much bigger market space. We would have bigger markets that the (regional) infrastructure would serve; regional governments would engender a harmonization of policies and this would eliminate or at least minimize the possibility of cross-border and regional conflicts; etc. Therefore, there are benefits but the pace for realizing such benefits depends on which model will be followed.
The African Development Bank, as we know, has proven expertise in infrastructure development. But Africa needs to invest massively in this area to ensure free movement of goods and services across national borders and to create economies of scale through the integration of national economies – an issue you’ve also discussed well. This would, in turn, create an enabling, results-based business environment that would attract investments, generate rapid economic growth and culminate in poverty reduction, which is of course a key Bank goal. How do you articulate the role of the Bank’s Infrastructure operations function you’re currently managing in the context of those indicators?
I wish to refer to what I have alluded to earlier, that is, efforts to remove constraints imposed by poor and inadequate infrastructure in Africa. Let me reiterate that harmonized economic, monetary and regulatory systems with large open markets are essential for effective intra-regional and international trade, and thus, economic growth. However, they are not a sufficient condition. Sustained and robust economic growth also requires the development and maintenance of modern and efficient regional transport, communications and energy infrastructure. Without these, there will be limited opportunities for harnessing complementarities and synergies between African economies, enhancing industrialization and creating employment. The Bank’s efforts to remove these barriers include:
- Investments in physical infrastructure and services at both country and regional levels which are pre-requisites for sustainable socio economic development of the continent. With sustained efforts in this direction I am convinced that this can be achieved within the 21st century.
- Enhanced efforts to mobilize additional resources for infrastructure development. These efforts are being made at the domestic and external levels. At the domestic level, many African countries have increased their investments in physical infrastructure. At the continental level, the AU/Nepad programs have put emphasis on infrastructure resource mobilization. Our preliminary estimate of the infrastructure gap is in the order of US$24 billion. We are working closely through the Infrastructure Consortium for Africa which has its Secretariat at the Bank, to coordinate international efforts to mobilize additional resources to bridge this gap for infrastructure development and maintenance.
- The Bank is also making efforts to enhance institutional capacity for infrastructure development and maintenance in Africa. These efforts need a concerted effort from all development partners and funding sources including the private sector. We are moving aggressively to encourage Public Private Partnerships.
Your question also entails discussing the rationale for the composition of the complex. The departments of this complex were not put together by accident. I believe that the main objective of putting the complex together was to pursue the goal of Regional Integration. Take infrastructure…
How do you make infrastructure viable? You need bigger markets that are engendered and made viable through regional integration. With bigger markets you can now lay out the infrastructure on the basis of sustainability.
The financing requirements for regional infrastructure are enormous and cannot be met by the public sector alone. The private sector and the attendant investment must, therefore, be mobilized to complement the public sector effort.
The Water and Sanitation (department) which is part of my responsibility addresses the particular issue of access to water and sanitation services, which together with infrastructure services, are critical to the achievement of MDG targets. Let me explain…
Although urban poverty is becoming a problem in Africa, poverty is still predominantly a rural phenomenon because the vast majority of Africa’s poor live in rural areas. This means that the achievement of the MDGs is inextricably linked to rural poverty reduction, which makes the provision of rural infrastructure a key imperative for attainment of the MDGs.
Access to water and sanitation is essential for health and education programs. Thus, the health and education MDGs cannot be achieved without adequate water infrastructure and water for consumption.
The lack of adequate transportation to move farm commodities and agricultural inputs to and from markets stifles the development and integration of product and factor markets, mutes the potential gains from market liberalization, raises marketing costs, and reduces the competitiveness of agricultural commodities in domestic and international markets.
Rural electrification helps to raise agricultural productivity by facilitating the adoption of simple power-based technology, which can stimulate agro-processing and small-scale rural industries, including tourism. It has the indirect effect of improving the environment by reducing the use of wood for fuel. It reduces domestic hardship of women in offering more efficient alternatives for food processing at the household and village levels. It helps to improve health and food security through refrigeration of medicines and perishable farm produce after harvest. Finally, rural electrification improves educational performance of the rural poor by extending the study hours.
Thus, in a nutshell, the operations complex I have been asked to lead has a central role to play in reducing poverty, promoting economic growth, and meeting MDGs generally.
How does the Bank intend to help determine outcomes in the area of infrastructure and private sector development in the RECs as globalization and the concept of a unitary government become permanent fixtures on the regional economic and political landscape?
I think the outcomes will speak for themselves. The results will be there for Africa to see. In essence, a unitary government will lower transaction costs for the Bank and other economic agents of the continent; and there’ll be fewer delays at ports and at border posts and there’ll be synergistic benefits that will accrue because you’ll have bigger markets and with this you’ll be able to compete as regions and as a continent. Regional peer pressure will help avert conflicts and governance generally will improve.
It will make investment in infrastructure much more viable and sustainable, as I said earlier. There’ll be free movement of people, goods and services between countries – thus intra regional trade will be boosted. All we have to do as a development finance institution is to continue playing the role we are given by African countries, which is operating as a development knowledge resource for them, a financier for their development programs, and a broker for additional development partnerships.
You mentioned that there’ll be fewer delays at the airports. In addition to port activities that cause unnecessary delays some African countries have very stringent visa policies all of which slow access to transboundary business transaction. These are major roadblocks to facilitating Regional Integration.
Yes, indeed. Let me first tackle the airport delays. There are general delays engendered by poor planning and/or technical problems. But there are more serious delays that derive from a sub-optimal use of landing rights across the continent. To redress the latter, we need to revisit the Yamoussoukro Accord and get it fully operational.
Now, let me address the other bottlenecks to regional integration. According to reports from the 9th Africa Rail Summit held in June 2006, bottlenecks at southern African border posts cost the region $48bn a year, mainly due to cumbersome inspection regimes by customs officials on goods transported across borders, the costly delays have a domino effect on turnaround times of transport and logistics service providers, with trains and trucks delaying ships, which then fail to deliver goods on time. Transport providers are forced to pay huge penalties for failing to meet their service obligations to their clients. This is why transportation costs in Africa are the highest compared to other regions of the world. These constraints would be resolved in an integrated Africa.
You have stated that “the Bank is committed to its three roles as financier, advisor and strategic partner at the service of our clients, the Regional Member Countries.” How well would these roles fit into the praxis of a united African continent?
In a United African continent, the Bank’s triple roles of a financier, advisor and partner would be even more enhanced and optimal, because they would be cast within the framework of a much larger market coupled with a much greater open space, with respect to land, air and sea, for the development business. Let me elaborate briefly on these triple roles.
First, they are roles that institutions like ours need to play. We should not only be finance providers, but should be able to marry finance with knowledge and development expertise. We use a strong balance sheet to intermediate finance from the international capital markets for the benefit of the poor. Yes, the money can also be mobilized by the private sector; but what makes us different is our ability to add knowledge value to that money and place it, as a solution package, at the disposal of our RECs. If we’re to deal with the RMCs as subcomponents of regional governments, that will be better because we would have a wider reach at a much lower transaction cost. Some countries are not performing in terms of our definition. If we were to avoid dealing with individual countries and rather deal with regional governments, we would make our technical assistance and advisory services available for all of those countries. We would mobilize our partners who currently don’t want to deal with countries that are not performing, and mobilize bilateral donors such as JBIC, KfW, and AFD as our strategic partners.
The regional concept, for me is a viable one. Even the regions themselves would have certain boundaries between them, and that’s where you’ll need a unitary government of the continent to deal with the differences, and facilitate the harmonization of policies and practices, between the regions themselves. But at least half the battle will be won if we are able to eliminate many differences between countries.
So would a closer union in Africa enhance the Bank’s role in delivering services?
It would definitely enhance the AfDB’s role in delivering services and reduce transaction costs for us, reduce conflicts between countries. You’ll have groupings of countries with a closer relationship because they belong to a so-called single regional government. There’ll be fewer countries under sanctions, fewer countries in arrears. With countries belonging to a regional government, we would able to use the influence of individual member countries and bring it to bear on countries that don’t perform.
While the road map is not clear on a Union Government in Africa with these different arguments, there is growing interest among firms on exploring investment potentials. Africa is fast-forwarding its business partnerships with other regions, as noticed at this year’s Annual Meetings and key business meetings between African leaders and the European Union. And there is ample space in African countries to broaden trade and investment relationships. The Bank’s Chief Economist sees a lot of opportunities for joint-ventures and he is encouraging African businesses to engage more aggressively with Asian companies in the supply of processed materials and in tourism related investments. As Vice President for Operations – Infrastructure, Private Sector & Regional Integration – what advice do you have for foreign investors who are following up on the process for a unitary government in Africa and who intend to invest in the RECs?
Your question is about the private sector and their ability to take advantage of the massive emerging opportunities. Let me make this clear to the private sector. I want to tell them that Africa has turned the corner. It is showing sustained economic growth. There’re opportunities to promote further growth, one being investment in infrastructure and supporting Private sector development itself. We’ve spoken about regional integration which is key in resolving the challenge of small markets and landlocked countries, and fostering trade. In such an environment, strengthening the role of the private sector is a key imperative both in terms of foreign direct investment, smart partnerships as well as African entrepreneurship itself.
In summary, here’s the advice I would give in terms of opportunities and for promoting regional integration. First, the business environment is improving; foreign investors should take advantage of the harmonization processes…of rules and policies. They should take advantage of bigger markets; invest in infrastructure envigored by the economic space and economies of scale that would then follow as a result of a bigger economic space. That would also mean access to a bigger pool of technology, skills and resources… The private sector would, therefore, have better markets they can operate in, bigger markets for their products and human capital in countries, where regions have been able to integrate.
You have just completed one year at the ADB. How do you assess this time in Africa’s premier Development Finance Institution?
It is correct to describe the AfDB Group as the premier development institution for Africa. It is an institution whose mission is to help African countries fight poverty and generate economic growth. To work for an organization that plays such a critical role is always a privilege. I have enjoyed my time here. In the Private Sector Operations area alone, we have committed more investment funds in the last 12 months than the sum total of business done in the last 10 years.
We’ve come up with innovative and entrepreneurial transactions in the public and private sector. We’ve been able to accelerate the activities of the rural water supply sanitation initiative, to raise awareness among the donor community of the huge infrastructural challenges that face the continent and, by so doing, we’ve been able to garner more support for infrastructure development on the continent. That support will translate into a bigger scale of commitments in future rounds of the ADF replenishment. We’ve not seen them deliver in concrete financial commitment terms of that commitment but we’re much confident that the awareness has been created. The lending programme is on track, and the President, in his closing remarks at the Board meeting (July 24) commended our efforts under the ADB-private and ADF-grant windows, where execution rates for the year to date (six months) for OIVP are at 160% and 76%, respectively.
We’ve proven those skeptics who regard Africa as a risky market for business wrong by being able to increase and double certain milestones and breaking records of previous years in our lending activities. Those are achievements I’d like to highlight. Of course, there’ve been some disappointments as well. The Bank is an established bureaucratic institution and this can be frustrating sometimes, although there’re pros and cons to this bureaucracy in a multi lateral institution like this. But coming from a significantly less bureaucratic background, I get frustrated more often. I think we can relax a bit on the bureaucracy. I’ve been quite impressed with the level of professionalism that people working for this organization display. It’s been a pleasure to work with them. So overall, my experience has been positive and I look forward to continuing my collaborations with colleagues from across the entire Bank, in delivering the mission of the AfDB.