The African Development Bank Should be a Model of Governance for the Continent
Rabah Arezki argues that the African Development Bank’s ability to reduce poverty by promoting better governance practices in the continent is undermined by its own governance.
The African Development Bank (thereafter, the Bank) was founded in 1964 by the predecessor of the African Union. Its mission is to promote public and private investments in the African continent to achieve prosperity for its people. Today, more than ever, the Bank has its work cut out. The African continent is home to 70 percent of the world’s poor and 60 percent of its population is less than 25 years old—and increasingly aware of the widening gap in income and opportunities between them and other parts of the world. Better policies and enhanced government accountability are paramount to Africa’s prosperity. Yet, the Bank’s ability to reduce poverty by promoting better governance practices in the continent is undermined by its own governance. The Bank should become a model of governance for Africa.
For starters, the Bank should become more focused and deliver on what it promises. The Bank failing short on its promises is best illustrated by the response to COVID-19. In early 2020, the Bank announced a $10 billion COVID-19 facility. The facility disbursed only $3.7 billion, despite the unfathomable needs of the continent. More broadly, the Bank has failed to define and deliver on strategic goals. The official strategy, the so-called “high 5s,”is broad and arguably loose. The strategy is a catch-all approach encompassing all sectors, promising a lot on paper but effectively delivering very little on the ground.
The Bank operates with a limited financial leverage span and has yet to find its comparative advantage. It should focus and, in turn, build credibility through showing cases of its development impact. Moreover, the senior management of the Bank has been more consumed with garnering resources through a capital increase and the preservation of the triple A rating than ensuring what is spent has the desired impact. More resources are a priori a good thing but without a clear sense of direction and commitment to impact that could turn into wasted opportunities for the continent.
The weak performance of the Bank is strongly induced by its deficient governance; namely the misalignment between the interests of the Board and that of senior management. The Board has a fiduciary responsibility to manage the organization’s interests to achieve maximum development impact. Yet there are several deficiencies that limit the oversight role of the Board over senior management.
First, the President of the Bank is the Chairman of the Board (of Directors) in contrast with best practices of corporate governance. The effective monitoring of senior management does indeed require a separation of roles. Second, the balance of power between Senior management and the dual Board structure is skewed heavily toward senior management. The Board of Directors is composed of Executive Directors representing both regional and non-regional member countries. Its main role is to provide ongoing oversight and strategic direction, but in practice it does not have the effective authority over Senior management including to vote for or remove the President. The Board of Governors, is the highest decision-making organ of the Bank, composed of Governors—and Alternate Governors. The Board of Governors meets once a year and is relatively detached from the affairs of the Bank.
The Governors have delegated some of their power to the Board of Directors, but not the authority to hire or fire the President. That structure of incentives effectively grants an escape to senior management further the misalignment of interests with the Board. What is more is that critical functions including legal, risk, compliance and audit are not independent from senior management, making the oversight work of the Board difficult. That deficiency in corporate governance is neither in the interest of the Bank nor for the people of the continent. A major governance reform which took place two decade ago severely restricted the power of the Board of Directors and reinforced the prerogative of the President. That is because it was perceived at the time that the Board of Directors went too far in its action against the then-President. Perhaps, it is in restoring the balance of power that the solution to the Bank conundrum lies.
The African Development Bank is too important to be left failing to deliver on the visions of its founders. The governance of the Bank needs to be scrutinized and improved to help restore its credibility. The upcoming next year election of the President is an opportunity to debate and enact a governance reform fit for purpose.
Rabah Arezki, formerly Chief Economist and Vice President for Economic Governance and Knowledge Management at the African Development Bank, is a Professor and Director of Research at the French National Center for Scientific Research (CNRS), a senior fellow at Harvard University’s John F. Kennedy School of Government.
