The committee has touched on the AfDB's corporate reputation and its
effectiveness as a means of delivering aid to African countries. In this
chapter, the committee looks at the Group's organisational structure and
The Bank is owned and overseen by its 77 members (recently increased to
78) and depends on the contributions from shareholders to cover its operating
costs and to provide loans and grants. As at 31 May 2013, there were 53
regional members that held 59.712 per cent of the voting power. Nigeria was the
largest shareholder with 8.586 per cent of the voting power and Egypt the second
largest regional member with 5.455 per cent. There were 24 non-regional
members, with the USA holding over 6 per cent of the voting power, Japan 5.5 per
cent and Germany around 4 per cent.
The Bank's powers, including the authority to issue general directives
concerning credit policy, are vested in a Board of Governors that sits at the
top of the Bank's organisational structure.
The Board meets once a year 'to review the implementation of past policy
decisions and to deliberate on new policy issues initiated by them or by the
Each member country is represented on the board by a governor or
alternate governor who exercises the voting powers of his or her country. Governors
are nationals of their respective member states and are expected to be persons
of the highest competence with wide experience in economic and financial matters.
Australia's membership arrangements for the Group would include the Treasurer
being Australia's Governor to the Bank.
Each AfDB member country has an equal number of basic votes in addition
to a number of votes proportionate to its paid-in shares. No member country has
veto power and, according to the Bank, board decisions are 'generally made
through discussion and consensus rather than through the exercise of voting
On the recommendation of the Board of Directors, the Board of Governors elects
a president who must be an African.
The President chairs the Board for a five-year term that is renewable only once;
is the Chief Executive and legal representative of the Bank; and conducts the Bank's
The Board of Governors delegates its authority to a 20-member Board of Directors,
which oversees the daily general operations of the Bank and ultimately approves
all projects, policies and strategies. Governors of the regional members elect
thirteen directors and governors of the non-regional members elect seven.
The Board of Directors functions in continuous session at the principal office
of the Bank and meets as often as the business of the Bank requires.
The AfDB President is also the President of the Fund as well as the
Chairman of the Board of Directors. He or she 'determines the organizational
structure, functions and responsibilities as well as the regional and country
representation offices'. The President proposes to the Board of Directors the
appointment of the Vice-Presidents who assist in the day-to-day management of
the Bank Group.
The inaugural meeting of the Bank's Board of Governors was held from
4–7 November 1964 in Lagos, Nigeria, and the headquarters was opened in
Abidjan, Côte d’Ivoire, in March the following year. Since it commenced
July 1966, the Bank has experienced some challenges as its President,
Mr Donald Kaberuka, explained to a non-regional governors forum in 2010:
...the Bank is also the only MDB in the 1990s to have lost its
AAA credit rating because of weak financials. It has taken almost ten years to
rebuild the reputation and solid nature of the institution, from its financial
perspective. The bank got back all the ratings in 2003. Since then your
shareholder support, the single biggest influencing factor for rating agencies,
has given us the capacity to serve our institution.
AusAID explained that the Bank's unsustainable lending policies and
practices was the major factor underpinning the Group's loss of its AAA credit
rating. It explained:
The Group was extending non-concessional loans to
uncreditworthy member countries in order to spur their economic growth. As
these loans were often not repaid, this created a high amount of debt within
In 1995, the Bank elected Omar Kabbaj, a Moroccan financial
official, as the new President. President Kabbaj moved swiftly to implement key
fiscal and managerial reforms, most notable of which was limiting the number of
countries accessing non-concessional lending, in order to turn around the
Group’s indebtedness. The Group’s credit rating was restored to AAA in 2001.
The current President, Mr Donald Kaberuka, elected in 2005,
has continued his predecessor’s reform program.
At the moment, the Bank operates from its temporary relocation agency in
Tunis, Tunisia, having moved from its official headquarters in Abidjan in 2000
due to political upheaval in that country. The Group intends to move back to Abidjan
in the near future.
Internal mechanisms for good governance
The Treasury and AusAID noted that the Group had undergone 'a
significant process of reform over the past decade' and was considered 'a
strong performer in several key international reviews'.
Indeed, the Bank underwent major structural and operational changes before 2008
including decentralisation of activity to new field offices and a restructuring
of key departments including expanded divisions working on governance and the
According to Mr Davies, the Development Policy Centre, ANU:
Under President Kaberuka, the AfDB has clarified its
strategy, adopted a more results-oriented approach, cleaned up its loan
portfolio, put in place good systems for assessing its operational and
organisational effectiveness, better aligned its country operations with
national development strategies, made good progress toward decentralisation,
begun to play a much more prominent role in regional and global policy forums
and dramatically improved transparency.
Transparency and accountability
Currently, the Bank has in place a number of mechanisms to promote
accountability and transparency. They include:
The Office of the Auditor General—responsible for 'planning,
organizing, directing and controlling a broad, comprehensive program of
auditing both internally and externally including without limitation all
projects and programs of the Bank group'. The Office provides all levels of
management with periodic, independent and objective appraisals and audits of
financial, accounting, operational, administrative and other activities,
including identifying possible means of improving accountability, efficiency of
operations and economy in the use of resources.
The Operations Evaluation Department (OPEV)—an independent unit
that 'undertakes evaluations of completed projects, sector policy reviews,
country assistance evaluations, business process reviews and other studies
relevant to the Bank's policies, operations and results'. The department also
oversees the complete evaluation system within the Bank; internal and external
communication of evaluation findings and lessons; and promotion of evaluation
An Independent Review Mechanism (IRM)—provides people adversely
affected by an AfDB's financed project with an independent mechanism 'through
which they can request the Bank to comply with its own policies and procedures'.
In 2008, the Group established a Quality Assurance and Results
Department which led 'to the introduction of a new development results
framework in 2011, new reporting tools at the organisation-wide level and new
quality at entry processes'.
In 2011, as part of the AfDB Group's effort to sharpen its focus on results, the
Bank launched the first of its now annual Development Effectiveness Reviews.
The reviews are a comprehensive examination of the Bank's performance and
although the focus is on the effectiveness of the institution's delivery of
aid, it also covers essential corporate governance issues central to the Bank's
The first review acknowledged that transparency was one of the most
basic principles of good governance, which underpinned all of the Bank's
operations. It noted that the Bank had endorsed the International Aid
Transparency Initiative (IATI), which 'seeks to make it easier for the public
to access, use and understand information on international aid'.
The review indicated that the Bank would work towards publishing information on
all its operations in accordance with the IATI's standard.
The most recent Annual Development Effectiveness Review likewise
acknowledged the central importance of the Bank being able to demonstrate
integrity, transparency and its accountability. It reported that the Bank had
overhauled its disclosure policy in line with international best practice. The
review also announced that the Bank had adopted a new framework for engaging
with civil society organisations, which had been developed through 'extensive
Fraud and anti-corruption
The Bank is a member of the Joint International Financial Institutions
Anti-Corruption Task Force and has signed the Uniform Framework for Preventing
and Combating Fraud and Corruption.
It has an Integrity and Anti-Corruption Department, whose overriding mandate is
'to undertake unhindered investigations into allegations of fraud, corruption
and misconduct within the Bank and Bank-financial activities'.
Its role is both reactive and proactive.
This Department was originally created as a division within the Auditor
General's Office but has gone through substantial changes over the last few
years. In 2010, the unit was upgraded to a Department that reports directly to
the AfDB President and to the Board of Directors. According to a progress
report, these changes to the Department have:
...not only heightened its visibility and weight within the organization,
but also reinforced its independence. In addition, standard procedures for the
conduct of investigations have been introduced and IT forensics capabilities
When it comes to business integrity and anti-bribery efforts in Africa,
the Bank regards itself as a major contributor to good governance and
anti-corruption on the continent. It has partnered with the OECD to 'strengthen
anti-bribery frameworks and practices and promote business integrity to provide
an attractive environment for investment and sustained growth in the African
OECD publication observed:
The AfDB is well placed, with its extensive knowledge of and
experience of the African States, to meet its goal of positioning itself as the
centre of excellence for good governance and a leader in anti-corruption
efforts on the continent.
The Treasury and AusAID noted that the Group has 'developed
robust fraud and anti-corruption policies'.
External reviews and assessments
As well as the Bank's internal mechanisms to guard against inappropriate
corporate behaviour, a number of overseas countries or organisations have
conducted their own assessment of the Bank's performance including its
UK Department for International
In March 2011, the UK Department for International Development (DFID)
undertook a multilateral aid review. It rated the Fund as strong on
organisational strengths which included a number of factors that go to good
public financial management that helps clients;
good consideration of cost-effectiveness in project design;
board and management that is effective at controlling administrative
an independent evaluation department, whose evaluations are often
though only 60 per cent of budget support is disbursed on
schedule, predictable, transparent financing is generally the norm;
extensive financial policies; and
systematic and extensive publication of documentation.
The review also referred to the Fund's Independent Review Mechanism
(IRM) that, as noted earlier, provides an avenue for complaints and redress as
a safeguard for the interests of local people and communities.
It found that it was 'very likely' that the Fund, the Bank's concessional
lending arm, had made 'significant and demonstrable progress against ambitious
reform agenda over the last three years'.
The UK's multilateral review rated the ADF, highly for its organisational
effectiveness and value for money.
Australian Multilateral Assessment
In March 2012, the Australian Multilateral Assessment (AMA) found that
the AfDB’s Board provided 'adequate oversight of its policies and operations'. With
regard to the Bank's independent Operational Evaluation Department, the AMA
noted its 'strong and credible oversight of AfDB's use of monitoring and
evaluation systems'. The AMA assessed the Bank's first annual development
effectiveness review, as 'a credible report and an exercise in openness and
Although it found that the Bank had 'an organisation-wide system for monitoring
and evaluating program performance', it was of the view that the Bank could 'evaluate
a higher percentage of its programs'. It also reported that since 2005, AfDB
had 'enjoyed very strong and transformative leadership under its President'.
Even so, the AMA suggested that more improvements in human resource management were
needed, 'particularly with transparency and the meritocracy of appointment
performance-incentive structures and career progression'.
On the whole, it rated the Bank as strong for clear strategy and plans;
satisfactory as an effective governing body; strong for its use of monitoring
and evaluation systems and strong for effective leadership and human resource
In respect of transparency and accountability, the AMA found that although the
AfDB was a signatory to the International Aid Transparency Initiative (IATI), the
Bank was not yet fully compliant.
In this regard, it should be noted that recently the AfDB published data
to the IATI detailing its public and private sector activities and provided
'precise geocoded information'. According to the IATI, the AfDB became 'the
first multilateral development bank to provide this level of detail in IATI
It observed further that the Bank's decision to publish the data reflected its 'commitment
to transparency and accountability in the use of its resources...'
The AMA was also of the view that the AfDB allocated resources 'in
accordance with a transparent performance-based allocation formula'. It stated further
that some of the Bank's programs focused on 'strengthening transparency and
accountability in the management of public resources, at country, sector and
In addition, the AMA noted that the AfDB is a party to the cross-debarment
agreement with the other multilateral development banks. Under this agreement,
the banks mutually enforce each other's debarment actions, with respect to four
harmonized sanctionable practices—corruption, fraud, coercion, and collusion.
In summary, the AMA gave the Bank a strong rating for routinely
publishing information; very strong for clear process for resource allocation;
satisfactory for 'strong accountability mechanisms' and for promoting
transparency of partners.
Performance Assessment Network (MOPAN)
According to both its 2009 and 2012 surveys, MOPAN found that
respondents rated the Bank strong on half the questions related to financial
accountability and adequate on the remainder. In 2012, it noted that
respondents commended the Bank in particular for its internal and external
Indeed, MOPAN noted that the Bank's 'good standing as a financial institution'
was one of its strong areas.
The survey found that the Bank was noted for 'the transparency of its resource
In important areas of corporate governance, the Bank received strong
ratings for its policies and practices for audit and combating corruption. For
example, with regard to the Bank's standing on anti-corruption, MOPAN assessed
the Bank's policy and guidelines to combat fraud and corruption as very strong.
The Bank's efforts are guided by the Bank Group Policy on
Good Governance and the corporate-approved Guidelines for Preventing and
Combating Corruption and Fraud. The Bank has also put into place several
mechanisms for addressing and sanctioning fraudulent behaviours from either
Bank staff or clients, and has a policy of 'zero tolerance' in this regard for
staff members and executive directors, which is articulated in its Code of
Conduct. The Bank's Governance Strategic Directions and Action Plan for
2008-2012 lays out the Bank's plans for combating corruption at country,
sector and regional levels, as well as in the Bank's adherence to the Uniform
Framework for Preventing and Combating Fraud and Corruption, which consists
of an agreement between several International Financial Institutions (FIs)
aimed at enforcing a 'unified and coordinated approach to fight corruption and
prevent it from undermining the effectiveness of their work.
In activities such as risk management, procurement and contract
management processes, the Bank was considered as adequate including procedures
for responding and following up on irregularities.
Overall, MOPAN found that the Bank:
had transparent systems in place for the allocation of resources
(survey respondents believed that the Bank generally follows the criteria
established for resource allocation);
had introduced some tools to facilitate the implementation of
results-based budgeting, but this has not yet become standard practice in the
Bank and there remains considerable room for improvement in linking
disbursements to results achieved;
had sound practices and processes in place for financial
accountability with external and internal audits seen as strong and adhering to
international standards—the Bank's policies and guidelines for combating fraud
and corruption were to be commended; and
made use of performance information to improve its operations,
but could improve its systems for tracking the implementation of evaluation
recommendations that are accepted by management and reported to the Board.
While the various reviews were generally satisfied with the Bank's
governance arrangements, they identified areas where they thought the Bank
could improve—the percentage of programs evaluated, human resource management,
linking disbursements to results and tracking implementation of evaluation
recommendations. In this regard, Mr Davies expressed concern that the
'generally positive aura around the institution will deflect attention from
some important areas of continuing weakness'.
He stated that a careful reading of multiple recent assessments suggested there
were still substantial problems in three areas—human resources management,
decentralisation and business processes and practices. Mr Davies noted further:
The Bank suffers from high staff turnover and high vacancy
rates, has devolved people but not much authority to its 34 field offices, and
is experiencing continuing problems with project implementation which manifest
themselves in delayed start-ups, slow disbursement rates and client
dissatisfaction with red tape.
Although Mr Davies acknowledged that the Bank was a far more capable institution
than it was in 2005, he warned of the risk of ignoring or downplaying problems and
of the need to address them.
In this regard, member countries have an important role in monitoring and encouraging,
even pressuring, the institution to improve its performance.
Shareholders' transparency and accountability mechanisms
The number of non-regional countries willing to contribute to the Group is
testimony to the value they place on working with the Bank.
The Treasury and AusAID observed that donors demonstrated their confidence in
...through a 200 per cent General Capital Increase in 2010,
taking its capital base to some US$100 billion; and a 10.6 per cent increase in
the AfDF's most recent replenishment, AfDF–12 (2011–2013), with donors agreeing
to additional resources of US$9.5 billion.
Thus donors have a vested interest in the Bank performing well. In this
regard, they are able to monitor, review and assess the Bank's governance and
financial and operating policies and practices. The committee has mentioned the
UK multinational review, which provided a means of external appraisal of the
Bank's policies and performance.
The committee has also referred to the three-yearly replenishments for
the ADF. Each one of which has been preceded by comprehensive consultation with
donors, which provided them with the opportunity to review the operation of the
For example, during negotiations for the twelfth replenishment, donors endorsed
a policy framework which was intended to deepen 'existing strategic priorities
of infrastructure, governance, regional integration and support for fragile
There is also a mid-term review of the replenishment process, which
takes place approximately eighteen months after a replenishment enters into
During the replenishment and general capital increase consultations, donor
countries are well placed to push for reforms to both the Group's practice and
policies. For example, when the Bank was experiencing difficulties during the
mid-1990s, donor members directed their efforts towards strengthening the Bank's
governance and financial and operating policies. According to the Canadian
International Development Agency:
Canada was among the most active and militant of the
non-regional countries in holding back agreement on the replenishment until
improvements were made in these areas. Indeed, rapid progress on the
institutional issues was made after the arrival of a new President, in September,
1995, and this paved the way for the completion of the replenishment.
The AfDB's largest non-regional shareholder, the US, noted that during
the recent GCI negotiations, it was able to champion a number of key
institutional reforms, which included:
...adoption of a comprehensive income model to ensure financial
sustainability, budget discipline, and steady transfers to the AfDB Fund,
increased transparency and disclosure, stronger risk management, and a
heightened focus on results.
According to the US Treasury, these reforms improved the AfDB's 'institutional
effectiveness by narrowing its strategic focus and strengthening controls on
As a non-regional member, Australia would also be able to have some
involvement in holding the Bank to account and driving reforms where needed. Mr Davies
was of the view that Australia, if it proceeded to join, could be part of the
process of addressing problems 'through its role in overseeing the work of the
In this context, AusAID informed the committee that as a shareholder Australia
...to strengthening discipline and accountability on the AfDB
Board and, in partnership with like-minded members, continue to push for
deepening of institutional reforms and improvements in operational and
Mr Paul Griffiths, AusAID, told the Joint Committee on Treaties that
Australia would be able to monitor the Bank's continuing performance by
engaging on three levels:
Board of Governors' meetings—the level of exchange and
interaction and influence would depend on Australia's subscription to the Bank;
regular high-level meetings, where Australia would be able to
exchange views and resolve differences, which would provide Australia with the
opportunity to influence policies and set future priorities for collaboration;
operational-regional meetings which would provide Australia with
the opportunity to converse with Bank staff and discuss country-level and
regional level policies.
Australia would also be able to contribute to improving the performance
of the Bank through its bilateral development activities, such as co-financed
projects complementing those of the AfDB, its development policy expertise and
its diplomatic network in Africa.
While Australia would be only one voice among the many other Bank
members, all members have a clear interest in sound governance. Individually
and jointly, they provide another level of scrutiny and an impetus for the Bank
to improve its performance.
Mr Shaun Anthony, Department of the Treasury, explained further that the
extent to which Australia could exert influence on the Bank's Board:
...would all be dependent upon which constituency we join and
how large the shareholding is, as well as our activities at the bank and our
contributions to the concessional arm.
Australia's contribution to encouraging good governance would also
depend on the government's preparedness to become involved with the Bank's Board.
Mr Davies observed that:
Provided Australia's governor does in fact regularly engage
with his or her counterparts from the bank’s regional member countries, this
engagement would constitute a new and important line of diplomacy.
In this regard, Mr Davies noted the possible appointment of the
Treasurer as governor and the Minister for International Development (if there
were to be such a minister) as the alternate governor. He was of the view,
however, that it was unlikely that the Treasurer would be in a position to
attend the annual meetings regularly and posed a second and 'better
option'—appoint the Minister for International Development as governor and
AusAID's Director General as alternate. He explained:
...it is the aid agency that has the strongest stake in the
operations of the institutions, and which has the greatest capacity to service
government engagement with those institutions. There is little incentive for
the Treasury to allocate substantial time and effort to servicing Australian engagement
in the day-to-day oversight of the AfDB. In the event that there were no
ministry for international development, it would be best to nominate the
foreign minister as governor and the Director General of AusAID as alternate,
simply because it will be important that person nominated as governor is in
general willing and able to attend the bank's annual meetings.
In response to the committee's request for AusAID's view on this matter,
AusAID observed that the Bank's main objective is 'to promote sustainable
economic development and social progress in regional member countries by
mobilising and allocating financial resources'. It reasoned that:
Given that economic and financial management, as well as
legislative responsibility under the various development bank Acts, lies within
the Treasury portfolio, it is appropriate for the Treasurer to be Australia’s
Governor to the AfDB. This practice is consistent with the Treasurer being
Australia’s Governor to other multilateral development banks (such as the ADB,
EBRD and World Bank).
AusAID informed the committee that the Treasurer would 'work
closely with the Minister for Foreign Affairs and the Minister for
International Development in progressing AfDB matters'.
The committee draws the government's attention to Mr Davies' suggestion
about nominating a minister who is closely connected to Australia's overseas
development assistance as governor and the Director General of AusAID as
alternate. In this regard, the committee notes AusAID's assurance that the
Treasurer, who would be Australia's Governor on the Bank Board, and the
Minister for Foreign Affairs would collaborate on promoting and supporting the
work of the Bank. Also, as noted above, there are many other avenues through
which the Minister for Foreign Affairs, the Director-General of AusAID and
diplomatic staff more generally can support and promote Australia's interests
through the AfDB Group.
Even so, while substantial benefits are likely to flow from Australia's
investment in the AfDB Group, Australia will need to have adequate and
appropriate resources on the ground to ensure that every advantage is gained
from its membership of the Group.
The committee has considered both the costs of Australia's membership of
the AfDB Group and the governance of that institution. Clearly, the Bank is
held in high regard by its current member countries and by independent
assessments of the Bank's performance and governance arrangements. In the
committee's view, Australia's investment in the AfDB Group should provide a
significant return. Membership of the Bank would not only be a cost effective
way to help Australia realise its development assistance goals in Africa but would
also serve Australia's broader diplomatic, economic, trade and national
security objectives throughout the region.
The committee recommends that the bill proceed.
Senator the Hon Ursula Stephens
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