What Role for Development Finance in the Future of Africa and the Global South?

What Role for Development Finance in the Future of Africa and the Global South

This article originally appeared on Triple Crisis: Global Perspectives on Finance, Development, and Environment

At the recent BRICS Summit, leaders announced new initiatives, including a New Development Bank (NDB) for infrastructure and sustainable development. In the same timeframe, China will join with its allies to launch a new Asian Infrastructure Investment Bank (AIIB). These initiatives provide a counter-point to the U.S.-led World Bank and the Japan-led Asian Development Bank.

Not to be outdone, the World Bank aims to double its lending operations within the decade, including an expansion of infrastructure operations and the launch of a Global Infrastructure Facility (GIF) this year. While an initial GIF pilot program will be modestly funded, it has outsized ambitions for mobilizing global pension and sovereign wealth funds to invest in infrastructure as an “asset class.”

To some degree, the Group of 20 has instigated the expansion of infrastructure financing—ostensibly as a means to accelerate global growth and job creation.  Bringing up the “caboose” of this infrastructure juggernaut, the UN declares that public-private partnerships (PPPs) will be a key “means of implementation” of its post-2015 agenda, including infrastructure.

The new-generation development finance institutions (NG-DFIs) are a testament to the failure of the Bretton Woods Institutions (BWIs) to reform their governance and share power with emerging economies.  They also represent pushback against the BWIs’ legacy: imposition of neoliberal policies, including austerity regimes that strangled public spending on infrastructure; de-industrialization (e.g., demolished infant industries through premature trade liberalization); and dismantling of national development banks.

Infrastructure cheerleading occurs in parallel with an apparent dismantling of the implementation and enforcement mechanisms for the World Bank’s environmental and social safeguards.  Historically, it has been mandatory that the WB and its regional development banks (RDBs) comply with their own safeguards addressing social and environmental standards, factoring in concerns and claims of affected communities.

Now, because of refrains that safeguards “violate sovereignty,” monitoring  and enforcement are being devolved to recipient countries, including those with few resources and/or weak political will to undertake such accountability responsibilities. Moreover, the safeguard policies may be filled with “weasel” words confusing their intent.

The World Bank’s draft revision of its safeguards (subject to consultation for another year or so) may trigger a “race to the bottom” in the competitive arena of development financing with races between investment by countries (China), companies, the NG-DFIs, and the deregulated World Bank and its regionals (if you can’t beat ’em, join ’em!). In this competitive scramble for territorial business expansion, safeguards for sustainability could become a major casualty with significant political and economic backlash.

Coverage of the SUPPLY of financing by DFIs eclipses coverage of the DEMAND-side dynamic—namely, “project pipelines” (especially energy, water, transport, and ICT infrastructure). The pipeline of the Program for Infrastructure Development in Africa (See PIDA, Annex 1), for example, has a $360 billion pipeline of mega-projects in energy, transportation, water, and ICT for implementation until 2040. Elsewhere in the South, there are project pipelines for the Initiative for the Integration of the Region of South America (IIRSA) and the ASEAN Infrastructure Fund (AIF) in Asia, among others. Project Preparation Facilities (PPFs) have a key role in facilitating the preparation of pipelines of “bankable projects” in each region of the world. Once projects are launched and “de-risked,” the G20 wants to ensure that institutional investors, such as pension funds, will provide long-term capital while capturing high returns.

These private investments depend on hefty public contributions from their host countries (taxpayers and users) to offset private-sector risk.

In particular, investment is intended to build the underlying matrix of global economic integration with tension and struggle over the terms of North-South and South-South integration. These terms depend upon the “balance of forces” between the agenda of extraction (reinforcing colonial patters), on the one hand, and the agenda of structural transformation and industrialization (which would add value to raw materials). Historically, progress of the advanced and emerging economies has occurred on the latter path.

 

Impacts on Africa and the Global South

Africa emerges as a major “battleground” of what could be called the “economic world war” of suborders—such as the G7 and BRICS—with the World Economic Forum (WEF) networking this competitive terrain in the infrastructural financing “scramble for Africa” and the developing world. The objective: accelerate resource extraction in a rivalry between one or the other coalition of vested mega-economic interests in the suborders of the G20 “club governance” framework.

Already, in Africa, extractive industries have a relatively free hand in selecting and designing extractive mega-projects while citizens and elected officials are uninformed and marginalized. Increasingly, we see countries and DFIs offering free infrastructure in return for free natural resources. (See PIDA-WEF Business Working Group, p. 14.)

At the level of global economic diplomacy, this struggle is playing out on the terrain of the mega-trade and investment agreements, such as the AU-backed Grand Free Trade Agreement (GFTA) of 27 African countries and other regional or sub-regional FTAs—all of which cede state power and expand investor power.

Under the BRICS suborder, the July 2014 BRICS Declaration calls for a new African Regional Center of the NDB (most likely to be housed at the Development Bank of South Africa). Partnering with the PIDA’s governance structure (AU, NEPAD Agency and AfDB) and affiliated partners (e.g., China), the Regional Center could drive the African agenda.

 

Tentative Conclusion

Now that the old and new DFIs are scrambling for “market share” along with the bilaterals, a global struggle for sustainability is emerging as the new contested strategic landscape. It means that BRICS, among other minilaterals, cannot be analyzed in isolation from other coalitions such as G20, APEC, Mercosur, IBSA (India-Brazil-South Africa) and BASIC ( IBSA+China).

How will the infrastructure-financing scramble (and its links to extractive industries) play out? Were lessons learned from the era of colonialism? From the “white elephant” era, when infrastructure represented useless monuments to the beneficence of their builders? In the PPPs era, when many projects collapsed under the weight of corruption and misguided allocation of demand, exchange-rate, and other risks?

To help answer these questions, social movements need critiques of the new development paradigm which are as rigorous as the critiques of structural adjustment programs (SAPs). Already, many civil society organizations (CSOs) have been domesticated to specialize in development “categories” (e.g., UN debates over MDGs and SDGs; sectoral issues) without a broader vision of paradigm and the “means of implementation” of their visions through DFIs and their big shareholders. Perhaps CSOs could resuscitate the World Social Forum (WSF) as a counterpoint to the WEF and its agenda (which was the WSF’s original intent).

Scattered voices call out to the G20 and the DFIs to provide progressive leadership by, for instance, ensuring that governments select the ‘right’ infrastructure projects, namely those that provide positive net social and environmental benefits. There are also calls for the G20 and DFIs to abandon their bias in favor of PPPs, saying that a decision in favor of a PPP should depend upon whether it would result in lower production costs, better maintenance, and a higher level of service than if the investment was financed totally by public funds.

The future of Africa also depends on the creation of a proactive pan-African capacity for coordinated oversight and agenda-setting within the AU which could link key member states in determining how external forces pursue their agendas on the continent. Such alliances could determine whether or not “Africa Rising” means a continental economy of hyper-extraction and consumption or a break-away from the colonial pattern and toward structurally transformative sustainability. Recently, “neocolonialism” has in fact been an Africanization of colonialism via a politically and economically fragmented continent of weak states (some of which have morphed into outright failure and disintegration) and equally weak or moribund inter-African and regional institutions, all dependent on continuing metropole financing—bilaterally, from former “mother countries.” or from the EU. Now, as a new scramble for Africa is launched, the time has come for changing Africa’s subordinate and extortionate terms of engagement with the North and choosing transformation and progress.