This week, leading development officials from around the world gathered in London for the 17th conference, one of the most important ‘Africa-focused’ conferences of the next three years. replenishment African Development Fund (ADF) – A division of the African Development Bank (AfDB) Group, which provides the “cheapest” and “longest” form of financing for development available.
Anyone who has worked in the Treasury or on the African continent knows that, apart from the World Bank’s IDA, the ADF is the most important multilateral financing channel by value for Africa’s 22 low-income countries.
And when it comes to content, anyone who has worked in an African Ministry of Infrastructure and Planning knows that the ADF is more important than the IDA. Since its inception, the Fund has spent nearly US$53 billion on nearly 3,000 projects across public works sectors and regions.
According to a recent policy brief published by Development Reimagined, the largest allocations of the ADF will go to transport infrastructure (28%), multisectoral initiatives (27%), and agriculture and rural development (17%), positioning the Fund as a key driver of the continent’s cross-cutting priorities in poverty alleviation, human capital development, and integration.
The meeting resulted in a record replenishment of $11 billion. This was lower than the “ambitious” $25 billion target it had originally aimed for, but was still a 23% increase compared to the previous replenishment three years ago.
What justifies massive replenishment?
Replenishment unfolded in a high-stakes situation.
Faced with worsening constraints on access to development finance, particularly as OECD governments have begun to reduce ODA, governments in relatively high-income African countries with ‘market access’ have turned to issuing Eurobonds and other short-term high-cost loans, many of which now face high debt service costs, constraining their development potential.
In practice, concessional financing has not consistently served as a reliable bridge towards cost-effective non-concessional borrowing. When shifts away from concessional support occur, these shifts often reveal a lack of affordable alternatives. Rather, they are exposed to more expensive and less stable sources of funding.
Meanwhile, other people have no choice at all. In many ways, their debt is prohibitively limited outside of options such as IDA and ADF.
related
Multilateral debt is also high. In 2005, concessional finance accounted for 70% of total multilateral lending to Africa, but by 2023 that figure had fallen to 45%.
This is a problem. Non-concessional financing raised bilaterally or multilaterally is subject to exaggerated premiums associated with “African risk”, limited credit ratings, and financial benchmarks that do not fully represent the true potential of investments within the continent.
A recent report by Africa No Filter and Africa Practice estimates that Africa loses US$4.2 billion annually due to inflated interest payments related to biased media coverage.
But even US$11 billion over three years is still far short of what is needed. Detailed projections for just 13 of Africa’s 55 countries show that the gap in infrastructure spending to achieve the SDGs and Agenda 2063 is between USD 109 billion and USD 150 billion per year until 2030.(1).
Meanwhile, the continent’s climate finance gap exceeds US$100 billion annually, yet African countries raise less than 3% of global climate finance.
However, replenishment did more than just fill a financial gap. It was also about rethinking how African countries and African Financial Institutions (AFIs) finance development, who contributes, how resources are sourced and what tools are best suited to address Africa’s evolving situation.
The above-mentioned uncertainties regarding regular donor contributions led the AfDB to focus on three new strategies.
Record ADF replenishment
First, to replenish the ADF, the AfDB worked hard to attract contributions (grants and long-term low-cost loans) to the ADF from non-traditional donors such as the Gulf states, China, and India. These donors, unlike many OECD donors, already believe that there is a long-term national interest in African development.
The result was the first-ever contribution to the ADF from two Gulf funds: $800 million from the Arab Bank for Economic Development (BADEA) and $2 billion from the OPEC International Development Fund.
