Towards a Responsible Future for Development finance.

1
Towards a Responsible Future for Development
finance.

• By Vitalice Meja - AFRODAD

2
Presentation Structure

• Introduction and Background
• ECAs in perspective
• The ECAs and Africas Development
• Country Case Nigeria
• Corruption
• Possible Role of CSOs and Parliamentarians

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Introduction and Background

• Despite the Monterrey Consensus, Gleneagles
  declaration and other commitments to up total aid
  to developing countries, the gains have been only
  marginal
• In particular, there has been drastic reduction
  in the quantity of official development
  assistance and concessional loans.
• The structure of international financing is fast
  changing placing ECAs as major sources of funding
  for export, investment and other developmental
  projects in many developing countries.

4
Introduction and Background
5
ECAs in Perspective

• According to ECA-watch (2006), export credit and
  investment support agencies (ECAs) are public
  agencies that provide guarantees, credits and
  insurance to private corporations from their home
  country in the West to do business abroad
• Most industrialized nations have at least one
  ECA, which is usually an official or
  quasi-official branch of their government.
• Today, ECAs are collectively among the largest
  sources of public financial support for foreign
  corporate involvement in industrial projects in
  the developing world.
• Some the major ones in Africa include, Frances
  COFACE, Americas EXIM, Germanys HERMES, UKs
  ECGD etc

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ECAs in Perspective

• In recent times, ECA supported activities
  operating in developing countries have raised
  substantial concern. With large part of the
  external debt of many African countries being
  held directly by ECAs , 58 in Lesotho, 55 in
  Gabon, 42 in Congo and 21 in South Africa,
• The debt trap have raised questions as to whether
  guarantees and insurance cover provided by ECAs
  facilitate trade for multinationals and first
  world firms or development for third world host
  countries.
• The countries concerned have almost in all cases
  fallen into questionable but crushing debt and
  other liabilities, while the beneficiary firms
  have maximum profits following success of
  projects and nil losses in the event of their
  failure.

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Implications to Africas Development

• With the absence legal frameworks, policies and
  programs for fostering transparency and holding
  the ECA supported activities accountable the
  following has been experienced
• Most of the credit from ECAs were used to fund
  white elephant projects or stalled projects
• Some of the funds used to facilitate
  privatisation of state corporations and basic
  social services
• Some ECAs even supported the export of arms and
  military equipment to dictatorial regimes
• Because of the clandestine nature of ECAs, the
  activities they support lack appropriate
  environmental safety and pro-poor policies in the
  domestic economies where they are implemented,

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The case of Nigeria

• All of Nigerias Paris Club debts were owed to
  ECAs. This is due to the fact that the original
  loans were guaranteed by ECAs and these
  guarantees were invoked
• There are several export credit agencies (ECAs)
  operating in Nigeria. The volume of operations of
  these ECAs can be measured by the share of
  Nigerias debt held by ECAs.

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The Case of Nigeria

• On the average, the 2004 value of the countrys
  debt is approximately 153 of its original
  borrowing this is after two decades of debt
  servicing of over US 35 billion!
• Of the countrys US35.9 billion external debt
  (as at 2004), debt to the Paris Club group of
  creditors amounted to US30.8 billion,
  approximately 86 of total sum.
• While the share of commercial credits fell from
  41 in 1985 to only 6 of total debt in 2004, the
  share of ECA-denominated debt rose from the same
  41 in 1985 to 86 in 2004
• Both UKs ECGD and Germanys HERMES held 44.1 of
  the total ECA debts with the former having 26.1

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The Case of Nigeria
11
The Case of Nigeria

• At end 2004, total debts owed to these ECAs are
  multiples of the original loans. For countries
  like Denmark, France Germany and the
  Netherlands, total debts as at end 2004 was over
  200 of the value of original loan. Other
  countries with present loans worth over 100 of
  the original loans include Austria (152),
  Finland (100), Italy (192), Japan (113), Spain
  (135), Switzerland (133), United Kingdom
  (170), and United States (153)

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Where the money was spent
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The Impact

• Nigeria like other countries continue to
  experience brain drain because of a weak social
  infrastructure and poor pay
• Consumer goods were used for general consumption
  and for the failed import subsitution
  industrialisation that did not contribute to
  employment of the people but rather a huge import
  bills to the country . Most of the projects have
  become white elephants and were riddled with
  corruption

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The Impact

• Expenditure on general services included the
  telecommunication, hotels, aviation, identity
  cards project. Most of these projects ended up in
  ICU. The telecommunication sector was able to
  serve only 500,000 after two decades of
  operation, most of the hotels did not take off or
  ended up being sold off. Nigeria airways was sold
  off to Virgin airlines

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Impact

• The oil sector only employs 2 of the population
  despite having 13.5 of the total debt. It has
  the weakest link with other productive sectors
  and contributes heavily to environmental
  degradation
• Manufacturing sector and heavy industry follows
  the same fate. Ajoukuta steel industry despite
  having consumed US 1.3 bn has failed to take
  off.

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Corruption

• In 1997/98, transparency international made some
  attempts at enquiring into the activities of ECGD
  and DFID (both UK government departments) by
  finding out what it has received from developing
  countries under the HIPC initiative. It then
  tried to validate whatever answers it obtained
  from ECGD and DFID by taking a look at the
  response given by the Treasury in parliamentary
  session
• In almost all cases and all countries, there
  were obvious variations in the information
  obtained from the two sources.

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Corruption

• Treasury reports showed that ECGD overstated its
  receipts from Togo by 98, Senegal by 83,
  Mozambique by 88, Mauritania by 49 and Cameroon
  by 68. However it understated its receipts from
  Ghana by 133, Cote dIvoire by 436 and Nigeria
  by 37,900! In Nigerias case for that year, its
  statement showed it got 5000 only from Nigeria,
  but Treasury statements showed it got as much as
  1.9 million
• Thus curruption in its current framework is one
  sided and partronising

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Corruption

• Institutions championing anti corruptions
  measures are in themselves non transparent in
  nature and contributed to the current status in
  many African people their conditionalities
  disempowered the people to hold there
  governmensts accountable
• Current approaches do not address the structural
  causes of corruption but rather the symptoms
• Systemic/Institutional corruption are more
  dangerous and this requires partnership approach
  not patronage
• Sustainable anti corruption measures should be
  embeded from within and the first step should be
  to empower civil society

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CSOs and Parliaments in Development Financing

• It has to be acknowledged that the governments
  need help to make future development finance
  more affective
• They need help in the development of
  pro-environmental laws for sustainable business
  operations as well as the monitoring of such
  programmes.
• Increased awareness particularly of the need for
  reform in several ECAs operations provides huge
  opportunities for intervention in this respect

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CSOs in ECA

• Thus the need for immediate formation of critical
  coalition and support base around the ECA issues
  - Most groups are small and splinter groups
  incapable of confronting huge resources from ECA
  benefiting MNCs who are worried about them
• There is therefore need for strategic alliances
  and the pooling of resources for common purposes,
  defining of priorities and concentrating
  resources among advocacy groups on debt.