Getting priorities right is a must

Mike Muller
Business Day (South Africa)
September 3, 2004

The delivery of five new fire engines to municipalities in the US state of Indiana tells us a lot about the long process of punishing the companies that tried to corrupt the Lesotho Highlands Water Project as well as about other obstacles to African development.

Last month, the World Bank announced it had barred Canadian engineering company Acres from participation in the bank’s projects for three years for corruption in Lesotho.

On the same day, US senator Richard Lugar’s prestigious foreign affairs committee held hearings on how the bank tackles corruption, using the Lesotho Highlands Water project as an example.

Durban advocate Guido Penzhorn who led the prosecutions in Maseru testified to Lugar’s committee that there was little support for the Lesotho prosecutions from the bank despite a public commitment by its president, James Wolfensohn, during a visit to SA.

He said that the success in tackling corruption came not from intensive World Bank oversight but through local action in southern Africa. And it is true that SA, through our Joint Water Commission with Lesotho, has been deeply involved in the prosecution and has supported expenditure by the Lesotho Highlands Development Authority (effectively funded by South African consumers) to bring the culprits to book.

There was an important omission in the proceedings. The month before, in June, Acres was taken over quietly by Hatch, another Canadian engineering firm. Will the sanctions apply to the new firm? Is the whole debarment merely a cosmetic move with no effective effect?

Those questions are not answered by the bank’s statement; nor are they addressed by Lugar’s public information. A spokeswoman is quoted as saying that “the bank is aware of the acquisition but we have no comment as it relates to the sanctions committee hearing into Acres International and its Lesotho activities”.

One is left with the uncomfortable conclusion the concern in North America is less about northern corruption than about who calls the shots at the World Bank and its regional partners. And that is a debate which SA must take part in.

Lugar’s committee website has more about how many fire engines were given to Indiana municipalities than about allegations of $100bn corruption at the World Bank. Even senators such as Lugar with decades of distinguished office must be seen putting their local constituencies first he represents Indiana.

That highlights the fact the activities of the bank and its regional development bank partners often reflect more the policy priorities of the US administration and other rich world governments than they do global development needs.

How this works was made clear by the US treasury department’s top official for international affairs, undersecretary John Taylor. “The treasury chairs the interagency working group on multilateral assistance, which meets weekly to review loans and grants coming up for approval” he testified.

“This group includes state, commerce, and USAid . . . When we find problem projects, our first effort is always to work with management to improve loans or grants, which we believe do not meet our standards. The ultimate voting decision on projects is the responsibility of the US government.”

Obviously, guidance given will often represent domestic US interests rather than the development priorities of the bank or the countries to which it lends.

Environmental nongovernmental organisations (NGOs) who have limited influence on US domestic policy as evidenced by the way the US has brushed aside calls to support the Kyoto protocol on global warming can wield disproportionate influence when domestic interests are not at stake.

As a result, World Bank funding of infrastructure has declined steadily over the past decade. Small NGOs such as the International Rivers Network have successfully pressed the US to oppose funding of important water projects in Africa because they do not like their effect on natural rivers. Such policies, applied to the US or Europe, would cripple their economies but they can be and are imposed on developing countries.

Many staff members in the bank are deeply frustrated by the power of such lobbyists and internal pressure for a return to infrastructure lending is growing. Yet they warn that progress will be difficult while the US, its rich world partners and domestic lobbyists continue to have a disproportionate say in proceedings. They complain too that developing country directors often remain silent on important decisions for fear of antagonising the “big boys”.

The influence of northern NGOs over African interests is not limited to the World Bank and the US. Earlier this year, the European Union introduced new subsidies for renewable energy to comply with the Kyoto Protocol surely good for all of us?

Unfortunately, lobbying excluded large hydropower projects from receiving the subsidies. While one understands Danish wind turbine makers and German Greens want to ensure the bulk of the funding goes to their pet projects, the result is to undermine development opportunities in Africa.

The World Bank is not everyone’s favourite institution. Yet while SA is fortunate not to need its funds, the same is not true for most African countries. It is acknowledged that funding is required for the south to develop out of poverty and that institutions are needed to provide long term development finance on reasonable terms.

What the Lesotho case and the Lugar corruption hearings demonstrate is that those institutions must reflect the interests of the countries concerned instead of the domestic politics of the rich and the powerful.

The long-term solution is the much vaunted reform of the bank and related institutions.

In the short term, it is important, particularly for the New Partnership for Africa’s Development (Nepad) and related programmes, that these dynamics are understood and the underlying challenges addressed.

The answer is surely not even more bureaucratic control from the bank or its back seat drivers in the US treasury.

A priority must be to encourage arrangements which allow recipient countries to manage the resources themselves, and, in the spirit of Nepad, to hold them accountable for their effective application. In Lesotho, we have shown that we can do it.

Mike Muller is Director General of the Department of Water Affairs and Forestry – South Africa.

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