AFDB PRESIDENT AIMS TO REGAIN MEMBER CONFIDENCE

UNCLAS SECTION 01 OF 03 TUNIS 001261 SIPDIS SENSITIVE SIPDIS STATE FOR EEB (DIBBLE AND DIZOGLIO) USDOC FOR ITA/MAC/ONE (NATHAN MASON) CAIRO FOR FINANCIAL ATTACHE (SEVERENS) LONDON AND PARIS FOR AF WATCHERS E.O. 12958: N/A TAGS: EAID EINV XA SUBJECT: AFDB PRESIDENT AIMS TO REGAIN MEMBER CONFIDENCE REF: 06 TUNIS 2916 -------------- Summary -------------- ¶1. (SBU) In a September 11 meeting with EEB PDAS Elizabeth Dibble, African Development Bank (AfDB) President Donald Kaberuka outlined his vision for the AfDB's future, emphasizing the need for greater selectivity and focus in Bank lending as well as strong support for the private sector. Kaberuka stressed the importance of AfDB support to fragile states and noted strong Board support to quickly resolve Liberia's arrears. In a separate meeting, AfDB Vice President Joe Eichenberger lauded Kaberuka's role in restoring the Bank's AAA credit rating in the eyes of its regional member countries and emphasized that the AfDB now has a window of opportunity and pool of good will to accomplish its aims. End Summary. -------------- AfDB Relevance -------------- ¶2. (SBU) In a September 11 meeting with PDAS Elizabeth Dibble, African Development Bank President Donald Kaberuka outlined what he termed "exciting times" in Africa. Kaberuka remarked that one or two countries may achieve the income levels that permit graduation, while still others are making progress based on strong commodities prices, reforms, and improvements in neighboring countries. Kaberuka emphasized that the AfDB is a small player -- ranked 6th in providing development assistance to Africa. Kaberuka noted that he was looking forward to a good African Development Fund (ADF) replenishment, but that would not drastically alter the Bank's resources. Stating that he did not want the AfDB to become a mini-World Bank that tries to solve all the world's problems, he remarked that the AfDB should focus on areas where it can provide value-added and make a real difference. Kaberuka cited the varying needs of African countries, noting that those with greater market access (Equatorial Guinea, Sao Tome and Principe, and North Africa) do not require financing but still want technical assistance. PDAS Dibble replied that responding to differentiated needs is important for the Bank's relevance, and that it is important not to try to be all things to all countries. ¶3. (SBU) AfDB VP for Operations Joe Eichenberger stressed the �A;need for greater selectivity and focus in Bank projects. Eichenberger noted many of the new players and participants in Africa bring substantial funds and capacities that AfDB does not have. Eichenberger emphasized that the demand side has also pushed the Bank towards infrastructure and related concerns such as governance. He recalled that in the past the combination of large infrastructure projects and little oversight led to "roads with weeds growing out of them." Today there is recognition that successful infrastructure projects require attention to governance. Eichenberger added that donors also recognize that there was too much emphasis on social operations in recent years, citing the poor results of the AfDB's human development projects. He stressed that the AfDB must continue to invest in human dignity, given Africa's poor human development indicators, but that the Bank could best accomplish this by targeting its infrastructure projects. Eichenberger cited projects that would build roads to markets and to health facilities as examples. He hoped that the current replenishment discussion would produce a real increase in funds that would permit steady investments in human development and growth in infrastructure spending. -------------- Fragile States and the "MCC Effect" -------------- ¶4. (SBU) Kaberuka stated that the AfDB is increasing support to fragile states and that he hopes to speed support to countries meeting certain criteria. PDAS Dibble noted US recognition of the need to support fragile states and underscored the importance of moving forward quickly with Liberia. PDAS Dibble cited longstanding US advocacy of performance-based allocation and US programs that reward performance, such as the Millennium Challenge Corporation. Dibble highlighted that the "MCC effect" is causing countries to consider reforms that could improve their chances of eligibility, with countries like Tunisia taking note of the MCC's new compact with Morocco. Kaberuka acknowledged that TUNIS 00001261 002 OF 003 USG policy rewards good performers, but that it must also support Liberia and others seeking to transition after conflict. ¶5. (SBU) Eichenberger noted that the OECD/DAC has done a lot of work on typologies of fragile states. He told Dibble that based on that work, AfDB management decided that it could best contribute to post-conflict and post-crisis countries. Eichenberger agreed that performance-based allocation is a key issue, adding that it was "not only the Americans" who support it and even the skeptics "buy it in principle." -------------- Arrears Clearance -------------- ¶6. (SBU) Kaberuka noted strong Board support to quickly resolve Liberia's AfDB arrears. Treasury Financial Attache Alex Severens noted that Treasury Assistant Secretary Lowery has worked hard to resolve this, and that there have been positive indications from china, India, the Philippines and Korea. Eichenberger explained that the AfDB has the resources to resolve its part of Liberia's arrears, but that the 70/30 burden-sharing would stretch the rules of the AfDB fund used to clear arrears and there has been Board pushback. Eichenberger expressed hope that the Liberian arrears can be resolved before the end of ADF-10, i.e., the end of 2007. Severens asked Eichenberger whether Cote d'Ivoire would require similar treatment to Liberia, but Eichenberger stated the cut-off date was a larger concern for the Ivorians than the burden-sharing formula. Kaberuka told PDAS Dibble that the AfDB has presented a proposal for clearing Nigerian Trust Fund arrears and that although the President has been very understanding, others in Nigeria do not support the proposal. Nevertheless, Kaberuka believes that the Nigerian President will prevail and that the arrears can be resolved in the coming month. -------------- Where to? -------------- ¶7. (SBU) Kaberuka preemptively answered the location question, laughingly noting that he knew Dibble would ask why the AfDB is in Tunisia. He stated that it had not been easy for the ADB to operate in Abidjan's crisis, and Tunisia had originally offered a temporary place originally for six months to one year. Kaberuka noted that the crisis continues unabated, and expressed his desire for Cote d'Ivoire to have lasting peace and stability. He added that the AfDB is closely observing the situation in Cote d'Ivoire and the AfDB Governors will make a decision next April. If they vote to return, there will be one year of preparation, followed by one year for the return process. PDAS Dibble emphasized that the United States also hopes Cote d'Ivoire will achieve a lasting and stable peace. Dibble indicated that the United States supports resolution of the AfDB's temporary status as soon as possible, but also want the AfDB to be able to serve its stakeholders as effectively as possible. -------------- Supporting the Private Sector -------------- ¶8. (SBU) Kaberuka highlighted increased AfDB focus on the private sector, including investment climate support. The Bank also seeks to play a catalytic effect for specific private sector deals. He stated that the AfDB would like to be a "medium player", with a target of US $1 billion in financing. Dibble agreed that it is important to mobilize the private sector without displacing it and cited OPIC's approach of focusing on deals that could not be completed without OPIC's involvement. Kaberuka stated that the AfDB approach is to balance its portfolio, using low risk deal operations to provide a foundation to undertake high risk projects. ¶9. (SBU) Eichenberger emphasized Kaberuka's enthusiasm for and focus on private sector activities. In response to Dibble's concern that the Bank not take the place of the private sector, Eichenberger noted that investors are not familiar with Sub-Saharan Africa and mused that there may be a value to ADfB participation in making other investors more comfortable. Eichenberger argued that former President Kabbaj restored the Bank's credit ranking through minimizing risk, but that now is the time for the Bank to use its strong TUNIS 00001261 003 OF 003 reserve position to support the private sector. Eichenberger believes that the AfDB could ramp up private sector financing to US $500 to 700 million annually. -------------- Kaberuka's Leadership -------------- ¶10. (SBU) Eichenberger noted that the AfDB has a window of opportunity and a pool of good will due to the respect Kaberuka commands internationally. Emphasizing the difference between former President Kabbaj and President Kaberuka, Eichenberger stated that Kabbaj believed his principal role was to restore the Bank's AAA credit rating with international markets and credit agencies. Some see Kaberuka's role as restoring the ADB's AAA rating with its regional member countries. ¶11. (U) PDAS Dibble has cleared this cable. GODEC