By Remi Adebayo
Bid to strengthen African Development Finance Institutions to fulfill its mandate of supporting Small and Medium Scale Enterprises and assist governments fulfill development programmes occupied discussions as experts and stakeholders converged on Abuja, the Nigerian capital city for three days last week.
The event was the 2017 Chief Executive Officers Forum of African Development Finance Institutions which had no fewer than 80 foreign delegates drawn from the continent and beyond, together with their Nigerian counterparts, to exchange views and experiences in a peer review mechanism for the improvement of African DFIs.
For the three days at its Transcorp Hilton, Abuja’s meeting, the best of the African and other international guests took turns to speak on the way forward for the sustenance of financing development and social projects in Africa.
Indeed, support for SMEs to attain the Sustainable Development Goals (SDGs) as touching nations in Africa, which is believed to rest largely within the development finance institutions took the front burner.
This is so in view of its capacity to disburse funds at lower interests rates different from the trends at commercial banks; it therefore became imperative on this custom-made finance institutions to stimulate maintainable ideas towards scaling up its impacts.
With the theme; Strengthening African Development Finance Institutions (DFIs) Through Good Governance and Appropriate Regulations for Sustainable Development Financing in Africa, participants leveraged on the broad spectrum of experts at the summit to proffer directions for the sector.
Nigeria’s Vice President, Prof. Yemi Osinbajo, represented at the event by the Minister of Industry, Trade and Investment, Dr. Okechuwu Enelamah was unsparing in testifying that Nigeria appreciates the role of DFIs in fast-tracking development and would support them as partners.
The Vice President was delighted that the Bank of Industry, BOI, hosted the forum of African DFIs, which brought together chief executives, senior managers and key stakeholders in development financing across forty countries.
The Gombe State Governor, Ibrahim Dankwambo in fact hinted especially that Nigeria’s exploding population requires a proactive palliative of partnership with development institutions.
Citing his state as an example, Dankwambo explained that 15,000 direct and multiples of indirect jobs were created in his state through the partnership between Gombe and the BoI, aside from the electrification of an estate named Small Londonwhich was solar powered and financed by the development bank and DFID.
But the Governor is not alone, BoI’s Managing Director and host, Mr. Olukayode Pitan, similarly holds the thought that with Africa hosting world’s poorest countries, the continent stands to benefit tremendously from the solutions and ideas that the conference would birth.
While offering his solutions, Pitan is of the view that as African population rises, accompanied with increasing job demand by theyouths, urgent action to address low levels of competitiveness, through strengthening of DFIs to integrate and imbibe a strong corporate governance culture in various institutions must be adopted.
In his formal welcome address, the BOI boss emphasized the need for synergy among DFIs and governments to accelerate rate of development and promote the desired level of sustainable social development required by the continent.
“Our actions will determine whether the growth of the continent’s population will promote prosperity and improve the livelihood of African people or become source of friction, social tension and increased economic hardship”, he challenged.
He noted that among over 140 DFIs in Africa, some are making significant strides in fulfilling their mandate while others are struggling owing to adverse economic climate which affects funding; unstable political landscape which causes economic policy somersaults; inability of some DFIs to operate independently of government bureaucratic structures, among other ills.
Analysis of peculiar experiences offew nations viewed from the Prudential Standard Guidelines and Rating System (PSGRS) attest to the fact that regulatory framework and governance play leading roles in the effectiveness of African DFIs in meeting their mandate.
He therefore advocated good corporate governance and appropriate regulatory framework which include home-grown framework that functions effectively to enables DFIs meet their objectives of providingfinancial and advisory support for social development projects, whilst also ensuring their economic sustainability.
Specifically, Pitan made case for relationship between an organization’s management, its board, its shareholders, and other stakeholders; aligning African DFIs with international best practices, including research on areas of improvement and separation of ownership from control to enhance the regulatory and supervisory structure.
He also called for strengthening of the governance framework where the mandate, objectives, strategy, and target of DFIs are defined; and improved process of selection and appointment of the board of directors with clear mandates.
In his address, Mr. Arshad Rab, CEO of the European Organisation for Sustainable Development while speaking on the subject; Re-imagining DFIs in the fast-changing world, he noted that the conference was coming at the time when the world and DFIs are faced with unprecedented challenges but also a time of tremendous opportunities; a time when traditional funding is no longer suffice in meeting development challenges.
Reflecting on the past, he noted that 1950s – 60s witnessed decolonization, a period when nations craved for industrialization, making governments to establish financial institutions.
He however emphasized the change that followed, among them; the challenges of interactions between owners of the economy and that of the finance, lack of governance where politics influenced financial regulations and control; rigid business models that failed to respond to the dynamics of DFIs and unfavourable business processes.
Those days are however over, considering the emerging technologies from the phones and robots that are smart and very responsive; and these portend the prospects of neutralizing the traditional banking structure across the world.
In order to brace up to the realities therefore, Rab proposed that DFIs must embrace digital and sustainable economy and dynamic policies to adopt technology to revitalize the sector in the changing world.
He also advocated innovation and policy interventions and robust governance management needed to respond to the radically changing turfs where DFIs operate.
In addition, he noted that innovations are lacking in the sector, therefore DFIs must open itself up to innovations and must accommodate new management structure and skillful business models, especially stressing that raising funding from government as owners of DFIs is no more in practice.
Dr. Larry Osa-Afiana, pioneer Managing Director of the Bank of Industry, in his paper; Good Corporate Governance & Appropriate DFI Regulations: Relevance in enhancing DFIs’ efficiency is of the view that the major issue bedeviling the sector is what he termed ‘Opacity of Mandate.’
According to him, the fundamental problems confronting African DFIs was the opacity of mandate; saying that in the rapidly changing world, the question should no longer be the relevance of DFIs but that of its unclear and unspecified mandate which he believed have weakened the relevance in carrying out its mandate.
Having lost the monopoly in the financial space arising from emerging smart technologies, it will require smarter and proactive measures by DFIs to remain relevant and respond to its mandate.
Again, he bemoaned defective corporate governance in development banking system, blaming board of directors of companies for the failures. He stressed that policy set by government are often problematic hence, the Board put in place by the same government often become problematic.
Restating that the primary responsibility of DFIs is not to disburse finance but that of identifying and nurturing enterprises in line with reduction of poverty and creation of jobs as well as provision of social services through assisting Small and Medium Enterprises (SMEs) in aid of growth and development. He emphasized that the path of growth largely depends on the DFIs developing SMEs.
The representative of the International Labour Office (ILO), Patricia Richter, in her presentation at the AADFI gathering, presented a paper titled, “The Social Dimensions of Development Finance in Africa – Results of Survey among ADDFI members,” in which she highlighted the ILO’s Social Finance Programme, whose mission is to support development and adoption of financial services and policies for social justice through innovation, research, policy dialogue and capacity building.
The paper addressed the undisputed environmental degradation and the effect that climate change has on social-economic impacts on poverty and employment, and how differently this affects social groups.
However, substantial issues of child labour, for example, in mining sector, or the recent rise in large-scale land acquisition illustrate the dramatic and extensive social impact of neglecting to adequately address social risks and impacts and manifest the need for compliance with distinctive social safeguards.
Despite that the Democratic Republic of Congo (DRC) established a National Code on the Rights of Children in 2009, the paper sighted, and ratified the ILO Conventions No. 138 and 182 on minimum age and worst forms of child labour, statistics suggest that 80,000 children under the age of 15 were employed in the mining sector in the DRC in 2010, constituting 40% of the total workforce in the sector.
Large-scale land acquisitions was also the focus on her discussion. While project involving large scale land acquisitions may create opportunities for economic development and livelihood improvement in rural areas, the paper warned that, they also carry high risk of local communities like the loss of access to resources that are imperative for food security.
A recent study however, by GIIN and JP Morgan Social Finance shed light on alternative strategies to create social opportunities and long-lasting positive impact by investing in businesses that seek to provide products and services that benefits target populations; by providing employment to target populations; or by integrating target populations into investee supply or distribution chains (JP Morgan GINN 2015).
Ms. Patricia Richter concluded that the conviction of the need for compliance with distinctive social safeguards brought together the ILO and the AADFI to investigate the extent to which DFIs in Africa have implemented formal Social and Environmental Management Systems with a particular focus on the level of inclusion of the social dimension.
Although the summit ended on a brighter note, Mr. Dumisani Msibi who is the acting Chairman of AADFI in his closing remarks believed that delegates would return to their countries to reflect deeper on the gains of the forum and thereafter embrace the thoughts that would assist in the implementations of the lessons learnt from the Abuja meeting in order for the continent to solve some of its developmental challenges.
High point of the event is the unveiling of the revised edition of the PSGRS which was recently adopted for implementation commencing from 2019. Chairman, board of the Bank of Industry, Alhaji Aliyu Abdurahman performed the exercise.