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The board of the African Development Bank (AfDB), Africa's
biggest multilateral lender, announced on 26 May an independent
investigation into whistleblowers' allegations regarding the
governance of the bank's president, Akinwumi Adesina, who is
running for another five-year term in August. Adesina, a former
Nigerian cabinet minister, was earlier cleared by the bank's
internal ethics committee of allegations of abuse of office and
corruption, declaring that he was "totally exonerated of all
allegations made against him". Adesina denies these
allegations.
The timing of the investigation is highly likely to be
driven by the approaching AfDB annual general meeting, postponed
from late May to late August due to the coronavirus disease 2019
(COVID-19) pandemic, at which Adesina plans to secure
re-election. After the African Union's annual Heads of
State Summit in late February, its executive council announced its
unanimous support for Adesina's candidacy for a second term.
However, on 8 April, a group of whistleblowers ("concerned staff
members of the AfDB") wrote to bank's board of governors, making 16
allegations that the AfDB boss had breached the bank's ethics code.
There were earlier such allegations made in January 2020 to US and
Japanese executive directors of the bank. The allegations include
embezzlement and favouritism, involving claims of Adesina not
respecting the AfDB's internal recruitment rules; that is,
favouring Nigerians, friends, and associates with appointments and
contracts, which he denies. Following an internal investigation, on
5 May, the AfDB board of governors, led by the chair, Ivorian
Planning and Development Minister Kaba Nialé, exonerated Adesina of
abuse of office and corruption. However, the United States, the
second-largest shareholder (6.5%) in the AfDB after Nigeria (9.1%),
rejected the board's exoneration of Adesina, instead calling for an
independent probe into the allegations. US Treasury Secretary
Steven Mnuchin said that the US Treasury disagreed with the
findings of the AfDB's ethics committee. Other non-African
shareholders of the bank, including Denmark, Sweden, Norway, and
Finland, backed Mnuchin's demands for an external investigation.
Although the outcome of the probe is highly likely to lead to
broader governance reforms at the bank, including changes to its
complaints procedures, the US is unlikely to withdraw from the bank
as it remains one of its channels for exerting foreign police
influence in the region. Most of the international organisations
that US President Donald Trump's administration has resigned from
or from which it has threatened to resign its membership, such as
the World Health Organization (WHO), work in the social, health, or
educational issues sectors, rather than development finance.
The call for a further investigation by the US indicates
a growing rivalry between multilateral and bilateral lenders
seeking to play an increasingly influential development financing
role in Africa. Under Adesina, the AfDB has become more
assertive, seeking to diversify its revenue and resource base, and
supporting African governments tapping into multiple sources of
funding, including seeking Chinese loans. The AfDB has increased
its capital by 123% to USD208 billion from USD93 billion as of
October 2019, the largest amount in the bank's 50-year-plus
history. Recently, the AfDB has been mobilising resources to fight
the coronavirus disease 2019 (COVID-19) pandemic. The bank, using
its triple-A investment rating by international credit rating
agencies Fitch Ratings, Moody's Investors Service, and S&P
Global Ratings, raised USD3 billion from a three-year social bond
in March and also created a USD10-billion response facility to
mitigate the impact of the COVID-19 pandemic on the continent.
However, former US government official and current World Bank
president David Malpass on 10 February criticised the AfDB and
other multilateral development banks, saying that they have "a
tendency to lend too quickly", adding to the continent's growing
debt burden. These criticisms followed a 5 February report that
Malpass plans to split the World Bank's African department into two
as of 1 July 2020, reflecting an increasing focus on the region by
the World Bank. Sub-Saharan Africa currently represents a third of
the World Bank's loan portfolio, with lending likely to grow after
the World Bank's recent capital increases. On 13 February, the AfDB
called Malpass's statements "inaccurate and not fact-based", and
said that "there is no systemic risk of debt distress", adding that
the statements impugn the integrity of the bank. Likewise, the
newly formed US International Development Finance Corporation (DFC)
is also seeking to play an increased development finance role on
the continent, signing a memorandum of understanding with the AfDB
in November 2019 to mobilise private capital to support Africa's
development. The increased lending role and leverage that
Western-based development finance institutions (DFIs) are seeking
conflicts with the supposed pro-China stance of Adesina - although
we assess that this most likely represents a non-regional, agnostic
stance. Adesina has welcomed Chinese investment and partnerships
with banks such as the Export-Import Bank of China, China
Development Bank, and Agricultural Bank of China, alongside other
initiatives such as Chinese-financed special agro-industrial
processing zones across Africa. Nonetheless, we assess that the
outcome of the investigation is unlikely to lead to a credit rating
downgrade or curtail the current portfolio of projects being
financed due to the AfDB's strong underlying fundamentals. The
investigation is unlikely to significantly threaten the AfDB's
access to funding due to its diversified funding pool, as well as
its strong shareholder support, notably from the US and Western
states, which collectively own a 46% share in the AfDB.
The AfDB's president is likely to win a re-election bid
for a second five-year tenure following a second investigation,
conditional on his being fully exonerated. Adesina has
repeatedly denied the allegations; he remains the sole candidate at
the bank's annual general meeting in August 2020. Adesina enjoys
considerable support from key regional bodies such as the African
Union and the Economic Community of West African States (ECOWAS).
Both Nigerian President Muhammadu Buhari, South African President
Cyril Ramaphosa, and influential former Nigerian president Olusegun
Obasanjo have commended Adesina's efforts in securing COVID-19
funds for the continent and support his second-term bid. Likewise,
the AU's executive council's support for Adesina's candidacy for a
second term as AfDB president lends further credence to his bid.
Potential candidates for the AfDB presidency if Adesina is found
guilty of some of the allegations and ousted include Ngozi
Okonjo-Iweala, former Nigerian finance minister and World Bank
vice-president; Trevor Manuel, former South African finance
minister; and Tidjane Thiam, former Credit Suisse CEO. Nigeria is
highly likely to lobby for a like-for-like replacement, making
Okonjo-Iweala the leading consensus candidate.
Indicators of changing risk environment
Increasing risk
Lack of agreement at the AU's July Heads of State Summit on a
consensus candidate, with different parties split between backing
Adesina or a replacement such as Ngozi Okonjo-Iweala, Trevor
Manuel, or Tidjane Thiam.
New investigations find Adesina guilty of some of the
allegations, forcing him to resign and increasing the AfDB's
reputational risk.
The outcome of investigations into the bank's lending practices
increases the risk of a credit rating review or downgrade by
finding bad assets.
Decreasing risk
Successful lobbying by Nigeria and other African sovereign
shareholders for Adesina to be retained, indicating Adesina is
likely to win a second five-year term.
Other solidarity support, especially from Francophone African
countries which typically prefer French candidates, increases
Adesina's chances of being re-elected.
An announcement by the external investigative body exonerating
Adesina of all allegations, further bolstering his image and the
bank's reputation, indicating the strength of the internal
compliance processes.
Posted 18 June 2020 by Theo Acheampong, Ph.D., Senior Analyst Country Risk – Sub-Saharan Africa, IHS Markit