The Dilemma of the African Development Bank: Does Governance Matter for the Long-Run Financing of the MDBs?

In this paper, I explore the question in the subtitle: Does governance matter for the long-run financing and effectiveness the multilateral development banks? Does the system of weighted voting that is peculiar to them (compared to the United Nations and other international institutions), and favors the high-income countries that are the banks’ main financiers, matter for their long-run access to financing and their effectiveness as development institutions? Does the voting structure, as well as other aspects of governance, involve some tradeoff between the confidence of creditor countries in the different MDBs, and the sense of ownership, legitimacy, and trust of borrowers? Is that tradeoff reflected in differences in the banks’ relative success in raising capital and contributions to sustain their operations, and with what implications for the different banks’ development effectiveness in borrowing countries? There is no way to definitively answer those questions. But among the five “legacy” MDBs founded in the 20th century, the African Development Bank stands out as the one where the governance arrangements most favor its regional borrowers. The dilemma of the African Bank is that its governance arrangements may be making it relatively less competitive than its sister banks in sustaining creditor (or “donor”) confidence over the long run, and thus in raising new capital and periodic contributions to allow for grants and cheap credits to the poorest countries in the region. Lack of competitiveness in raising financing a dilemma both for its borrowers and its high-income creditor shareholders, given their shared goal of optimal use of all available resources in promoting higher and more inclusive and sustained growth in Africa.