African Development Bank Group's Global StrategiesA large part of poverty strategies is implementing some kind of spur in economic growth. This kick-start can be a gateway to social and economic reform in some of the poorest countries in the world, eventually leading to self-sustainability. The African Development Bank Group has made it their mission to place poverty reduction back into the hands of Africans and to create a stimulus that can enable the extremely poor in reducing their poverty scores.

The African Development Bank Group was born out of three different economic groups in Africa. It has set a plan that began in 2013, targeted to reach major benchmarks by 2022. The group has recognized that Africa has begun a transformative journey and progressed greatly over the last decade, yet this progress remains markedly uneven in some areas of the continent. This particular organization relies on a few major objectives to help lift regional member countries out of poverty, while staying congruent with ideals and values. The group first aids by mobilizing and allocating a country’s resources, then provides advice and guidance on technical aspects for development efforts. The African Development Bank Group has also laid out 17 sustainable development goals in order to achieve its mission. These goals include food security measures, sanitation, healthcare, sustainable energy use and procurement, social equality across gender and age gaps, economic growth and stability and ecological preservation plans.

The holistic approach to poverty reduction through economic growth and sustainability is what sets apart the African Development Bank Group. While taking advantage of models such as the World Bank and Multilateral Development Banks, The African Development Bank Group is able to remain primarily domestically-reliant and position itself in such a way as to gain more traction as the 2022 goal nears. Balance sheet optimizations have been a key focus in doing so, as projects continue to be carried out in both the private and public sectors through multilateral funds involving developed countries. The group’s procurement procedures – unlike other bank methods – involve strict standards. These include investments in member countries whose approval processes ensure that procurements are in line with the values and mission of The African Development Bank Group.

Casey Hess

Photo: Flickr

On July 10th, a consortium of development banks—the Asian Development Bank, the European Bank for Reconstruction and Development, the African Development Bank, European Investment Bank, the Inter-American Development Bank, the World Bank Group and the International Monetary Fund—released a statement laying out plans to “extend more than $400 billion in financing over the next three years.” They are also committing to working “more closely with private and public sector partners to help mobilize the resources needed to meet the historic challenge of achieving the Sustainable Development Goals (SDGs).”

$400 billion over the next three years averages out to slightly more than $133 billion per year, not significantly more than the $127 billion in available financing for 2015. The World Bank recognizes that much more is needed. Infrastructure investment alone is estimated at $1.5 trillion per year for developing economies.

One strategy that the multilateral development banks, or MDBs, will employ for bridging the investment gap is capacity building: working with developing nations on devising smarter tax systems and improving government procurement processes. These will make better use of existing money, and open up new sources of national revenue.

It may seem counterintuitive to tax poor nations to fund development, but the high levels of informal sector employment and low tax collection by developing nations, relative to developed ones, suggest otherwise. A study that looked at a sample of 31 low-income and 32 high-income countries put informal sector employment 20% higher in the low-income group. The low-income sample posted government revenue as a percent of GDP at 18%, while the high-income countries averaged 33%.

Although the negative correlation between tax collection and informal sector employment seems to work both ways, development economists agree that boosting national tax revenues in developing countries, if done correctly, will provide a source of necessary development financing and reduce poverty.

These development banks are also increasingly looking toward the private sector to raise the level of financing. Five of the seven heads of the banks spoke about the role that the private sector needs to play, and how they plan on engaging with it.

The proposals include investing more in private enterprises, connecting private investors with opportunities and helping countries make investments more attractive, effectively opening the tap for foreign capital flows.

More than a feel good story of throwing money at the SDGs to help them meet their laudable goals, the statement released by the MDBs hints at a more systemic change to how the SDGs will be financed. More technical assistance for capacity building and a greater inclusion of the private sector will change the landscape of development financing and the field of development itself.

These new changes are coming just in time for rigorous debate at the set of international conferences taking place this year, and their potential to reduce poverty and help meet the SDGs is hopeful.

John Wachter

Sources: Chatham House, World Bank
Photo: KAREN BLEIER/AFP/Getty Images