Bill Digest - African Development (Bank and Fund) Bill 2018 Bill No. 101 of 2018

Bill Digest - African Development (Bank and Fund) Bill 2018 Bill No. 101 of 2018

Bill Digest - African Development (Bank and Fund) Bill 2018 Bill No. 101 of 2018

Oireachtas Library & Research Service | Bill Digest 1 Abstract The African Development (Bank and Fund) Bill 2018 will provide for Ireland’s membership of the African Development Bank (AfDB) and the African Development Fund (AfDF). Membership of the AfDB requires ratification of an international agreement which, under the Constitution, requires the approval of Dáil Éireann through enactment of primary legislation. Darren Lawlor, Senior Parliamentary Researcher (Economics) Bill Digest African Development (Bank and Fund) Bill 2018 Bill No. 101 of 2018 Wednesday 31 October 2018

Bill Digest - African Development (Bank and Fund) Bill 2018 Bill No. 101 of 2018

Bill Digest I African Development (Bank and Fund) Bill 2018 2 Contents Summary .

. 3 Introduction . . 5 Table of provisions . . 5 Ireland and multinational development banks . . 6 The African Development Bank (AfDB) Group . . 7 Background and structure . . 7 Arm #1: The Bank . . 7 Arm #2: The Fund . . 8 Arm #3: The Nigeria Trust Fund . . 8 Purpose . . 8 Ireland’s Membership of the Bank Group . . 9 Why join . . 9 Membership risks (economic/fiscal and political . . 10 Financial profile and profitability . . 10 Ireland’s political relationship with Africa . . 10 African economic performance and Ireland’s trade relationship with Africa . . 12 African economic performance and the Sustainable Development Goals (SDGs .

. 12 Ireland’s trade relationship with Africa . . 13 Ireland’s diplomatic presence in Africa . . 14 Mission, strategy and goals (The ‘High 5s’) of the Bank . . 16 ‘High 5’ Progress . . 16 Membership . . 18 Shareholding and capital subscriptions . . 20 Shareholding . . 20 Capital subscriptions . . 20 Principal provisions . . 22 Ireland’s participation in the Fund and subscription . . 22 Ireland’s participation in the Bank and subscription . . 23 Articles of Agreement . . 24 Appendix 1: Capital subscriptions . . 25 Appendix 2: Capital subscriptions (and notional position of Ireland . . 26 Appendix 3: Ireland-Africa trade relationship .

. 26 Bill published 25 September 2018: Second Stage not determined. This Digest may be cited as: Oireachtas Library & Research Service, 2018. Bill Digest – African Development (Bank and Fund) Bill 2018 Legal Disclaimer No liability is accepted to any person arising out of any reliance on the contents of this paper. Nothing herein constitutes professional advice of any kind. This document contains a general summary of developments and is not complete or definitive. It has been prepared for distribution to Members to aid them in their parliamentary duties. Some papers, such as Bill Digests are prepared at very short notice.

They are produced in the time available between the publication of a Bill and its scheduling for second stage debate. Authors are available to discuss the contents of these papers with Members and their staff but not with members of the general public.

© Houses of the Oireachtas 2018

Bill Digest - African Development (Bank and Fund) Bill 2018 Bill No. 101 of 2018

Oireachtas Library & Research Service | Bill Digest 3 Summary  The primary purpose of the African Development (Bank and Fund) Bill 2018 is to facilitate Ireland’s membership of the African Development Bank (AfDB, hereafter the “Bank”) and the African Development Fund (AfDF, hereafter the “Fund”). In order for a non-regional applicant country to become a member of the Bank, it must first become a participant in the Fund. The procedure for membership of the two institutions occurs, in this case, concurrently;  Ireland is a member of a number of international development banks including the International Monetary Fund (IMF), the World Bank, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Council of Europe Development Bank, the Asian Development Bank (ADB) and, most recently, the Asian Infrastructure Investment Bank (AIIB);  The Fund provides development finance on concessional terms to low-income ‘regional member’ countries in Africa which are unable to borrow on the non-concessional terms of the Bank.

The Bank is headquartered in Abidjan, Côte d'Ivoire (Ivory Coast). The Bank President is always from a regional (African) country;  The policy objective of the Government in joining the African Development Bank is to reinforce Ireland’s political, development, economic, trade and cultural relationships with Africa;  According to the Government, participation in the Fund and membership of the Bank will provide an opportunity to extend Ireland’s reach and impact in terms of trade, in particular through enhancing opportunities for Irish companies to secure project contracts;  Membership requires ratification of international agreements in respect of the Articles establishing the Bank, and the Articles establishing the Fund.

Under the provisions of the Constitution (Article 29.5.2°) approval of Dáil Éireann is required where such an agreement involves a charge upon public funds;  Ireland will be liable for a subscription cost of €65.14m, to be encashed in up to 8 annual instalments (approx.€8m annually) for participation in the Fund, and a ‘paid-in’ contribution of €38.2m for membership of the Bank, payable in annual payments over 8 years (€4.7m annually). The first instalment is due when the ratification procedure has been completed (i.e. once this Bill is enacted, which will facilitate Ireland’s membership);1  Ireland will take up (maximum) equity of 53,620 shares / votes in the Bank, a shareholding of 0.799%; - This would (notionally) place Ireland 34th of 79 Members (see Appendix 2 of this Digest); 1 These amounts may be lower depending on currency fluctuations over time.

Bill Digest - African Development (Bank and Fund) Bill 2018 Bill No. 101 of 2018

Bill Digest I African Development (Bank and Fund) Bill 2018 4  The (now) €81 billion Bank was formally established on 10 September 1964 following an agreement signed by 23 founding Member States, all African. The Bank commenced operations on 1 July 1966. The (now) €36bn Fund was established on 29 November 1972 as one of two concessionary funding windows (i.e. funds providing reduced rate loans), the other being the (now) €205m Nigeria Trust Fund (NTF) established in 1975. The three institutions together are known collectively as the African Development Bank Group (hereafter “the Bank Group”).

Timeline  On 28 November 2017, the Government authorises the Department of Finance to commence Ireland’s formal engagement with the Bank and to negotiate Ireland’s membership;  On 8 February 2018, a formal declaration of Ireland’s intent to apply to become a participant in the Fund and a member of the Bank is made. The Government formally notifies the Bank of its interest in participating in the Fund (i.e. acceding to Fund membership) and becoming a member of the Bank in a letter from the Minister for Finance, Public Expenditure and Reform, Paschal Donohue T.D., to Bank President Dr. Akinwumi Adesina;  On 8 March 2018, the Committee on Finance, Public Expenditure and Reform and Taoiseach agrees not to undertake pre-legislative scrutiny (PLS) of the General Scheme / draft Heads;  On 27 September 2018, the African Development (Bank and Fund) Bill 2018 is published.

Bill Digest - African Development (Bank and Fund) Bill 2018 Bill No. 101 of 2018

Oireachtas Library & Research Service | Bill Digest 5 Introduction The African Development (Bank and Fund) Bill 2018 was published on 27 September 2018 by the Minister for Finance and Public Expenditure and Reform, Paschal Donohue T.D. The aim of the Bill is to provide for Ireland’s membership of the African Development Fund (AfDF, hereafter “the Fund”) and the African Development Bank (AfDB, hereafter “the Bank”). Both participation in the Fund and membership of the Bank requires the enactment of enabling primary legislation. Under the provisions of the Constitution (Article 29.5.2°) approval of Dáil Éireann is required where such an international agreement involves a charge upon public funds.

Table of provisions A summary of the Bill is provided in Table 1 below: Table 1: Table of provisions Part Section Title Explanation 1 1 Short title This Act may be cited as the African Development (Bank and Fund) Act 2018; 1 2 Definitions This Section sets out the definitions used in the Bill. 2 3 Approval of terms of Bank Agreement This Section provides for the approval of the Agreement Establishing the Bank, thereby enabling the State to be party to the Agreement. It also provides for publication in the Iris Oifigiúil of notice of approval by Dáil Éireann pursuant to Article 29.5.2 of the Constitution of any future amendment to the Agreement.

The Agreement Establishing the Bank is attached as a Schedule to the Bill.

2 4 Financial and other provisions: Bank This Section makes provision for payments and receipts under the terms of the Agreement Establishing the Bank. 3 5 Approval of terms of Fund Agreement This Section provides for the approval of the Agreement Establishing the Fund, thereby enabling the State to be party to the Agreement. It also provides for publication in the Iris Oifigiúil of notice of approval by Dáil Éireann pursuant to Article 29.5.2 of the Constitution of any future amendment to the Agreement. The Agreement Establishing the Fund is attached as a Schedule to the Bill.

3 6 Financial and other Provisions: Fund This Section makes provision for payments and receipts under the terms of the Agreement Establishing the Fund.

Schedule Agreement Establishing the African Development Bank Details the Agreement comprising 60 Articles and 2 Schedules.

Bill Digest - African Development (Bank and Fund) Bill 2018 Bill No. 101 of 2018

Bill Digest I African Development (Bank and Fund) Bill 2018 6 Ireland and multinational development banks Ireland is a member of and donor to all major international development banks. In particular, Ireland joined the World Bank Group (through the International Bank for Reconstruction and Development) in 1957, the European Bank for Reconstruction and Development (EBRD) in 1991, the Asian Development Bank (ADB) in 2006 and, most recently, the Asian Infrastructure Investment Bank (AIIB) in 20172 . These banks are compared below. Table 2: The main development banks compared Asian Infrastructure Investment Bank (AIIB) World Bank Group Asian Development Bank (ADB) European Bank for Reconstruction and Development (EBRD) Lead country (by voting share) China U.S.

Japan EU, EIB and EU Member States own 63% of EBRD capital Headquarters Beijing (China) Washington D.C. (United States) Mandaluyong (Philippines) London (United Kingdom) Purpose  Sustainable development 3  Regional cooperation  Promote public and private investment  Utilise its resources to finance development  Encourage private investment  Other services  Reconstruction and development  Promote private investment  Promote long-range balanced growth  Arrange loans for most useful, most urgent projects first  Assist transition from wartime to peacetime economy  Regional economic development and cooperation  Promote public and private investment  Utilise resources to finance development  Meet requests from members to assist them in development of policy  Uniquely for a development bank, the EBRD has a political mandate in that it assists only those countries ‘committed to and applying the principles of multi-party democracy Establishment 2013 1944 1966 1991 Membership 57 countries 189 countries 67 countries 65 countries (+ EU + EIB) Employees c70-100 c11,000 c3,100 c1,500 Capital (subscribed) (€95bn) $100bn €251bn ($266bn)4 €139bn ($147bn)5 €29.7bn ($30.5bn)6 Operations / loans (committed) (€1.85bn) $2bn €162bn ($171bn) €30bn ($31.5bn)7 €9.4bn ($10.2bn) Enabling legislation Asian Infrastructure Investment Bank Act 2017 Bretton Woods Agreements Act 1957 Development Banks Act 2005 European Bank for Reconstruction and Development Act 1991 Compiled by L&RS.

Data correct as at 25 April 2017. Ireland is also a member of the International Monetary Fund (IMF), the Council of Europe Development Bank and the Multilateral Investment Guarantee Agency Development Bank. 2 A Bill Digest on this Bill was published by the L&RS in May 2017 and is available here [internal link only]. 3 As summarised in Wan, Ming (2016) The Asian Infrastructure Investment Bank: The Construction of Power and the Struggle for the East Asian International Order, Palgrave, p.81.

4 World Bank / International Bank for Reconstruction and Development Financial Statements, 31 December 2016; 5 Asian Development Bank website, Who We Are (fast facts) 6 ECRD (2017) ‘EBRD – Investment of Choice’, April 2017 7 Asian Development Bank website, Who We Are (fast facts).

Oireachtas Library & Research Service | Bill Digest 7 The African Development Bank (AfDB) Group Background and structure The African Development Bank (AfDB) Group is a regional and multilateral development financial institution (bank). Multilateral development banks provide financial assistance to developing countries in order to promote economic and social development.

The African Development Bank Group (hereafter “the Group”) is structured similarly to the World Bank and has three arms as follows (in order of establishment) – Bank, Fund and Nigeria Trust Fund. Table 3: The three arms of the AfDB / Bank Group Arm Establishment Operational Function(s) 8 Members Subscribed Capital 9 The Bank (AfDB) 1964 1966 The parent entity, the Bank is a ‘hard’ lender which, among other things, makes loan / equity investments in regional Member countries and provided technical assistance to projects / programs focused on development in Africa; 80 US$95bn (€81bn) The Fund (AfDF) 1972 1974 A ‘soft’ lender, which offers concessional loans and grants to low income countries, as well as technical assistance such as macro-economic advice (the Fund is comparable to the International Development Association, IDA, at the World Bank); 27 State participants + 4 regional donors US$42bn (€36bn) Nigeria Trust Fund (NTF) 1976 1976 A fund, financed by the Nigerian Government, which makes limited financial resources available at below-market rates.

n/a US$242m (€205m) Arm #1: The Bank10 The Articles of Agreement for the Bank were signed on 4 August 1963 in Khartoum, Sudan by 23 newly independent African countries coinciding with the rush to independence of several African countries at the beginning of the 1960s. On 10 September 1964, the Agreement came into force when 20 member countries subscribed to 65% of the Bank’s capital stock (a total of US$250m / 8 Summaries sourced from the House of Commons’ International Development Committee Report ‘DFID and the African Development Bank’, 8 May 2008.

9 African Development Bank (2018) Investor Presentation, June 2018. 10 African Development Bank (2013) AfDB in Brief, May 2013, p.7.

Bill Digest I African Development (Bank and Fund) Bill 2018 8 €214m). The Bank commenced operations with 10 staff in July 1966, and remains headquartered since then in Abidjan, Côte D’Ivoire (Ivory Coast) in Western Africa. In 1982, the Bank’s capital was opened to non-Africa (regional) countries. Today, the Bank has 80 members (54 regional/African countries and 26 non-regional/African countries) and subscribed capital of over $95bn / €80bn.

Arm #2: The Fund11 The Agreement establishing the Fund was signed on 29 November 1972, by the Bank membership and 13 non-regional countries (‘State Participants’). The Fund’s objective is to address the nature as well as the terms of lending to the poorest of the countries, especially for projects with long-term maturities or non-financial returns such as roads, education and health. Today, the Fund has 27 State participants and 4 regional donors and subscribed capital of US$42bn / €36bn. Arm #3: The Nigeria Trust Fund12 The Nigeria Trust Fund (NTF) was set up in 1976 by agreement signed between the Government of the Federal Republic of Nigeria and the Bank Group.

The NTF became operational in April 1976 following approval of the agreement establishing it by the Bank’s Board of Governors. Today, the NTF is a fund of US$242m (€205m).

Purpose As is typical for major development banks, the overall objective and purpose of the Bank Group is to contribute to the sustainable economic development and social progress of its regional (African) members individually and jointly. This is set out in Article 1 of the Bank’s Articles of Agreement (appended as Schedule 1 of the Bill). This is achieved by providing and promoting investment in terms of public and private capital in projects and programs designed to reduce poverty and improve living conditions. The Group also promotes international dialogue on development issues concerning the African continent.

The Bank provides financing for a broad range of development projects and programmes. In addition, it provides policy-based loans and equity investments, finances non-publicly guaranteed private sector loans, offers technical assistance for projects and programmes that provide institutional support, promotes the investment of public and private capital, and responds to requests for assistance in coordinating regional (African) member countries’ development policies and plans.

11 Ibid. 12 African Development Bank (2013) AfDB in Brief, May 2013, p.7.

Oireachtas Library & Research Service | Bill Digest 9 Ireland’s Membership of the Bank Group Why join? The policy objective of the Government is to reinforce Ireland’s political, development, economic, trade and cultural relationships with Africa, which would reflect the importance of Africa to Ireland. Ireland has a long and positive relationship with Africa, particularly as a result of the development work of Missionaries and aid workers through Irish Aid. In the Regulatory Impact Assessment (RIA) accompanying the Bill, the Department of Finance outlined the following benefits and impacts associated with the option of joining the Bank immediately, as proposed.

Table 4: Summary of Option 2 – joining the Bank now, as detailed in the RIA Benefit(s) Impact(s)  Reinforce Ireland’s existing positive overall relationship with Africa, and the associated economic and trade relationships with Africa;  Reinforce the strategic priority which successive Irish governments have given to Africa;  Promote job creation in Ireland and Africa (based on reinforcing the existing trade relationships);  Allow for business opportunities for Irish businesses with Bank-financed projects;  Maintain Ireland’s influence in the international financial architecture by having a role/presence in the Bank, and taking our place among our counterparts from other Countries;  Maintain Ireland’s current proactive role in international affairs, apply experience from Ireland’s role in other International Financial Institutions and reinforce the synergies available from being a member of an increased number of such Institutions;  Membership would complement Ireland’s existing development relationship in Africa (particularly strong links built through work of Missionaries and aid workers);  The Bank’s particular emphasis on climate change, agriculture and nutrition, fragile states and jobs and economic development align closely with our priority areas for action identified in Ireland’s Policy for International Development.13 The RIA also indicated the following costs:  Monetary cost associated with allocating resources (i.e.

officials) to participation in AfDB events and meetings;  Bank shareholding contribution calculated as €19m and a Fund contribution of €65m payable over (up to) eight years; 13 The public consultation paper published in July 2018 to inform a new international development policy for Ireland specifically highlights Ireland’s potential membership of the African Development Bank as beneficial in broadening Ireland’s humanitarian focus to include more of North and West Africa.

Bill Digest I African Development (Bank and Fund) Bill 2018 10 Membership risks (economic/fiscal and political) As detailed in Table 4, there are benefits and costs associated with participation in the Fund and Membership of the Bank. The main risk (economic / fiscal) relates to the likelihood that there may a call for members to replenish ‘callable’ funds in an emergency. However, the Bank Group is historically profitable and there has never been a call on funds. This is discussed further in the Principal Provisions section of this Digest. However, there are risks also associated with non- membership, namely, the (political) impact on Ireland’s relationship with Africa.

These two aspects are discussed further below.

Financial profile and profitability The Bank Group as a whole is profitable. Bank operations, in particular, have yielded a profit every year since the Bank’s establishment in 1966. Overall, in 2017, the Group achieved a profit of €70.8m. A comparison with 2016 is provided below: Table 5: Key financial results (2016-2017) – €m Bank Fund NTF 2017 2016 2017 2016 2017 2016 Income from loans and investments +792.70 +668.61 +175.13 +211.90 +3.26 +2.79 Borrowing expenses and derivatives -269.08 -290.52 - Impairment charge and loans and investments -20.16 -80.27 - Translation gains/losses, and other income +2.56 +12.47 -10.63 -4.95 - - Net operational income +506.03 +310.28 +164.50 +206.95 +3.26 +2.79 Other expenses -199.38 -167.81 -305.44 -286.76 -0.66 -0.53 Income before distributions approved by the Board of Governors +306.65 +142.47 -140.94 -79.81 +2.59 +2.25 Distributions approved by the Board of Governors -97.30 -112.73 - 0.23 -0.17 Net income/loss for the year +209.35 +29.75 -140.91 -79.81 +2.36 +2.09 Source: African Development Bank Group (2018) 2017 Annual Report, p.

41. All figures detailed in the Annual Report are in ‘unit of account’ (UA) which is the official currency for Bank projects equivalent to the International Monetary Fund’s Special Drawing Right (SDR). As at 31 December 2017, 1UA = US$1.424 (African Development Bank (2018) African Development Bank – Information Statement, August 2018, p. 2). US$1 = €0.8332 as at 29 December 2017 according to the Central Bank of Ireland.

As the above accounts illustrates, the Bank Group (as a whole) and the Bank in particular is profitable and has been since it commenced operations in 1966. There has also never been a call on the capital of the Bank and this is generally deemed “unlikely” by the Bank as it would imply that the bank is unable to meet its financial obligations14 . This is discussed in more detail in the Principal Provisions section of this Digest. Ireland’s political relationship with Africa The Government describes Ireland’s relationship with Africa as positive. The Department of Foreign Affairs published its African strategy entitled ‘Ireland and Africa: Our Partnership With a 14 African Development Bank website ‘ AfDB capital subscriptions’ [accessed 30 October 2018].

Oireachtas Library & Research Service | Bill Digest 11 Changing Continent’ in September 2011. The Strategy notes Ireland’s unique position in a geopolitical sense regarding the African continent: “Ireland’s profile in Africa as a small country without a colonial history gives us a valuable perspective. Our knowledge and experience of African development challenges enable us to make an important contribution to the consideration of policies at EU level that affect that Continent (p.11).” The Strategy explicitly states the following in relation to Ireland’s participation in development banks: “In view of the central importance of the EU, the World Bank and the African Development Bank to broader economic and social development in Africa, the Department of Foreign Affairs and Trade will focus on developing further our involvement with these international financial institutions.

We will strengthen our relationship with the World Bank Headquarters in Washington, with a view to optimising opportunities for Irish involvement in such projects (p.21).” More broadly, it is recognised that the World Bank and the African Development Bank are enormously valuable repositories of knowledge and expertise in relation to macroeconomic and sector-specific developments within Africa. An enhanced relationship with these institutions will help to strengthen our analytical capacity, assist in the way we design and implement development cooperation and economic actions in the region, and act as reassurance for Irish companies who wish to invest in national and regional ventures in Africa (p.21).

The Joint Committee on Foreign Affairs and Trade and Defence published a Review of the Irish Aid Programme (February 2018). The report also highlights the following: “Ireland has also committed to achieving the UN committee to spending 0.7% of GNI on Official Development Assistance (ODA), which Ireland is some way off achieving (0.33% in 2016).” Achievement of the 0.7% target is a commitment contained in the Programme for a Partnership Government (May 2016), as is the implementation of the United Nation’s Strategic Development Goals (SDGs). However, the Committee report notes (p.31) that for Ireland to reach the 0.7% target by 2030, the overall aid programme needs to grow from €707m (currently) to €2.5bn, or an increase of €150m per annum over the period (an increase of close to €1.8bn).

Budget 2019, announced on 9 October 2018, provided an additional €110m for 2019.15 15 RTÉ (2018) ‘Overseas aid up €110m in Budget 2019’, 9 October 2018.

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