Kalidou Gadio is the General Counsel of one of the most influential institutions on the continent of Africa. In a wide-ranging interview, conducted by award-winning BBC journalist Zeinab Badawi, he discussed critical links between law and development, investment from China and fragile states.
Zeinab Badawi: Just to set the scene, Kalidou, first of all: you, at the Bank, say you can’t have economic growth, sustainable economic growth in Africa unless you do have the rule of law. So just point out to us this link between the two.
Kalidou Gadio: For the African Development Bank and I think for most of the institutions that are in the same business, it is quite clear that it is not possible to have economic development without some kind of rule of law. In the course of this discussion I will be giving you some examples of the types of specific action we are taking to show that link. Suffice it to say that for us rule of law is important; it is important for the businessman. Somebody investing in Africa needs to know in what environment he’s investing, what kind of protection.
Rule of law is about security of transaction and if you don’t have security of transaction, obviously the kinds of investments you receive are not the kinds of investments that are likely to produce economic development. So we are trying to improve, at the institutional level, the rule of law. And I will later on explain further which kinds of activities we are financing to improve just that.
ZB: Speaking broadly though, rule of law underpins good governance and good governance is vital to economic growth. But, what do you, at the Bank, say to governments in Africa when it comes to making sure that there’s a better distribution of the country’s wealth?
KG: First of all, we rate governments in Africa on a whole host of issues; how they manage public funds is one of the criteria we use to allocate resources. Even in a country that is receiving concessional resources, part of the ability to get a lot of resources is they are compliant with a certain number of rules. And those rules – good governance is part of it, and good governance means minimum corruption, a much fairer and transparent process of allocating resources, public procurement. These are some of the issues that we take into account to leverage the resources we have.
So essentially, if a government would like to receive more concessional resources from the African Development Bank or the African Development Fund in particular, that government has to show that it is doing something about corruption. But we are not only in a passive role. We actually help the government do that by providing them the kind of institutional support to strengthen their fight against corruption.
'‘The comparison is that Africa is almost a corpse and [Vulture Funds] are coming in and they’re eating already something that is weak, almost dying. It’s a comparison. African economies were in such despair and therefore those companies will come in trying to take the little life that is left of these countries and economies,’''
ZB: But what if they say we don’t need your help? If you do look at Nigeria, and I appreciate you can’t talk about specific countries: it’s Africa’s biggest producer of oil, it’s got the second largest economy in the continent after South Africa. So this is a country with a great deal of oil wealth and yet it’s got all these people living in poverty. Another example I give you is South Sudan, for instance; since it signed the comprehensive peace agreement in January 2005 with Khartoum it has had $17 billion mostly in oil revenue, and a population of about 9 million. That’s about $1,000 per year per capita, per person, and yet clearly when you look at South Sudan as a whole you don’t see any evidence of that oil money. So what leverage does the AfDB have on such governments that are rich in resources but are not tackling the problems of corruption in their country?
KG: Well, actually, most of the African governments, if not all, have never resisted working with the Bank in terms of improving some of the institutional issues. Because, for the African Development Bank, the approach is not [saying] ‘You have corruption and we want to help you fight against corruption.’ Instead, what we do is the following: we know certain countries lack basic legislation in terms of public procurement. It’s very important. Public procurement meaning essentially ‘how does the government buy goods and services; what are the rules that are used? What mechanisms are in place to make sure that that process is transparent?’ That has an effect on corruption and that’s what we do. We have technicians to provide them with the knowledge, the resources and the training to put in place those institutions. By doing so, we reduce corruption. We don’t just come to a country and say ‘you have corruption, we want you to do something about it.’
ZB: Because you know what people are saying, they want its oil riches and, of course, South Sudan has 70 per cent of the oil reserves that were in the whole of Sudan, when it was one country. People want it to go the way of Botswana when it comes to managing its natural resources, not the way of Nigeria. And we understand now that the government of President Salva Kiir has said it’s going to sign up to the Extractive Industries Transparency Initiative, EITI.
KG: Yes, which we support.
ZB: Which you support, and it’s also going to be trying to ensure that no minister can be involved in business, for instance. Are these the kinds of policies that you try to back at the AfDB in countries right across Africa?
KG: Yes, we do. We strongly advocate... Because, as you know, we also signed with the World Bank, since you mentioned Zoellick earlier on, a treaty called Cross Debarment.
What it deals with is if, for any reason, a company or an individual is found to have committed certain types of activities that are prohibited... If, for instance, the World Bank decided a particular company has committed bribery or an act of corruption in South Sudan – since you mentioned South Sudan – the sanction that the World Bank would take will immediately have an effect. Maybe it will refuse to do business with the same company.
ZB: Kind of name and shame. And is that working?
KG: It is working, it has not been fully implemented yet because it was just signed a few months ago and we are in the process of putting in place resources, communications...
ZB: Why didn’t you do this sooner though? Because corruption’s been around for a long time in Africa and yet it’s just been signed a few months ago. Why didn’t you, why weren’t you more proactive?
KG: We signed a Cross Debarment a few months ago but we’ve been fighting corruption more than 20 years... I don’t know if we could eliminate corruption entirely. But again, I think the view of the African Development Bank is that we are institution building; we believe that if we have a government that has institutions that operate on the basis of rule of law, a government that has transparent, clear and publicly available information, we think that is the best way to fight corruption.
ZB: How else do you use the law as a tool for development at the African Development Bank because you have introduced, a couple of years ago, a very important facility called the African Legal Support Facility, ALSF, which helps African governments when it comes to commercial negotiations, working in jurisdictions with which they’re not familiar. And has that been successful?
KG: It has, it is just starting, again. It has already financed five operations. The African Legal Support Facility indeed grew out of the need to address a very important issue, which is that in the past, but to a degree it is still continuing, some African governments have signed major transactions without being properly advised. And obviously if you do that you will face a problem in the event there is a dispute.
If I’m a particular bank here in England or France or in America and the government has defaulted, I can sell my loan to another individual. And those loans were sold at a fraction of their face value. Those who are buying those loans go and they recover, or at least try to recover, two, three, four, ten times the face value. And what we thought is we need to find a way for those African governments to fight those kinds of lawsuits.
ZB: You’re talking here about what are called the vulture funds?
KG: Well, they’re called vulture funds, it’s actually a very strange expression. The comparison is that Africa is almost a corpse and they’re coming in and they’re eating already something that is weak, almost dying. It’s a comparison. African economies were in such despair and therefore those companies will come in trying to take the little life that is left of these countries and economies.
ZB: But this is also a direct result of corruption at the level within the country...
KG: Yes, it could be, but not always. And I think most of it is a result of a lack of knowledge, of legal knowledge, ie, when you negotiate a contract you have to be properly advised. Because legal training is very important. And one of the things that I would like to talk about here is explain how it is important in Africa.
Because most African lawyers tend to concentrate on criminal justice, divorce and small claim types of activities when, in fact, lawyers have an extremely important role to play in economic transactions.
And the example of vulture funds is precisely the result of lack of adequate legal advice. If you’re signing a major concession agreement, for those who are participating in this transaction it is incredibly complex. It takes two, three years to negotiate; you have volumes, tens of volumes of documents with multiple items cross referencing each other. You need expert opinion to assist. Unfortunately, some of these transactions have been signed without that kind of advice and result in the imbalances mentioned.
So the African Legal Support Facility was supposed to do two or three things. One, help those countries to fight against the litigation in the Western world, because most of those contracts contain, again, a jurisdictional clause that means that in the event of a dispute the litigation takes place not in Africa but here in London or New York or elsewhere. Second, the African Legal Support Facility’s mandate is indeed to provide education; it has already started.
ZB: And that’s to make sure that these multinational corporations, not to put it too finely, don’t rip off African nations where they are working on their natural resources?
KG: That’s exactly what it is about; it is to provide a balanced negotiation, which actually is good for the companies themselves. Because, as you know, sometimes when there are coups, governments tend to renegotiate those contracts. So if they don’t do it you have a legal insecurity, which is not good for business.
ZB: Prior to our discussion, in fact just picking up on this theme we’re talking about here, we did have one question. What is the impact of corporations evading tax, with regard to the human rights of individuals in African countries, such as the right to development? And what can be done about this?
And that’s essentially what we’re talking about, to ensure that multinational corporations don’t have deals whereby they may have tax concessions or other concessions that don’t pay sufficient regard to the development needs of the country in which they’re operating, when it comes to looking at natural resources that they may be exploiting.
KG: At the African Development Bank we have a provision in our agreement which says that essentially in order to benefit from a loan you have to have a legal presence in Africa. What it means is that you have to establish a company in Africa, so therefore have a tax number; you have to employ Africans; you have to pay tax in Africa. So we do not support... we do not provide financing to institutions that have no basis in Africa, that are incorporated elsewhere. They can have a parent company here in England or France or Germany or China but they have to have a legal presence in Africa.
And one of the reasons is the following: one, obviously if you are legally incorporated in Africa you should and do pay tax, employ individuals, workers. And therefore these are the kinds of measures and the rules that we have that allow us in fact to tackle the issues you’re raising. And obviously, which is a lot more complicated is that which we call transfer pricing: if you have a major company in the Western world investing in Africa, generally also providing technical assistance. It could actually bill twice or three times the services and therefore, you know, rip off in fact the benefits because, as you know, tax is based on profits and you have profits after you have excluded your operating costs. So the operating costs will eat up most of the revenues to the extent that the profit is very minimal.
So these are the issues that are very complex. So one of the roles we have, and including my department, is that when we look at those deals we make sure those transactions are done in a fair and balanced way.
ZB: All right, so talking about the African Legal Support Facility, you say it’s had quite a measure of success when it comes to looking at these kinds of commercial deals and so on but when it comes to the vulture funds, less success there.
KG: Well, what is difficult actually is simply that the country has not come to the Legal Facility for support.
ZB: And they need to because there’s something like $4-6 billion.
KG: We believe that some countries that are involved prefer for the time being to do it quietly, behind closed doors; we don’t know why. What the Legal Support Facility would have done is give them the resources that allow them to negotiate, or in fact to fight those kinds of litigation. They’re not doing it...
ZB: Because they’re successful, the litigations are 99 per cent successful against the African countries.
KG: Against Africa, yes, because it’s fairly complicated to litigate, because precisely the contract was already written and drafted in a way that favoured the banker.
ZB: So, any African country that is at the mercy of a vulture fund. Just spell out for us what the AfDB would like them to do, because it is quite a complex area this, and people listening may find it hard to follow.
‘South Sudan, for instance; since it signed the comprehensive peace agreement in January 2005 with Khartoum it has had $17 billion mostly in oil revenue, and a population of about 9 million. That’s about $1,000 per year per capita, per person, and yet clearly when you look at South Sudan as a whole you don’t see any evidence of that oil money,’
KG: You know, from a legal point of view actually it’s fairly simple. I mean, what we would like to do is that if you are a given African country, you have a vulture fund issue, you should come to the African Development Bank and ask for assistance. What we would do is to look at the case you have; it’s not the African Development Bank itself it’s the African Legal Support Facility. And the African Legal Support Facility itself will provide you with the kind of advice and pay for the services you need to recruit an international law firm that will indeed allow you to defend yourself. That’s the message I would like to send. And I think there’s absolutely nothing wrong coming because that money is there, available, and most of the African countries actually could access those funds for free.
ZB: Yes, now, you know, people come to you at the African Development Bank and say to the President, Donald Kaberuka, and all of you senior officials there, you know, we want you to do this, we want you to do that. They want you to do everything to try to promote development on the continent. How do you choose your priorities and the kinds of projects that you throw your weight and your considerable money behind?
KG: What we do is try to establish some kind of strategy and we have a medium-term strategy and we are working on a long-term strategy. Our medium- term strategy is trying to focus on infrastructure because Africa lacks infrastructure. We need roads, we need highways, we need communication, we need IT communication. And infrastructure is one of the pillars of our strategy.
Governance, as we mentioned earlier, is one pillar because we need to establish the kind of environment that is conducive for business. We also need higher education but we have to do it in a different way. Education today is different than how it was done in the past; we need to use the wonders of information technology to spread education through a virtual university. And we are currently experimenting something extraordinary; we call it an African Virtual University, where we provide education through this kind of technology.
So that’s what we do. But we also have cross cutting issues, of violence, gender, clean energy; it’s already a lot. From time to time obviously, when there is a drought in Africa, we are called to assist. And obviously it’s not necessarily our mandate, it is not our expertise to deal with drought or earthquake, but we have a small fund, we provide some kind of assistance.
ZB: What’s the African Development Bank position on China? Because when it comes to trade, we know that China does a fantastic amount of trade, hundreds and hundreds of billions of dollars, every year, with African countries. And a lot of people say that actually this isn’t good for Africa. If you just saw the man who won the elections in Zambia, Michael Sata, a key part of his campaign platform was, frankly, anti-China. So there is a great deal of resentment in Africa, in some quarters, that actually it’s a bit of a one-way street and that China benefits more than Africa when it comes to trade. What’s your position at the AfDB?
KG: First of all, what is important is that people don’t necessarily know China is a member of the African Development Bank; it’s a member country. So China is entitled to bid for Bank projects, as are all members. And they win contracts primarily on the basis that they have a lower cost but not necessarily low quality. I think the Chinese can plead their own case but we do not participate in this anti-Chinese fashion and we believe that African governments should take their own interests.
What we do is providing, through the African Legal Support Facility, the ability to negotiate. If the Chinese government or if Chinese institutions would like to negotiate [with] a mining company in the mining sector we have resources that will allow that government to retain the best experts to negotiate. Obviously, if we provide a project, a road, if a Chinese company bids and wins on the basis of fair and competitive.. AfDB doesn’t have a problem with that.
ZB: So you don’t have a problem when people on the continent say all these cheap Chinese goods flooding our markets, squeezing out local industries? In Senegal, for instance, the garment industry there is badly affected by the cheap garments coming in from China. Some of the products that people actually buy from Chinese markets in Africa – in Zimbabwe they’re called ‘zing zing’ products because they just break after a short time. So it’s not as though they’re even necessarily getting the top-quality stuff. And, you know, sentiment is quite high and some people say justifiably so. The AfDB wants to remain neutral on that?
KG: Again, as I said earlier, I mean, AfDB cannot do everything. I mean, obviously what we want is to be able to help countries develop their own industry, small and medium scale enterprises. And we have resources and we have instruments to allow countries to develop. But we cannot regulate for Senegal how to deal with China in terms of importing goods and services. What we do is to provide Senegal the kind of institutions and resources that will allow it to develop its own local economy.
What we want to do and what we are doing is to say if a government like in Guinea is about to negotiate a major mining concession or oil exploration with a Chinese company, we can provide them the kinds of services and techniques and expertise they need in order to better negotiate the deal. That’s what we do.
ZB: I know that the Bank does deal a great deal with fragile states. You’ve got your Fragile States Unit, and that comes in here with this question from Obinna Ogbuagu from Wali-Uwais & Co: how has the AfDB positioned itself to find African solutions to development or problems facing African countries, especially those ravaged by war and conflict, in view of global economic challenges?
KG: We have a special instrument, it’s called the Fragile States Unit, which is endowed with a considerable amount of resources. It does three things: one, some of these countries are in arrears. The Fragile States facility provides resources to help them clear their arrears, so that’s one positive aspect. The second pillar of that facility is also to provide additional resources; as you know, at the African Development Bank the pie is divided among African countries based on a number of criteria: population, poverty. So if you are a fragile state you can get additional resources from that part. The third thing is also we provide technical assistance, ie, we can recruit experts here in the UK, including in China, in France, in Germany, or in Nigeria, in Kenya, to come and assist a particular country, whether it is in the area of law, or economics, or finance. Or even in engineering.
So the facility is providing all these three services and I think it is doing very well. It has done a commendable job in Liberia, in Sierra Leone, in DRC, including also some other activities elsewhere.