AfDB Assesses its investment of U.S.$ 5 Billion in South Africa
Recently, The Independent Development Evaluation (IDEV) of the African Development Bank Group (AfDB) has just published a report evaluating more than a decade of engagement and investment in South Africa between 2004 to 2015 particularly in the finance and energy sectors.
It was confirmed that there has been a striking balance between good commercial banking and good development banking by the IDEV team of evaluators, who offer food for thought on the way lines of credit are being used. This evaluation also confirmed that low-risk lending through lines of credit via South African based regional financial institutions and commercial Banks made sound commercial sense to the AfDB.
AfDB explained that from a development banking perspective however, since the funding was mainly on-lent outside of South Africa it failed to address the AfDB’s objectives which are to provide support to small and medium businesses and to solve the issue of inequality or inclusive growth inside South Africa. These were minimal set back from the investment.
In addition, Energy sector projects, including some renewable energy, featured strongly in the investment portfolio of the AfDB during the period under review. The Medupi Coal Power Plant operation which is one of the largest investment accounted for over a third of the AfDB’s total investment in South Africa. The energy sector projects examined were deemed technically sound and sustainable investments. The projected lifespan of the Medupi Coal Power Plant is over 50 years.
In other words, the late delivery and the cost overruns of the project have caused power insecurity, and hence damage to the economy, for much longer than the AfDB or the Government of South Africa envisaged when funding for the plant was first agreed. The project’s environmental sustainability was downgraded overall given the delay in funding solutions to reduce air emissions and to relieve water stress in the area. However, it eventually resulted to a successful deal.
Similarly, South Africa’s experience in energy sector diversification is rich with lessons. The key success factors include good governance, robust legal, regulatory and policy framework, as well as the capacity of implementation partners. In particular, South Africa’s Renewable Energy Independent Power Producers Procurement Program is considered to be among the most successful of its kind on the continent – a model which the AfDB could help other countries to emulate.
AfDB Evaluator General Rakesh Nangia said, “The report offers a thorough analysis of Bank performance and also of the limitations of the AfDB’s positioning in the South African context. Across its work in finance and infrastructure, stakeholders in South Africa saw the AfDB as a financier, rather than adding value as a knowledge provider or supporter of their capacity. The AfDB must think carefully about its comparative advantage and innovatively about funding instruments for the future.”
AfDB recorded successful output in their investment in South Africa. It urged the south Africa government officials to attach more value to its brand as country supporter and not as money lender. It believed that if this is corrected, the country will grow higher in valued investment.