1. Annual MDBs Meeting on Debt Issues 11-12 July, 2007 Washington, DC
"Building today, a better Africa tomorrow"
Enhanced Engagement in Fragile States by the African Development Bank
This section considers how far the PBA system can be extended to post conflict and fragile states in the African Development Bank
The term fragile states applies to all states associated with weak human and institutional capacities, poor governance structures, political instability and corruption. Thus, in fact, post conflict countries are a component of the fragile states as we will see later in the presentation.
Annual MDBs Meeting on Debt Issues
11-12 July, 2007
Washington, DC

2. Fragile States: Issues for Consideration ...
Africa on the move: A window of Opportunity
State of Fragility in a Continuum
Framework for Effective Engagement in Fragile States
Exit, Quality Management & Funding
Conclusion & Issues for further Consideration
Five main issues will be addressed during this presentation.
First, how is PBA currently reflected in the allocation of concessional resources to the post conflict and fragile states
Second, what are the key development challenges that need to be addressed in the fragile states
Third, What is the methodology by which states can be classified as fragile or non fragile.
Fourth, are the available resources earmarked for fragile states adequate or inadequate
Fifth and finally, since the available resources are inadequate, what framework could be adopted through which resources can be channeled to fragile states to facilitate their preparation for achieving the MDGs.

3. Africa on the Move… but Challenges Persist
Dividends of debt relief beginning
to flow
Consensus on the need to focus on results
Consensus that MDG targets will not be met
a unique opportunity to make a collective push
Improved growth and performance in Africa
Increased focus of the global development community on Africa

4. 18 RMCs at Completion Point – Mid May 07 Chart 1: RMCs by HIPC Status
Decision Point
Pre-Decision Point
Benin
Burkina Faso
Cameroon
Ethiopia
Ghana
Madagascar
Malawi
Mali
Mauritania
Mozambique
Niger
Rwanda
Sao Tomé & Principe
Senegal
Sierra Leone
Tanzania
Uganda
Zambia
Burundi
Chad
Dem.Rep.Congo
Congo
Gambia
Guinea
Guinea Bissau
CAR
Comoros
Côte d’Ivoire
Eritrea
Liberia
Somalia
Sudan
Togo
Over the past few years, world market prices for oil have fluctuated from near-record lows to record highs. These sharp swings in the price of a key form of energy have had an impact on almost all countries.
The map on the left shows the distribution of African countries in terms of their status of exports and imports of hydrocarbons (oil and gas). Thirty-six African countries, shown in red, import all hydrocarbons required for their consumption. As net importers of hydrocarbons, these countries will be negatively affected by rising oil prices. Three African countries, shown in yellow, produce a fair share of the hydrocarbons they consume and import the remainder. As “balanced” energy importers, these countries are presumably “hedged” against changes in oil prices. Shown in green are the fourteen net hydrocarbon exporting countries in Africa. As net exporters of oil and gas, these countries presumably stand to benefit from higher market prices.
The chart on the right shows the distribution of the Bank’s sovereign loan portfolio when countries are grouped by net hydrocarbon flows. It is notable that about 44% of the portfolio is composed of loans to hydrocarbon exporting countries, 28% to “balanced”, and about 28% of the portfolio is composed of loans to importing countries. It can be concluded that although there are far more African countries that are importers of hydrocarbons, the distribution of the Bank’s portfolio provides some protection against rising oil prices.
Lets now look at how the portfolio is likely to evolve over the next few years given the risk profiles of undisbursed commitments, unsigned loans, and the current pipeline of new sovereign guaranteed projects. 18 7 8 4

5. Expected dates for HIPC Decision & Completion Points ...
We now want to define precisely what the key development challenges are facing the countries we refer to collectively as the fragile states.

6. DSF/DSA Classification of RMCs as at end-May 2007 ...
We now want to define precisely what the key development challenges are facing the countries we refer to collectively as the fragile states.

7. State of Fragility in a Continuum …
The PCEF in the PBA formula, as currently applied, is an adjustment factor that improves upon the performance indicator (CPA) of eligible post conflict countries by a factor of up to about 30-40% maximum
In determining the PCEF, the Bank applies a Questionnaire with a set of 12 assessment criteria, similar to the so-called Post Conflict Progress Indicators (PCPI) questionnaire applied also by IDA to assess the degree of progress a country is making after emerging from conflict.
A conscious effort is made to reduce the PCEF ratings for the eligible countries progressively until a country graduates from PCC status to become a regular regional member country

8. Development Challenges in Fragile States ...
Key attributes of main focus: post-crisis/transition states
Poor governance structures, political instability and corruption
Severely degraded institutional and administrative capacity
Physical infrastructure badly deteriorated or non-functioning,
and social services are minimal or non-existent
Economic activity substantially contracted, and human develop
ment indicators dropped from already low levels
Negative regional spill-over effects often large, with traditional
commercial links severed or badly disrupted .
We now want to define precisely what the key development challenges are facing the countries we refer to collectively as the fragile states.

9. Limited Current Support to Fragile States …
PCEF contribution in 2006 is only about 2.4% of total allocation
This table demonstrates the real contribution of the PCEF to the post conflict and fragile states within the framework of the PBA system
First, the total PBA to 9 PCEF beneficiaries countries: UA million out of a total UA 2,889 billion allocated to all 40 ADF-eligible RMCs, thus fragile share of PCEF beneficiaries about 15.55% of total
Second, total PBA of the 9 PCEF beneficiaries, would have been UA million, if they were to receive only their performance-based allocations, and no PCEF additional resources
Accordingly, with the PCEF applied, the net contribution it makes to the 9 PCEF beneficiaries in 2006 is estimated as UA 68.5 million in absolute terms. This is equivalent to 17.98% of the total allocation of the 9 PCEF beneficiaries.

10. Proposed Framework for More Effective Engagement in Fragile States ...
Provision of supplemental resources (i.e. beyond current ADF allocation)
primarily for priority infrastructure investments and capacity building
Supplemental funding committed up-front for three years, and on grant
terms, and Funds specifically dedicated from Bank’s ADF-X1 resources
Potential support for up to 2 ADF cycles, with exit expected after no more
than 6 years
We now want to define precisely what the key development challenges are facing the countries we refer to collectively as the fragile states.

11. Eligibility criteria for supplemental support ...
The Bank has developed a methodology for identifying which countries belong to the group of fragile states. The Chart below demonstrates the process
It consists of three intersecting Venn diagrams: one for the CPIA, another for the CVI and the third for the UNDP’s HDI
Based on the analysis, 25 regional member countries can be classified as fragile states. Among the 25 countries, a further clustering identifies 16 of them, as listed, representing the core or most marginalized of the fragile states,

12. Supplemental Resource Pool (Fragile States Facility) to fund Incremental Assistance in Specific Cases
Supplemental Resource Pool
Eligibility and Engagement
based on limited number of
threshold indicators
to fund incremental assistance in specific cases
Additional allocations for operations in selected post-crisis cases
Eligibility Thresholds:
Peace and Security
Unmet Needs
UA 330 m
Selective capacity building support in other fragile circumstances
UA 33 m
Engagement Threshold:
Country Commitment
Supplemental allocations to be anchored in known PBA determined amounts
Countries continue to receive annual PBA under ADF-11
Supplemental funding of 2X a baseline PBA from ADF-10
Funding provided up-front for 3 years, on grant terms

13. Monitoring and Exit, Quality Management and Funding Mechanism
Regular performance assessment and expected exit after 6 years
Annual CPIA exercise under ADF-11 PBA.
At close of 3 years, assessment of progress relative to initial
commitments
Subject to progress & funding, possible renewal for final 3 years
Reduction of delivery bottlenecks
Variety of improvements underway Bank-wide
Rapid response template built on already approved measures
Funds mainly derived from dedicated ADF-11 pool
Possible financing options remain
Preferred option: separate Fragile States Facility (FSF) including
the PCCF
Exit
Quality
Funding

14. Conclusions & Issues for further Consideration …
Selection mechanism and initial pool of prospective beneficiaries
Allocation mechanism: amounts; terms; caps; PBA carve-out, exit
Supplemental pool for capacity building support in wider group of Fragile States
Track record with PCEF and other efforts to date
Implications for Post Conflict Country Facility
Relative merits of financing alternatives
How to treat / finance possible additional eligible countries

15. Thank You For Your Attention
"Building today, a better Africa tomorrow"
Thank You
For Your Attention