Letter: World Bank has a role in changing the aid narrative on Africa

Martin Wolf is quite right in arguing that the next “replenishment” by donors in the 75-member International Development Association must be a big one (“We risk a lost decade for the world’s poor”, Opinion, May 1).

Concessional finance definitely has a crucial role in supporting the “IDA 75” to make further progress towards eliminating extreme poverty and deliver social and economic progress.

There are, however, two aspects of his assessment that need to be challenged. First, it is not universally true that the IDA 75 lack domestic capital pools. My experience is quite to the contrary. In Nigeria, the most populous of the IDA 75, the domestic pension assets are in excess of $20bn (as of December 2023). The four east African countries (Kenya, Rwanda, Tanzania and Uganda) have aggregate pension assets of similar size. Not only that. These capital pools are also growing rapidly (10-25 per cent annually) as the size of workforces and incomes grow, and a greater proportion of population is brought under pension and life insurance coverage.

What these economies really lack are scalable solutions to channel domestic capital pools into productive investments. The development finance institutions, led by the World Bank Group, must proactively catalyse and support such private-sector led investment solutions. Historically, this leadership has been lacking, especially in Africa, where the discourse is almost always focused on supporting foreign capital flows. It is time the narrative is changed and World Bank leadership must show the way.

Second, while the IDA funding terms are “concessional” from a pricing and loan tenure perspective, it still leaves the currency risk of the loan component with the recipient country. This is a recipe for trouble, especially over the long term of typical IDA loans (20-plus years). What the donors give from one hand (low pricing), they take away from the other hand (unaffordable debt servicing, in local currency terms). The new IDA replenishment round must address this mismatch as well.

Anshul Rai
Founder, Earthwise Investors
Dubai, UAE