ActionAid South Africa Draft Discussion Paper – Financing for Development? The Development Bank of South Africa and its Footprint in Africa

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The DBSA Today

Whilst the Bank has relative autonomy, the environment in which it operates is determined by the political, economic and social priorities of the government of the day. It could be argued that the DBSA has undergone a painful process of change but has successfully survived the democratic transition. Today, thirty years on, the Bank has grown its asset base to just under R54 billion and has recently undergone another restructuring process.
The Bank, which has increasingly sourced loans from private capital markets, is not immune from the prolonged global financial crisis. The crisis has limited the ability of African states to expand their public investments in social infrastructure and as a result widened the gap between needs, expectations and delivery of social infrastructure projects. Increased private sector funding for local government and state-owned enterprises has also resulted in competition between private and public sector banks. The latter has seen its market share of loans reduced.

In the 2011-2012 financial year the Bank reported a huge loss of almost R403- million largely due to “shoddy work” in making the wrong investment decisions, called “non-performing loans”. In the current financial the Bank records a net loss of R825,9-milion. It is understood that these were loans particularly to the private sector. As a result almost half of this had to be written down. In anticipation of continued poor financial performance in the 2012/2013 financial year, in June 2012 the government, as shareholder in consultation with the Board, reviewed the Bank’s strategy “in order to better focus the Bank’s activities to enhance its development impact, improve the efficiency of its operations and to increase the scale of the DBSA’s activities in order to expand the Bank’s developmental reach”.

The African Union estimates spending in continental infrastructure to boost social development, trade and economic growth will need investments of approximately R93-billion per annum to clear the infrastructure backlog on the continent. In SADC countries the Bank had set a loan target of R20-billion. In South Africa the government had announced planned infrastructure spending of R850-billion between 2013-2015 and a total of R4-trilion over 15 years. Given the importance of the Bank as a development finance institution and the large infrastructure project spending planned it was vital for the government to ensure the Bank stays afloat and play a leading role and increase its lending within the country and on the continent.
In late 2012 the DBSA Board, in return for a R7.9-billion three-year 2013-2016 recapitalisation facility, adopted a new strategy for the Bank. In return for this lifeline, government expectations were that the Bank would remain effective, efficient and financially sustainable. As the result the first casualty was staff following a decision to announce a cut back from 870 in 2012 to about 450 by May 2013.

The plan is to grow development finance assets from R47.1 billion to R91 billion by 2016/17 with annual disbursements increasing from the current levels of around R9 billion to around R19 billion by 2016/17. At a regional level the Bank wants to increase its loan distribution to around R20bn by 2017, expanding beyond SADC and focusing on commercially viable projects in priority sectors such as energy, transport and bulk water as well as on fast-tracking priority projects to improve connectivity and trade.

As a result of the latest round of restructuring an important phase of the evolution of the Bank has started and the core structure of the Bank significantly changed. According to the 2013 Annual Report, the Bank “will accelerate its infrastructure to municipalities, state-owned enterprises, regional partners and public-private partnerships”. More importantly, the Bank has set itself a strategic financial and operational goal of “sustainability with the objective of generating and sustaining inflation-linked growth”.

  1. Straddling the Tension between the “D” and the “B”?

It would appear that the balance between the development and the financial goals of the Bank are now in favour of the latter. In the context of addressing the massive backlog in quality social infrastructure at local level, the logic of the market economy and profit maximisation would prevail in the Bank’s personnel, performance, organisational culture and operations. This should sound the alarms bells in those sectors of society that are keenly interested in the Bank’s catchy headline slogan of “development activism through development finance”.

Given decades of skewed apartheid styled development in the country, the context of a democratic dispensation, good development practice involves the right of all people to access basic goods and services in order for them to attain a decent standard of living and to be able to meaningfully participate in policy development and decision making processes that affect their lives.

In the Bank’s stakeholder engagement strategy in addition to organs of the state, financial institutions, clients and partners, employees, the category of community is included. From a “development activism” perspective, the community is the central and most critical stakeholder in the assessment of needs and the design, planning, implementation, monitoring and evaluation of projects. From a development impact perspective, this aspect of stakeholder involvement is critical. Whilst the Bank may have built a reputation with its peers and shareholders, it is not clear how the Bank engages in meaningful consultations with the “community” as its end beneficiary and if and where it does, to what end.

In the context of its municipal infrastructure support, it would be vital to undertake further research into the role of the community in the Bank’s projects within municipalities in South Africa and assess how and whether these have been able to contribute to the active involvement of community organisations on the one hand and the delivery of quality public services on the other. It would be necessary to further investigate the link, if any, between Bank funding and “service delivery protests” by residents in municipalities. In the context of the aspirations of the government to build a “democratic developmental state” to address the developmental challenges facing the country, achieving this goal requires effective public institutions at every level to achieve equity and social development for the poor.

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