Fahamu (Oxford)

10 April 2014

Southern Africa: The Development Bank of Southern Africa and Financial Oppression

analysis

The bank is touted as being a good potential host of the proposed BRICS bank. But its record so far suggests otherwise. A lack of representativeness, dubious appointments and investments, incompetence and a tendency towards privatisation have left many questioning whether the bank even fulfills its own mandate in the region

The Development Bank of Southern Africa (DBSA) is a development finance institution based between Johannesburg and Pretoria in Midrand.

It is wholly owned by the South African government, and is accountable to its board. It is constitutionally mandated to provide financial, technical and other assistance in support of social and economic infrastructure investment inside South Africa, as well as in other Southern African Development Community (SADC) countries.

This latter mandate is carried out by the Bank's International Division, which in 2013 received a R7.9 billion (then nearly $900 million) capital boost from government.

The bank's level of funding has been increasing annually although, because the rand crashes regularly (at least seven times since 1994 by 15% or more), this may not translate into overall dollar growth.

In rand terms, the allocations to the region rose substantially in 2011/12 (to R3.8 billion) and 2012/13 (to R5.6 billion), with a focus on energy and transport.

DBSA funding is mainly directed to strategic projects such as Kinshasa's Ndjil Nation airport (DRC); the Maseru public hospital and Lesotho Highlands Water Project (Lesotho); the Mozal Aluminum Smelter Plant (Mozambique); the Ohorongo Cement Plant (Namibia); Lusemfwa Independent Power Producers and Kariba North Bank Hydro Power Extension Project on the Zambezi River (Zambia); and the Beitbridge-Harare-Chirundu road (Zimbabwe).

The DBSA works closely with major corporations in several sites. In Mozambique, it is co-financing the Mozal aluminium smelter as well as the gasfields and processing facilities of synthetic-fuels giant Sasol.

In Tanzania, the DBSA is negotiating future projects, especially the Kilwa energy project and similar projects valued at $227 million and $280 million, respectively.

In Angola, the DBSA has been increasing funding towards energy, water, roads and drainage, communications, tourism, social infrastructure, sanitation, and the rehabilitation of civil war-related infrastructure.

It has put $150 million into the Banco Bai financial services and $80 million into housing projects. The DBSA is also financing part of the country's increase in electricity generating capacity, from the present 1,200 MW to 8,400 MW by 2025.

In Lesotho, the DBSA disbursed about R740 million to Tsepong, a public-private partnership (PPP) consortium led by South African private hospital and healthcare group Netcare, to construct, upgrade and operate a new public hospital at Bots'abelo in Maseru.

Netcare, a South African company, led the consortium; in Zimbabwe, the share Netcare held of a similar project was 30%, with 70% reserved for the state-owned enterprise.

A bias towards privatisation appears to be growing.

In Zambia, the DBSA provided a loan of $262 million to the Zambian Road Development Fund Agency for the rehabilitation of five priority roads, three of which form part of the Trans African Highways route running from Cape Town to the DRC's Katanga Province and onwards to Kinshasa.

DBSA financed the PPP Kasumbalesa Border Post between the DRC and Zambia, which reduced costly delays of overland freight traffic.

Similar PPP financing of R1.4 billion was provided to Infralink Pty Ltd - a joint venture between the Zimbabwe National Road Administration and Group Five Limited of South Africa - to rehabilitate roads and implement tolling of existing national routes, covering 801.5 kilometres on an east-west axis from Plumtree through Bulawayo to Harare and then Mutare.

Critiques of the DBSA relate partly to its facilitation of corporate takeover of infrastructure. In addition, because of the small portion of funding going to other SADC countries, there is a perception that the bank is only regional in name. In 2012, around only 14 percent of its assets were in the region outside South Africa, with future SADC lending anticipated at $2.3 billion.

That perception is also restated in South Africa's own National Development Plan: 'SA is critically under-represented in organisations like the African Development Bank and SADC.

The latter is critical as South Africa is a major funder of the group ... To fulfill South Africa's obligations in the BRICS and in the region, the DBSA should be strengthened institutionally.'

But did the DBSA deserve the R7.9 billion that it received in new funding in 2013? This was a well-grounded complaint by SADC deputy executive secretary João Samuel Caholo less than a year before: 'There is resentment towards the DBSA in certain quarters because it is in South Africa, and South Africa is the only shareholder.

SADC has no say in what the DBSA does and although the bank does work on a bilateral level with SADC countries, we need our own bank ... The name of the DBSA is misleading, as it was established by the apartheid government that saw Southern Africa as consisting of apartheid South Africa and the former homelands.'

After leaving his job, Caholo renewed his criticism in October 2013, arguing that the DBSA 'only exists in name', while in contrast, 'A regional bank is supposed to have regional representation of all SADC member states, or at least the participating members in the governance structure. This is still not the case for DBSA'.

Just as it was deployed to become Pretoria's core representative as the BRICS Bank was being conceptualised, the DBSA fell into disrepute within South Africa for recording R430 million in net losses in 2011-12, based on (unspecified) investments.

In late 2012, the new DBSA CEO, Patrick Dlamini, announced a 'new restructuring process', including staff retrenchments [from 750 to 300] and a zero-tolerance approach towards corruption.

'We can no longer allow the DBSA to be associated with shoddy work', he said. Dlamini's prior job was as an executive with the Air Traffic and Navigation Services company, and he had no prior development finance experience.

In late 2013, the complaints and confessions were the same. In the Sunday Times, Chris Barron interviewed Dlamini: 'We have huge room for improvement.

Our job is to fund infrastructure development at municipal level, but if you look at this space you see a serious collapse of infrastructure.'

His own infrastructure had also collapsed, for Barron's sources noted 'the departure of staff members with valuable information technology, project management and other skills ... [who] have been snapped up by the big commercial banks, which will be competing with the DBSA to provide infrastructure funding'.

As Barron noted, the bank 'lost a fortune on five-star luxury hotels, platinum jewellery and other such projects instead of investing it in boring things like water-treatment plants, roads, schools and hospitals.'

In one case, 'hard-earned taxpayers' money was invested in Sol Kerzner's One&Only hotel'. The loan and investment amounted to nearly R3.2 billion, or 7 percent of the portfolio.

Yet in addition to managers of inappropriate investments, the entire social and environmental division was dismissed during the restructuring, including leadership of an important Green fund to promote employment.

Moreover, as Carol Paton of Business Day remarked in 2013, 'When it comes to project work, the bank will be in the same position as most state departments: it will need to put out to tender.

There is also another problem. The business model of the bank remains tenuous ... it does not take deposits and so does not have a source of cheap money, the capital injection provided for in this year's budget being a rare event'.

The man tasked with ensuring the revitalisation of the DBSA in the region was Mo Shaik, who trained as an optometrist but became the leading spy in the Zuma government prior to numerous internal crises in the National Intelligence Agency.

One problem was his revelation of important and highly embarrassing political secrets to US embassy officials, which in turn were published by WikiLeaks.

Shaik's forced resignation from the security services in 2012 was followed by a brief Harvard executive course, after which he was controversially appointed the DBSA's main liaison to the region.

The overall impression left by the DBSA is that it is blatantly ecologically destructive, privatisation-oriented, hostile to social concerns and incompetent.

These problems should logically disqualify the DBSA from being the host of the BRICS Bank, as is often proposed by leading South African officials.

- Richard Kamidza has just completed his PhD at the University of KwaZulu-Natal Centre for Civil Society, which Patrick Bond directs.

THE VIEWS OF THE ABOVE ARTICLE ARE THOSE OF THE AUTHOR/S AND DO NOT NECESSARILY REFLECT THE VIEWS OF THE PAMBAZUKA NEWS EDITORIAL TEAM

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