UNITED NATIONS
ECONOMIC AND SOCIAL COUNCIL
Distr.:
GENERAL
E/ECA/TRADE/91/17 22 May 1991
Original: ENGLISH
UNITED NATIONS
ECONOMIC COMMISSION FOR AFRICA
Workshop on Export Marketing Import Management and Procurement for Business Executives and
Officials from Trade Promotion Centres and Ministries of Trade
Kampala, Uganda 10-18 June 1991
ECONOMIC AND TECHNICAL CO-OPERATION: AFRICA AND THE ISLAMIC DEVELOPMENT BANK
E/ECA/TRADE/91/17
Table of Contents
Page
I - INTRODUCTION i
II. RATIONALE FOR CO-OPERATION AMONG DEVELOPING COUNTRIES
III. AFRO-ARAB CO-OPERATION 4
IV. ISLAMIC DEVELOPMENT BANK 6
V. PROSPECTS AND RELEVANCE OF IDB ASSISTANCE
TO AFRICAN COUNTRIES 10
VI. CONCLUSIONS AND RECOMMENDATIONS 14
I- INTRODUCTION
1, Economic co-operation is undoubtedly acknowledged to be a better way of economic development where co-operating countries are committed to its genuine and full implementation. It is partly against this same conviction that the international community has resolved collectively at various fora to undertake economic co operation measures aimed at achieving mutually beneficial concrete results. The purpose of this paper is to examine various measures
taken by African and other developing countries to improve their
mutual economic relations. It will in particular assess both existing and future relations between the Islamic Development Bank(IDB) on the one hand and African countries on the other hand.
2. Consequently, Chapter one examines the need for economic co operation between developing countries and the measures taken by governments to this effect within the context of South-South co operation. Chapter two looks at the origins, relevance and attainment of Afro-Arab co-operation. Chapter three, focuses attention on examining the Islamic Development Banks's, objectives, functions, operations and the technical assistance rendered by the Bank to African countries both members and non members. Chapter four extends the analysis in Chapter three by including the issue of financing made to African countries members of IDB and prospects in the future. The analysis concludes with recommendations intended to strengthen these relations in order to consolidate mutual benefits.
E/ECA/TRADE/91/17 Page 2
Chapter 1
II. RATIONALE FOR CO-OPERATION AMONG DEVELOPING COUNTRIES
3. Available evidence as the move by the countries that make up
the European Economic Community (EEC) seem to confirm by their
desire to transform their arrangement into a unified Europe canlive no one in any doubt about the merits of economic co-operation
as a means for enhancing development. Individual efforts by agreat majority of African and Islamic Development Bank countries to establish large scale industries would result not only in high costs of production but also in unutilized excess capacity due to smallness of their markets. There are many reasons for this.
First, the prevalence in most African countries of low levels of income result in low purchasing power which in time limits demand for products that would be produced by these industries. Therefore and in order to accelerate economic development on the basis of high capital resources and skilled manpower inflow, greater application of scientific and technical know-how with a view to and improving the national economic co-operation between developing
countries would go a long way.
4, The idea of enhancing interregional co-operation between
developing countries stems in part from:a) growing interest by these countries that working together rather than in isolation, they have a greater chance of
solving some of their common economic problems;b) a realization of the great inherent potential and mutual
benefits likely to be derived from greater economic co
operation.
c) a belief that such co-operation could make it possible for them individually and collectively to lessen economic dependence on the developed industrialized or alternatively create enhance such reliance among the countries of the South.
5. Take as one example what was stated in the Arusha Programme for Collective Self-Re]iance and Framework for Negotiations. It underlines above all the importance of co-operation among developing countries as a cornerstone of self-reliance. This new strategy which reflects, the importance of collective initiatives was taken by Governments members of the Group of 77 in pursuance of the need to accelerate the development and transformation of their respective economies. It was also acknowledged to base this action on the intensification of joint efforts, mobilizing the respective resources and markets and through building structures of genuine economic interdependence. Perhaps these initiatives would not have come about had the Third World not experienced such disappointing results under the current international economic order?
6. Along with the above were similar actions at regional level.
For instance the Lagos Plan of Action and its Final Act that Africa adopted in 1980 calling for co-operation among African countries with a view to establishing an African Common Market by the year 1990 to lead to an African Economic Community by the year 2000.
The objective as defined was to ensure the economic social and cultural integration of the African continent. It is therefore to be presumed also that similar considerations mist have influenced the Afro Arab Commission's establishment as the adoption of the OAU resolution CM/Res. 718 (XXXV) on Afro-Arab co-operation seems to imply. In particular when it cal led upon "African and Arab economic and financial institutions, especially African Development Bank (ADB) and Arab Bank for African Economic Development (BADEA)
E/ECA/TRADE/91/17 Page 4
to act in collaboration with the Regional Economic Commissions of the United Nations in Africa and in the Middle East to conduct
immediately, detailed studies on the trade flows between African
and Arab countries so as to identify obstacles, and recommend positive and realistic measures likely to remove these obstacles".Chapter 2
III. AFRO-ARAB CO-OPERATION
The decisions and guidelines in the Lagos Plan of Action and other resolutions fully reflect the thrust of ECA's own efforts over the years. The Commission's work programme includes a large number of activities aimed at establishing and/or strengthening co operation arrangements among African and other developing countries
in various economic sectors, including trade and finance. It was in this spirit that the Agreement on co-operation between the United Nations Economic Commission for Africa acting for and on behalf of the United Nations and the Islamic Development Bank was signed in April 1987. The objective then as is now is facilitating co-operation between ECA and the Bank. The Agreement also required EGA to undertake certain activities as determined in consultation with the Bank with a view to promoting economic and social
development of member States.
8. in Cairo from 7 to 9 March 1977, the Afro-Arab Summit Conference underlined a number of common problems afflicting both African and Arab countries, all of which were traced from colonial
legacy served as a basis for co-operation among these countries.
9. The discussions and conclusions of the above Cairo Summit have great significance to the renewed spirit and desire to expand Afro-
Arab trade and financial relations, taking into account the inherent characteristics of the two region's geographical, historical and cultural backgrounds. The inclusion of promotion of political co-operation along side, economic and social elements was intended to buttress their joint struggle against domination and exploitation suffered by both at the hands of what they thought was
common colonial past.
10. From the point of economic co-operation on the other hand, the African and Arab Leaders resolved to expand, strengthen and intensify cooperation in the following areas: trade, mining and industry, agriculture ana animal husbandry, energy and water
resources, transport, communications and financial cooperation.The establishment of commercial relations that could facilitate
direct African and Arab trade was another important elementconsidered at the time. Thus, the strategy called for the establishment of preferential trade regimes, promoting cooperation between trading organisations and business enterprises, participating in each others trade fairs and supplying one
another's needs as a priority objective. Equally important amongareas of cooperation between Arab and African countries identified was to create links between their respective banking institutions,
insurance and reinsurance companies. They must have realised that without properly functioning financial institutions it would be difficult for trade exchanges to take place.
S/ECA/TRADE/91/17 Page 6
IV. ISLAMIC DEVELOPMENT BANK 1/
a) jl
11. The Islaraic Development Bank (IDB) is an international development financing institution established in pursuance of the Declaration of Intent issued by a Conference of Finance Ministers of Muslim Countries that was held in Jeddah in December 1973 following the Inaugural Meeting of the Board of Governors in July 1975. However, the Bank formally opened its doors for business on
20 October 1975.
12. The IDB was established in order to foster the economic development and social progress of member countries and Muslim communities in non-member countries, individually as well as jointly in accordance with the principles of Shariah.
13. The functions of the Bank have been defined to include its participation in equity capital and grant loans deemed for productive projects and enterprises along with providing other forms of financial assistance to member countries pursuing economic and social development. The Bank is also required to establish and operate special funds for specific purposes including the possibility of creating a fund for assistance to Muslim communities in non-member countries, in addition to setting up trust funds where this is considered necessary and feasible. The Bank is authorised to accept deposits and to raise funds in any other
manner.
1/ Summary from the Thirteenth Annual Report of IDB
14 It is also charged with the responsibility of assisting in the Promotion of foreign trade, especially in capital goods, among
Lber countries, providing technical assistance to member countries, extending training facilities for personnel ««M«™
development activities and undertaking research to facxlxtate economic, financial and banking activities in Muslim countrxes xn
conformity with the Shariah.
b) operations
-,5. in the light of a summary, from the fourteenth annual report
of IDB for the period 1988-1989, the Bank approved a>^«
US$873.5 million and financed different operatxons. Thxs fxgure represented an increase of 5 percent over the prevxous year Outof this total US$227.B4 million were used to fxnance techn cal assistance projects and also represented an xncrease of 5 per cent
over the preceding year.
16 The IDB has been playing an active role in strengthening co operation between member countries particularly with regard to
"Iting trade through trade financing, creating industrxa base and increasing the capacity of recipient countries to export In the domain of economic development, the IDB has intensified its co operation efforts and relations with national fxnancxa
institutions of member States, international financial
institutions, national development finance institutions and Islamic
Banks.
17
17 on the other hand, import financing which amounted to US$600 million showed an increase of 5.5 per cent in 1989 while operatxons between member States represented about 85 per cent of thxs total.
Special assistance funds approved by the Bank were about US45.94
million in 1989 and were double what they were during the prevxous
S/ECA/TRADE/91/17 Page 8
year. This amount included subventions accorded to member
countries in the form of food-aid. Loans and technical assistance in 1989 accounted for about 57 per cent and 63 per cent
respectively of all financing given to the least developed membercountries.
18, The cumulative total of financing approved between 1977 and
1983 was US$8496.6 million. Total disburseinent for the same period was about US$7128.9 million which covers the resource agreed by IDB to member countries to US$1763.4 million US dollars. Hence objective set by the Bank was nearly achieved.19. From the foregoing, it is possible to ascertain that a
significant amount of resources were transacted between the Bank and its member countries. This is an encouraging aspect of the
Bank's activities, specially given the fact that inadequateresource flow problems considerably handicapped economic growth of many developing African countries. As far as African countries Members of IDB are concerned, the different financing schemes given
to them by the Bank are discussed in the next chapter.c
20. Technical Assistance operations by the Bank mainly concentrate
in the area of:
(i) Transfer of technology;
(ii) Preparation of feasibility studies with a view to
determining bankable projects and to helpsupervision of projects and enterprises during
construction and initial operation.21. The Bank gives priority to those projects which have high potential for financing. Technical assistance have been financed by loan or by grant or by a combination of the two depending upon the nature of the operation and the economic situation of the recipient as also the resource position of the Bank. Technical assistance involving pre-investment and feasibility studies are financed on a loan basis whereas advisory technical assistance would qualify to be financed mainly by grant. The recipient is
required to provide local counterpart currency cost.
22. Technical assistance extended to African countries by IDE in period under review covered particular road construction projects (Cameroon; Gambia, Guinea, Guinea Bissau and Senegal);
agricultural, electrical, and water, projects (Sudan); and petroleum storage (Mali). Moreover, schools and educational facility projects were financed in Gambia Kenya, Malawi, South Africa, Uganda and Zimbabwe. Other types of assistance rendered included Programme of Emergency Aid to Sahelian member countries (Burkina Faso, Chad, Gambia, Guinea, Guinea Bissau, Mali,
Mauritania, Niger, and Senegal).
23. In the domain of education, IDB grants scholarships for Muslim communities non-members of the Bank. Many countries including African ones have had the opportunity to utilize these scholarships. In cases where admission of Muslim students in universities of their countries' faculties is difficult, the IDB will seek to place its scholarship recipients in universities within member countries. The area of the study consist mainly, medicine and engineering, dentistry, pharmacy, agriculture, forestry and fishery. These scholarships are awarded to academically meritorious and financially needy Muslim male and female students. However, according to the Bank's Scholarship
E/ECA/TRADE/91/37 Pa ge 10
Programme, students are required to pay back the tuition fees after completion of their studies and getting employment.
24. According to the 1989 report of Scholarship Programme of the Bank, the following African countries benefitted from the
scholarship scheme:
Kenya Malawi Nigeria Madagascar Tanzania Togo Liberia
South Africa Zaire
Total
No. of students 43
11 45 4 50 31 17 17
y
2 20
Status Non-member Non-member Non-member Non-member Non-member Non-member Non-member Non-member Non-member
2 b
PROSPECTS AND RELEVANCE OF IDB ASSISTANCE TO AFRICAN
. . The African Alternative Framework to Structural Adjustment Programn.es for Socio-Economic Recovery and Transformation (AAF-SAP) ooints out that the structure of the African economy defines the Essential features of Africa's central problem of underdeveloped:
toss poverty, food shortage, low productivity, weak productive base
and backward technology continue to plague Africa as basic
wottlen^cks arise from the structures of production, consumption,
technology, employment and socio-political organisation. It is
i-Herefore not possible as AAF-SAP states, to seek solutions to such
deeD-rooted problems without a structural analysis of the polxticaJ
economy of Africa. It is this structural focus on the African economy and attention to measures that could change the underlying structures that have been the major missing elements in past and current adjustment policies.
2G, In thi s context, it would be appropriate to examine the relevance of economic assistance of JDB to African countries with a view to determining whether the assistance responds to the needs of African countries in the context of AAF-SAP. IDB assistance is not expected to fulfill all of Africa's needs. In an attempt to give the reader a broader picture of the patterns of assistance rendered by IDB during the last few years, a table of grants and financing rendered by the Bank to some African countries is included.
27. Apart from the general assistance programme established for its member countries, IDB's assistance to African countries has also been provided through the mechanism of Inter-Agency Agreements, like that between the Economic Commission for Africa (ECA) and the Islamic Development Bank. The two organizations have committed themselves to co-operate and assist African countries in the following areas:
(a) general and sectoral studies related to economic and social development of any, some or all of the member States, particularly in the fields of: agriculture,
industrial development, natural resources, science and
technology, manpower training, hydrology, external trade and, economic and technical co-operation;(b) identification of projects that would qualify for financing by the Bank and provision of assistance to the
E/KCA/TRADE/91/17 Paqe 12
Governments of the member States in the preparation of
related project documents;
(c) exchange, of views and information on requests for financing received by the Dank, including those presented
by ECA on behalf of project sponsors;
(d) appraisal of projects prior to their financing;
(e) provision of technical assistance that may be required for the implementation of projects financed by the Bank;
lt) -valuation of the results obtained fro*, and the effect of, the implementation of projects financed by the Bank;
(g) training of the personnel of the Bank at ECA and vice
versa; etc.
,3 Tn the light of this agreed framework for co-operation, joint Levities are currently being undertaken by the two ^anxzatxons in the following areas: processing of plants of xnedxcxnal value develops of entrepreneurial capability for cottage and ■«
scale industries; sub-regxonal workshops for «■«** "W*
industry onagers and planners on industrial plannxng;
nolicv formulation (Eastern and Southern Afrxca);
'utilisation of existing fertilizer production units in Africa;
trade promotion and export marketing research traxnxng; seminar,
for policy makers on management of science and technology. The Economic emission for Africa and the Islamic Development Bank co-
finance these activities.
,o Table 1 in Annex II shows the profile of IDE's assistance to
African countries since the Bank started its operations up and tx.l
1988. The statistics indicate that a large proportion of the Bank's assistance to African countries was in support of the trade sector and in the form of loans to African countries. The Foreign Trade sector received nearly US$2.2 billion or 73 per cent of the total resources disbursed by the Bank during this period. The Bank also gave loans to African countries totalling US$0.4 billion accounting for 13 per cent of the Bank's total resource disbursement during the period. The other fonas of financial assistance to African countries included equity participation, sale instalment and project lending.
30. An examination of the major beneficiaries of IDB's financial assistance in support of the trade sector reveals that nearly 80 per cent of its resources during the period under review went to non-LDC African countries, particularly Algeria (39 per cent), Morocco (22 per cent), Tunisia (12 per cent). Nonetheless, some low-income African countries have also benefitted from the Bank's financial support.
31. It appears that the most distinguishing feature of the Islamic Development Bank, apart from the fact that it is required to operate in conformity with Shariah, is that it has undertaken foreign trade financing on a large scale. The fact that the Bank has undertaken extensive financing of foreign trade, a function rarely undertaken by other international development banks, has in certain quarters led to an erroneous impression that IDB is primarily a foreign trade financing institution rather than an international development bank Z/•
J2. According to S.E. Meenai, as stated in his book on IDB, it may be observed that one of the functions the IDB was assigned in
I/The Islamic Development Bank, S. A. Meenai p.91
E/ECA/TRADE/91/17 Page 14
accordance with its charter was to assist in the promotion of foreign trade, especially in capital goods among member countries.
However, this was not the motivating force for the type of the foreign trade financing facility established by the IDB. As a matter of fact, the origin of the scheme lay in the problem the Bank faced in respect of the placement of surplus funds not immediately needed in its ordinary operations. Like any other international development bank, the IDB on its establishment found itself confronted with a situation where it had at its disposal large funds received by way of capital subscriptions from the member countries. This situation led to undertaking comprehensive study on possible modes of placement of such funds. Accordingly, during the interim period the Bank placed these surplus funds in stocks real estate as well as in financing foreign trade.
VI CONCLUSION AND RECOMMENDATIONS
33. Afro-Arab co-operation is one concrete example of promoting economic and political integration of the African continent. The Islamic Development Bank (IDB) has since its establishment been contributing to this integration process. The types of assistance aiven to African countries by IDB are quite important and are usually in the form of soft loans. The Islamic Principle which avoids exorbitant interest on loan and limits it to service fee makes these resources extremely concessional for the borrowing
countries.
34. it is essential to underline the fact that, while the term
service fee has been derived from other international development
banks which have set up separate institutions such as the IDA, the
Asian Development Fund and the African Development Fund, the
service fee charged by the former represents basically a concessional price for the resources which they provide. In sharp contrast to this, the service fee charged by the IDB on its loans has the character of a charge solely to cover the precise expenses incurred by it in the process of making the loan as well as those which it will incur during the life of the loan. The service charge on IDA loans and other Special Fund lending is a concessional price or low rate of interest determined in relation to the prevailing interest rate structure and is not based, as is the case with the IDE, on a meticulous calculation of administrative costs connected with the process of making
loans.3/
35* Notwithstanding the assistance already provided by the Islamic Development Bank to African countries, it would definitely be lauded if IDB opened up its membership to African countries that are net members of the Organisation of the Islamic Conference (CIC). African and Arab countries inherently share common social, economic and political aspirations. The cooperation currently in existence between the United Nations Economic Commission for Africa (EGA) and the Islamic Development Bank (IDB) is a concrete example of the much needed fora for enhancing Afro-Arab co-operation and accelerating the pace of integration of the African continent.
3_/Ibid. p. 70
E/ECA/TRADE/91/17 Page 16
ANNEX I
MEMBER-COUNTRIES OF' THE ISLAMIC DEVELOPMENT BANK 1. Republic of Afghanistan
2. Democratic & Popular Republic of Algeria 3. State of Bahrian
4. People's Republic of Bangladesh 5. People's Republic of Benin
6.. Negara Brunei Darussalam 7. Burkina Faso
8. Republic of Cameroon 9. Republic of Chad
10. Federal Islamic Republic of Comoro Islands 11. Republic of Djibouti
12. Arab Republic of Egypt 13. Republic of Gabon
14. Republic of Gambia 15. Republic of Guinea
16. Republic of Guinea Bissau 17. Republic of Indonesia 18- Islamic Republic of Iran 19. Republic of Iraq
20. Hashmite Kingdom of Jordon 21. State of Kuwait
22. Republic of Lebanon . ,
23. Socialist People's Libyan Arab Jamahinyan 24. Malaysia
23, Republic of Maldives 26. Republic of Mali
27. Islamic Republic of Mauritania
28. Kingdom of Morocco 29. Republic of Niger 30. Sultanate of Oman
31. Islamic Republic of Pakistan 32. Palestine
3 3. State of Qatar
34. Kingdom of Saudi Arabia 3b. Republic of Senegal
36. Republic of Sierra Leone 37. Somali Democratic Republic 38. Republic of Sudan
39. Syrian Arab Republic 40. Republic of Tunisia
41. Republic of Turkey 42. Republic of Uganda 43. United Arab Emirates 44. Yemen Arab Republic
45. People's Democratic Republic of Yemen
Source: Islamic Development Bank, Information Brochure, 1989/90
T, Table1 IDE'sAssistancetoAfricancountries 1975-1988(MillionUSdollars)T
E/ECA/TRADE/91/17 Annex Page Sale Insta ment
Foreign !Equity\Trade Fin.
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