Integrate development banks' mandates into long-term national plan - Prof. Abor

A Professor of Finance and Afreximbank Research Fellow, Prof. Joshua Yindenaba Abor, has called for a long-term national development plan (DP) that would serve as a blueprint for successive governments in developing their medium-term plans and the implementation of their policies and programmes.

He said once developed, the mandates and visions of the country's development banks can then be integrated into that national plan to help make them more effective and sustainable at leading development financing.

The financial economist said the national development plan must be conceived and designed by all political parties and key stakeholders, forward-looking by a minimum of 40 years, and respected and utilised by all future governments within that time frame.

Since its establishment, the National Development Planning Commission (NDPC) has prepared three long-term development plans that have largely been underutilised. The most recent one, the 40-Year Development Plan (2018-2057) with a vision of achieving “a just, free and prosperous society,” has been shelved while manifestos have become the source of policies and programmes.

Delivering a lecture on the changing roles of national development banks in Africa, the former Dean of the University of Ghana Business School (UGBS) said this needed to stop as it affected development.

The former visiting scholar of the International Monetary Fund (IMF) noted that the country’s inability to stick to one long-term development plan opened it up to piecemeal and party-based policies and programmes that lacked the capacity to propel the nation to sustained development.

This, he said, contributed gravely to the nation’s limited and unsystematic development over the years.

It could also limit the ability of national development banks (NDBs) to unlock growth poles and fund sustainable development, given that their operations would not be drawn from a national development plan by successive governments, he added.

The Development Bank Ghana (DBG) is Ghana’s new NDB, which was established in 2020, and licensed in 2021 to address the long-term, patient funding gap that faced businesses and the economy.

It added to the Ghana Export-Import (Exim) Bank established in 2016 to support export development.

Dubbed: ‘DBG-UGBS Development Finance Dialogue Series,’ the round table meeting enabled Prof. Abor to examine the contemporary roles of NDBs in Africa, their business models, the challenges they face and how the continent could make them more effective to achieving national development aspirations.

It was an initiative of the business school with support from the bank to educate graduate students of the UGBS on the relevance of development finance and roles of development banks.

It also enabled Prof. Abor, who is also an External Fellow at the Centre for Global Finance, to shed more light on his latest book, ‘The changing role of national development banks in Africa: Business models, governance and sustainability,’ published by Palgrave Macmillan in August this year.

Linking NDBs to development plans

Prof. Abor said while NDBs were critical institutions to national development the world over, they functioned better when their roles and operations were drawn from a national development plan.

He indicated that NDBs were established to provide long-term financing for socio-economic development, making them important in financing the design and implementation of national development strategy, which was critical to the realisation of the country’s development goals.

“The system where one party draws a development plan and another party comes and abandons it is not good for the nation but we can cure that by ensuring that the government that develops a development plan does so with all stakeholders involved.

So, once you have the buy-in of stakeholders, it will be difficult for the next government to abandon it because they were part of the process,” he said.

He said having a national development plan was necessary for NDBs to pursue their development mandate and that such a plan would make the banks to function more effectively, leading to sustainable growth and development.

Zeroing in on NDBs in Africa, Prof. Abor, who is a Fellow of the Ghana Academy of Arts and Sciences, said the development finance institutions were critical avenues for providing countercyclical financing during and after periods of shocks as well as resource pools to fund the United Nation’s Sustainable Development Goals (SDGs).

He said they also enhanced inclusive financing, especially to small and medium enterprises (SMEs), promote innovation and structural transformation, crowd in private capital by de-risking key investment areas, help to fund public goods, climate action as well as deepen the financial market due to their ability to provide long-term financing.

These notwithstanding, the member of the American, Canadian and South African economic associations said NDBs were faced with challenges that risked undermining their effectiveness.

He identified these challenges to include, political interference in their corporate governance arrangements, currency mismatch where they borrow in foreign currencies but lend in local currencies, keen competition from commercial lenders with a focus on profit, and inadequate monitoring and evaluation (M&E), and impact evaluation structures.

Recommendations

To address some of these challenges, Prof. Abor said NDBs needed to prioritise governance systems and that board members must be allowed to complete their term.

He said NDBs also needed to implement strong and robust impact evaluation mechanisms as well as ensure a balanced funding mix, where loans are procured in local and foreign currencies to address the currency mismatch and minimise the foreign exchange risk component in their books.

On regulations, he proposed that NDBs adopt a proportionate approach of implementing Basel III from the Basel Accord, an international framework that sets standards for bank capital, to avoid suffering liquidity constraints.

Going forward, Prof. Abor said NDBs in the continent would be critical to the financing of climate mitigation and adaptation and the SDGs.

He mentioned that NDBs such as the Ghana EXIM Bank can support trade development, particularly intra-African trade, through trade facilitation and trade finance and thus advised NDBs to position themselves appropriately to help make the needed development impact.