The World Bank in Africa

Sources:
Bloomberg: World Bank's IFC to Double Lending Commitments to East Africa in 2010-11
Bloomberg: World Bank Unit to Increase Investments in Sub-Saharan Africa, CEO Says
The East African: DTB to Disburse $26 in World Bank Funding to SME's in EA
Engineering News: Telecoms Towers Seen as Investment Opportunity in Africa - IFC

The World Bank’s International Finance Corporation (IFC), its private lending arm, plans to double its lending commitments to five East African nations in 2011. The aid will increase from $150 million to $300 million. The nations set to enjoy the increase are: Kenya, Burundi, Tanzania, Rwanda and Uganda. The loans will go through banks to small and medium sized enterprises (“SME”) that focus in energy and agriculture.

SMEs are viewed as an essential component to a developing nation and a strong economy. Many poor nations only have massive western corporations and rural farming. To promote domestic growth, there needs to be domestic corporations to stimulate economic growth and increase incomes. The main reason the World Bank is lending to firms involved in energy and agriculture is that East Asian and East Asian energy demands continue to rise as these economies develop. Also, as food demand rises globally, East Asian demand for food is growing the most.

One beneficiary of the increased lending is the Diamond Trust Bank (“DTB”), a bank that will receive $26 million from the World Bank. It, and similar banks, will be able to use the increased funds to increase the number of bank branches and lend companies more money, facilitating savings and increasing the strength of the regional economy. Some of the $26 million is consigned for use in trade facilitation to encourage trade and regional integration.

Also, the World Bank is willing to invest more heavily in the region because of its high growth rate and recent government implementation of more business-friendly policies. According to the IMF, the region’s economy is expected to grow by 5.5% in 2011. This is higher than the world’s expected growth-rate, which is 4.2% for 2011. Increasing commercial policies favoring the free market, and thus business, has also induced the World Bank to increase its loans. With more favorable policies, the loans are more likely to attract businesses. The loans will be more effective than they were under previous policies that entailed greater government regulation and market interference.

Other industries outside energy and agriculture have taken an interest in East Africa too. Information and technology companies view East Africa as underdeveloped in terms of broadband service and cell phone use for an emerging economy. Thus, companies view the area as a great opportunity for new customers, but also as an area that requires a lot of investment. The World Bank loaned $100 million last year to build telecommunications infrastructure, giving telecommunications companies a chance to find customers and remain profitable, and then pay back the World Bank loan when feasible. Because of its high growth and reformed commercial policies, East Africa is becoming an attraction for the world’s capital.

Discussion:
1. Is there any reason East Africa is faring so much better than the rest of the world, especially the West?
2. Is focusing on increasing agricultural production the best way to develop a nation, or should the World Bank encourage more services and manufacturing?
3. Are SME’s really the driving force of an economy? Couldn’t a large firm do the same work at a lower cost?