Emerging challenges put the World Bank's global relevance into question
Last week Robert Zoellick, World Bank president, announced he would step down in June. With the news came much appraisal of what he achieved during his tenure: $247bn disbursed to support the poorest nations; successful appeals and fund-raising to deal with a looming food crisis; and a historic $90bn channelled to the regions most affected by the global downturn.
Little was said, however, about who is to succeed Zoellick next summer. Yet the question matters. The World Bank is facing bigger challenges it has ever faced, with some saying that it no longer fulfils the mission it was designed for - funnelling resources from rich countries to poor ones. Having a strong, legitimate leader in the driver's seat is as important as ever.
Few imagined such an identity crisis at the institution's inception: in 1944, it had a virtual monopoly over the supply of aid and investment to low-income countries. But now emerging economies - who used to be large recipients of international funds - have amassed enough capital and skills to compete with the Bank on its own territory. According to Fitch, for example, the state-owned Export-Import Bank of China has disbursed more funds in Sub-Saharan Africa ($67.2bn) than the World Bank ($54.7bn) during the last decade. The Bank's typical clientele is turning to new, bigger players.
The competitive pressure is particularly accute on the Bank's core business: infrastructure. True, according to Devex, an international development website, over the last five years it has invested more than $100bn through the International Bank for Reconstruction and Development and the International Finance Corp. But even according to World Bank officials, the IBRD's significance is put into question: in 2010 BNDES, Brazil's development Bank, made more than twice more loans than the IBRD ($96bn as opposed to $44.2bn).
This is not just about ranking. Whilst some say increased competition will provide more choice to developing countries, a marginalized World Bank also threatens to weaken standards. As its share of global investment dwindles, so does its ability to influence recipients on corporate social responsibility, transparency, environmental and labour issues. New investors like China provide funds with far less strings attached, which already generates tensions in recipient countries (several African countries, most recently South Sudan, have threatened to expel Chinese companies) and has the potential to hinder a balanced development.
The picture is more reassuring on the Bank's other mission - providing loans to the poorest nations. The International Development Association, its financing arm, is being challenged by 'rival' organizations such as the African Development Bank or the Inter-American Bank. Their regional focus and expertise sometimes allows them to take the major role in places the Bank hasn't yet engaged (Devex mentions Botswana). But as hinted above, it has managed to raise a record amount to help the poor bear the consequence of the financial crisis; it has also surpassed expectations in number of lives saved, children immunized, and people newly connected to water and sanitation (check the numbers here). This role is set to continue, and the Bank will undoubtedly remain a major player.
But the World Bank's future relevance will increasingly rest on more than money. In a world where sovereign investors have the biggest financial firepower, and at a time when a growing number of countries want to plant their own seeds for domestic driven development, knowledge capital may indeed be a scarcer resource than cash. This is particularly true for nations endowed with vast natural resources - and thus without treasury issues - but struggling to climb the industrialization ladder. The World Bank, with its 60 years of development experience, mountains of data, and a highly sophisticated set of analytical tools, can supply developing nations with such high-value ‘soft aid’.
The Bank's new mission will also rely on a redefined scope. Whilst rival organizations have developed strong interest and capabilities on country- and sector- based projects, none combines the human resources, financial muscle, analytical capabilities, accumulated knowledge, and above all, interest, to deal with what economists call 'global public goods': climate change, public health and natural resources. The Bank has already started, managing to raise $40bn for its new Climate Investment Funds. And there is a growing consensus that the World Bank is the right institution to tackle these problems.
Yet there is no agreement has to how, and how fast, the Bank’s governance should be reformed to allow it to tackle these new, worthy goals. The representation of low- and middle-income countries has slowly increased over the past decade, and the Bank's current chief economist is Chinese - the first from an emerging market in the Bank's history. But these remain token progress. To truly address global priorities the US should stop having a de-facto veto on the board; board representations of developed nations should be consolidated in a smaller number of seats; the Bank's different units, and possibly headquarters, should also be decentralized and delocalised closer to their markets, in places like Beijing, Sao Paolo or New Delhi.
But most importantly, developing nations should be better represented at the very head of the Bank. In a stitch-up at the head of global institutions, the Bank's driver seat has always been awarded to an American citizen. In an election year on Capitole Hill, this is unlikely to change. But Zoellick's departure should foster a healthy debate about the next president’s nomination, and drive concessions from Western nations to their emerging counterparts. Failing this, the World Bank's new ambitions will remain hostage of diverging priorities between its developed and developing members, as is currently the case with energy policy.
Zoellick was a strong advocate of what he called 'the democratization of development': taking the Bank's knowledge and projects public so that citizens can participate in their own development. This has indeed started, with the Bank's vast collection of data now available and free to use. But for Zoellick's concept to find true meaning, democratization should include more than information - and start from the top.