(THE EAST AFRICAN - KENYA) Queries over European bank’s ‘hit and run’ lending to Africa

Queries over European bank’s ‘hit and run’ lending to Africa
Posted Monday, December 6 2010 at 00:00

Queries are being raised over the lending of nearly £1 billion (about $1.4 billion) to banks and private equity companies in Africa by the European Investment Bank. A report by a group of European NGOs titled, “Hit and Run Development,” says too many of EIB’s lending processes are not transparent. It adds that funds have disappeared into private bank accounts and European tax havens.

EIB’s lending last year included 20 million Euros to the Private Enterprise Finance Facility in Kenya, 30 million Euros into PEFF in Uganda, 5 million Euros to the Rwandan Global Loan private sector support in Kigali and a further 10 million Euros to assist the Rwandan Private Sector Support Programme.

Specific projects criticised in the report include loans to the Intercontinental Bank of Nigeria, the NBS Bank in Malawi and the failure of the loans to Rwanda to be spent.

The Counter Balance report reveals how the European Investment Bank’s use of intermediated loans and private equity funds facilitates corruption and tax evasion.

The report concludes that the use of these lending tools in developing countries “goes against any kind of development logic.”

The EIB has defended its practices, saying it has “exemplary transparency and accountability standards,” and that its operations “ensure more effective lending and cheaper financial support for local companies.”

It added that some details of its loans were held back for “commercial reasons.”

The Counter Balance report says the EIB increasingly uses intermediated loans or global loans — up to 37 per cent of its non-EU lending amount – as an integral part of its development lending.

But it says “by pre-approving projects as a group instead of appraising them individually, the EIB is making it difficult to track the final use of the money.”

At the same time, the EIB is conducting an increasing amount of its development investing via private equity. “This means a further shift from traditional project finance to investments via entities that clearly prioritise profit maximisation over concerns about sustainable development.”

While the EIB may insist that it selects “trusted and experienced partners” for such investments, the “evidence suggests otherwise,” the report says.

The cases presented in the report suggest some EIB funds are misused for sinister practices such as tax evasion, money laundering and personal enrichment.

That “the EIB’s due diligence and project partner selection for those cases have been compromised casts doubts not only on how fit for purpose these newly favoured investment models are but also on the overall development effectiveness of EIB’s activities in developing countries,” says author Antonio Tricarico.