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Speech by Secretary of State, Hilary Benn, Speech on the Future of the World Bank, Royal Africa Society/School of Oriental and African Studies, London

12 April 2007

Thanks Christopher [Cramer]. And thanks to the Royal African Society and to SOAS for hosting this event.

I want to talk today about the really big challenges the World Bank faces in a rapidly changing world.

A world of immense wealth and potential, yet a world in which for billions their potential is denied. A world where the poorest nations share just half a per cent of world exports. A world where what you earn increasingly depends on what you know, and yet 80 million children this morning will not see the inside of a classroom. It will be how we deal with all this that will be the measure of our generation.

Globally we will meet the millennium development goal to halve absolute poverty - mainly due to the unprecedented progress in China and India. And yet by 2015 it is estimated that around 600 million people will still be living in extreme poverty, almost two thirds of them in sub-Saharan Africa. Many will live in fragile states, in countries affected by conflict. The big task is to help Africa, which saw poverty rise in the last decade, to match the progress China and India are making.

And we will need to do this while tackling to climate change. Hardest felt by those least responsible for it, it could reverse development progress. A third of the world’s people live in countries without enough water, by 2025 it’ll be two-thirds. Within three decades, the urban populations of Africa, Asia and Latin America will double to nearly four billion human beings.

I believe that the only way we can deal with these changes is by acting together. By acting multilaterally. At present we’re not working well enough together. Just over a year ago I set out what I thought needed to be done to get an international system fit for the 21st century.

We are making some progress on UN reform. A One UN model – being tried out in a range of countries – will represent a big change in the way the UN does business on the ground: One Country Leader, One Plan, One Team, One Budget. But today I want to take this opportunity, a few days before the Spring Meetings of the IMF and the World Bank, to talk about the World Bank.

We helped create the World Bank for the world we found ourselves in, 60 years ago.

Its first loan – through the International Bank of Reconstruction and Development, IBRD - was to France, and then others in Europe as post-war reconstruction took place.

The soft loan part of the Bank – the International Development Association, IDA - was created to support poorer, low-income, countries in 1960, and the first loans were made to Honduras, India and Sudan in 1961. Since that time over 30 countries have been able to move on from IDA assistance, because their economies and incomes have grown sufficiently for such help not to be needed anymore. A real success, and in coming years more will join that number.

The World Bank has grown into a major donor, with a huge amount of development expertise. Global aid flows are around $100 billion a year, about 70% as bilateral, and 30% multilateral. In recent years the World Bank has spent over $20 billion a year in developing countries, with IDA contributing $9 billion, and IBRD $11 billion. Compare this with the EC at $10 billion, the UN at $12 billion, the UK at $13 billion, and the US at around $23 billion, and you see how important the Bank is.

But a question. If we were to create from scratch a global institution to fight poverty, in the changed world we find ourselves in now, what would it look like to meet the challenges of the next 60 years? And what would it need to do be doing to merit strong UK financial support?

Well, the first thing to do would be to explain why it was needed.

Some people say that all this aid doesn’t do any good or that it ends up in the pockets of the elite or corrupt. It’s a shame that some of the debate about development is based on cynicism and not facts, and certainly not on the views of poor people – it’s the lazy way to appeal to people’s prejudice and fears.

Others say that we don’t know what the impact of this aid is. Well, quite frankly we do, because we work in these countries, and we find out. And it’s why DFID is seen by many – from our peers in the OECD or in Whitehall – as a very effective development agency.

Take malaria – it kills over a million people every year, mainly children. We’re in the process of distributing 11 million insecticide treated mosquito nets to mothers and their children in Kenya. Does this work? Look at the evidence. In Tanzania the number of children sleeping under this type of net has risen by three-quarters since 1999. The result? Fevers down by a third, and overall the number of children dying before their fifth birthday cut by a quarter.

Or take education. Our aid has helped countries like Tanzania get rid of school fees. The result? Well, enrolment doubled. Now 9 out of 10 children go to school. A few years ago it used to be 6 out of 10. And in Kenya too, where enrolment increased by 1.5 million children when fees were abolished. And here publishing budgets at schools helps parents make sure money is spent properly, where it should be, on their children.

The World Bank is a major partner in this effort, and I want to see it do more in the future. Tanzania received $150 million from IDA to support the improvements in primary education that I’ve just described. Or in Bangladesh, where support to secondary education for girls helped increase enrolment from just over 1 million to almost 4 million.

And it’s developing countries doping this through their own efforts – because after all that’s the only way things can progress – but they’ve done it with our help.

And at the global level, the World Bank has hosted the Fast-Track Initiative and will be spending $1.5 billion over each of the next three years to help push this forward. The Chancellor and I will attend a donor conference in Brussels in three weeks time, and I hope we can secure further commitments so that we can ensure all children get the chance of a decent education, including children affected by conflict and those living in fragile states.

Or take debt relief. For twenty two countries every single penny of World Bank, IMF and African Development Bank debt has been written off. This is having a huge impact. In Zambia, with the debt burden lifted, the Government has been able to introduce free health care in rural areas for the first time in its history. Does that make a difference? Yes, I believe it does.

Or think of how the World Bank has helped poor countries to build their economies and raise the incomes of poor people. You can’t fight poverty without economic growth and sharing it more equitably amongst poor men and women. And it’s growth that helps countries raise taxes to pay for the teachers and nurses and services needed to improve health and education, and to get water to the people who need it. Because that is how we did it and they want the same chance to do it for themselves.

Take Ghana. It reduced poverty from 52 percent in 1992 to 35 percent ten years later. Economic growth averaged 4.5 percent from 1983 when reforms began, but increased to 6 percent in recent years, in response to the government’s program of reforms. All of this backed by sustained World Bank support – some $4.2 billion from 1983 - and advice. Ghana is on its way to achieve middle-income country status by 2015.

This is aid working. And aid done right, works. And we need to meet our commitments to increase it and keep on improving it. Here in the UK we are doing so, on our way to meet our commitment to spend 0.7% of our national income on aid by 2013 – I hope others will do the same too.

The world’s changing, so how does World Bank need to change? It recognises this and is considering its long-term strategy. I think there are three major issues it needs to face up to, to be the Bank we want, and need, in the world of today. They are:

Its structure

How it helps its members, and

How it will tackle Climate Change and natural resource depletion

The World Bank is charged by its most strident critics as being an agent of the rich countries, that imposes policies and programmes on the poorest. I don’t think this is right – it’s changed and is changing - but it is inconceivable that a World Bank founded now would give almost half of its shares, its votes, to just seven countries – the G7. Or that the right to choose the heads of the Bank and the International Monetary Fund would be divided up between Europe and the USA.

Those countries where the World Bank works in the future should have more say in the decisions the World Bank makes and in who heads it. When I meet with ministers in developing countries, it seems to me that they feel the regional development banks have more legitimacy. Take the African Development Bank for example, the majority of its board are from African countries - it’s an African bank with an African voice.

So, a question – how can the World Bank best lead in helping Africa and Asia especially when the economic and political landscape has changed? By the middle of this century, countries like China, India, Brazil and South Africa will play a much stronger role than they do now.

We have to renew our effort to find a way of giving a greater voice in its decisions to the countries the Bank exists to help.

And one way in which we can and should make progress on voice is by changing the Bank’s approach to conditionality. Last year I withheld some of our IDA contribution until I had seen clear evidence that the World Bank was listening more to partner countries. The report showed both progress and honesty about what more needed to be done.

In Burundi last year, the World Bank set conditions on privatisation of two small state owned companies, and on the coffee price. Now, Burundi is a fragile state, recovering from years of war, and has a new government – such conditions certainly weren’t owned, nor were they appropriate. Thankfully the World Bank accepted that was the case. In Tanzania, by contrast, the terms of the loan were set in partnership with the government and with civil society, based on the government’s own plans and monitoring frameworks – an excellent example of the right approach.

We need to see more of this approach applied consistently across the World Bank, so I’ve also said that further progress on conditionality will be central to UK considerations of support to IDA, and I look forward to further World Bank reporting later this year.

The second task is around how the World Bank can best help its partners fight poverty. For the poorest countries, this will be about improving the aid business itself. The Paris Declaration commits all of us to give our aid in support of countries’ own plans – what I describe as “getting our act together” - but I think the World Bank could provide more leadership and help here. Together with the IMF and other donors it should set out long-term predictable aid flows for the country, and the results the aid is expected to achieve. This is really important – imagine being a Minister of Education or Health – you know how much money you need and how much you’ll get from your treasury – but you don’t know what aid you might get – and you can’t plan form year to year for the teachers and nurses you need. If you put people on anti-retrovirals you want to be sure you won’t have to take them off – or you can’t recruit teachers if you don’t know whether you can pay them in a few years time.

The Bank should lead more on coordination. In the 1960s there were on average only around 12 donors working in each country, now it’s 60.

We’ve seen a proliferation of new international organisations and funds – over 200 - funds such as the Global Fund to Fight Aids, TB and Malaria. All individually doing commendable things – the Global Fund is saving 3,000 lives each and every day. Is it a good thing? You bet it’s a good thing. But the consequence of all this goodwill is frequently a huge administrative burden on countries.

In part, this has been a result of greater attention being paid to more visible problems, for example, providing anti-retroviral drugs, at the expense of the less visible but equally important problems such as making sure there is a health service to deliver the drugs. After all, if there aren’t wages to pay health workers or provide clean water in the wards, new drugs won’t save as many lives as they could.

Take Rwanda. It has a relatively low rate of HIV/AIDS – about 3% - but high infant and maternal mortality rates. And yet in 2005 almost three quarters of donor assistance for health in Rwanda was for HIV/AIDS, and only 2% for health care services for childhood illnesses. The World Bank is well placed to help coordinate what donors are doing in specific sectors and to provide the less visible but highly important long-term financing for recurrent costs – like the wages of nurses and doctors. The foundation of which everything is built.

The World Bank and IMF have done an excellent job in designing and implementing HIPC and the MDRI. All creditors need to do their part too. I would like the Bank and Fund to produce a scorecard, noting which creditors have delivered their debt relief and which have not, as a way of putting pressure on those who are not – to use a technical term – coughing up.

Recent years have seen legal action against HIPCs by so called vulture funds - more must be done to prevent predatory financial companies like these making huge profits from poor countries. Liberia’s commercial debt, for instance, is over a billion dollars, a huge sum which if paid would be deeply damaging to Liberia’s development. The IDA Debt Reduction Facility provides important help, enabling countries to buy back their commercial debts at a significant discount, and providing finance for this from the Bank’s own resources.

As a world we need to find a more effective way of dealing with these vulture funds – they give vultures a bad name.

All of this is about working better with others. Given the complementary roles of the World Bank, the UN, the European Commission and other multilateral institutions, there is an urgent need for them to remove duplication, and to identify and build on their strengths.

Just last year in southern Sudan we saw squabbling between the World Bank and UN which led to delays in implementing the multi-donor trust fund – thankfully they resolved the problem and have now created an effective approach that could be adopted for joint working elsewhere – but we haven’t got time for that.

Helping fragile states like Sudan or Liberia is a big enough challenge for all of us. I’m pleased that this weekend we’ll be discussing how the World Bank can make faster progress in supporting fragile states – where half a billion people live.

These are the countries least likely to achieve the MDGs. They account for 9 percent of the population of developing countries, but 21 percent of the extreme poor. A third of all child deaths in developing countries occur in fragile states. But they receive just a tenth of all the Bank's aid. The Bank, like all donors, should ask itself whether the scale of its assistance meets the scale of this need?

And the help the World Bank gives is not just about money. It is, quite rightly, seen as the “knowledge Bank”. It has world class professionals, with huge experience, which countries and donors rely on. We should celebrate this. However I think it could have more impact if it combined strong expertise on the technical side with better analysis of the political economy.

It’s one of the reasons why the World Bank likes to work with DFID - because we are do analysis of country governance, we try to understand the political as well as social and economic forces for change, and we draw on the great skills of our Foreign and Commonwealth Office or Ministry of Defence. After all – it’s the politics that matter – in any country – to making progress – the choices that get made through the political process, so we need to understand how it works.

It’s also a strong argument for increased decentralisation. Over the past decade the World Bank has gone from having all their country directors based in Washington, to three quarters now based overseas. It’s a real achievement, one to be proud of, and one which should help countries get a better service. But more progress is needed, especially in Africa and in fragile states where the biggest challenges remain. These aren’t the easiest places to work in, but it’s where we need to be.

And we also have to fight corruption, that’s why I welcome the priority that the Bank has given to this. We had a lively debate last September, and I’m very pleased with the progress made since that time. The Bank listened to its membership. It’s agreed to stick with even the most poorly governed countries – because this is where many poor people live, and they shouldn’t be punished if some in their government are corrupt. I think we now have a good approach to a very complicated and difficult set of issues.

And there’s one final reason why the Bank needs to do more about all of these things. Countries now have more choices now about where they can go to for money. There are new creditors - China has promised to double its finance to Africa by 2009 to $5 billion. In 2005 it offered a soft loan to Angola of around $2 billion – more than four times all the aid given to Angola that year. And some of the richer developing countries – middle income countries – are more creditworthy too. More and more countries need the World Bank less – but poverty exists in middle income countries too – which are home to 40% of the world’s population who live on less than $2 a day. These countries say they value World Bank advice, but I think the Bank needs to become more flexible in how it helps them.

The third major challenge is climate change and natural resources.

In the last six months, we have had the Stern Review and the latest IPCC reports. These have revealed the scale and urgency of the task and they show that acting today will be effective and less costly than acting later. And most of all they set out clearly why the time for arguing is past, and the time for action is now.

I think the World Bank, of all the development institutions, has a major – in fact, a leading – role to play in facilitating the scale of investment that is needed to meet this huge challenge.

Progress has been made since the G8 at Gleneagles called on the multilateral development banks to create a Clean Energy Investment Framework. This has the potential to make a real difference in three areas:

The first is about increasing access to energy for development. All countries need energy for economic growth and to reduce poverty. Businesses, schools and hospitals need electricity and lights. So the Bank should concentrate on doing much more to bring basic energy services to 1.6 billion poor people in the world without it – particularly in Africa.

But in doing this, these investments need to be sustainable. Why? We know that continuing our current pattern of energy use will have devastating consequences for the earth’s climate and peoples’ lives.

So the second challenge is to help mitigate future emissions by supporting sustainable and low-carbon development. And although the energy sector is key, for the World Bank to play a leading role in promoting cleaner and more efficient development options, it must work more broadly too, transport, carbon-efficient buildings are crucial, for example.

In many cases, cleaner development has huge local benefits. Last year the Bank agreed a project in Guinea-Bissau to help re-build the country’s energy system following a decade of civil war - it only supplies around 2 hours of electricity a day. Guinea Bissau’s main export is cashew nuts - which it relies on for 2/3 of its income – but it also relies on expensive oil imports to power the cashew plants.

The Bank project has paid for new generators that can produce power from the cashew shells. In the town of Bolama cashew shells will produce enough power to run the cashew factory and to be sold on to the surrounding town. This is an excellent example of how the Bank can work with countries to look for alternative energy solutions.

Rail systems in Asian cities for example, not only reduce carbon emissions and improve the local air quality, but they also help people and goods to move around faster. Small scale wind and solar energy can also be the cheapest energy option for communities living in hard-to-reach rural areas.

But in most cases moving to cleaner technologies will be more expensive, and we should not expect poor countries to carry all the costs. We need international financing that help to meet these extra costs – and the World Bank to lead in designing them and making them work.

One area where I expect the Bank to do more is investing in renewable energy. I applaud the German government for putting a spotlight on this issue 3 years ago. A target was set for the Bank’s investment in renewable energy and energy efficiency – increasing it by 20% on average each year until 2009. This target has almost been met already – two years early, in 2007. The Bank should now set a new target for renewables.

The Bank also needs to play a part in making sure that developing countries have an incentive to preserve the natural carbon banks and sinks – so many of which are in the developing world – in a way that also benefits their people.

Take the Congo. More than 40 million of the world’s poorest people depend on the Congolese forests for their livelihoods. And a Greenpeace report – Carving up the Congo - earlier this week showed, the pressure for logging is enormous – logging that has the potential to destroy not only these livelihoods but hugely damage our climate: 34 billion tonnes of Carbon could be released if their forests were destroyed, equivalent to the UK’s entire carbon output since 1946.

Now the DRC government has a pretty difficult decision to make here. Like all governments, they want to improve the lives of their people – to build the schools and hospitals they want. And they know that by granting logging concessions they can raise the finance they need. So the challenge for the international community – for all of us – is to change the economic incentives facing the government: to make it more rewarding to preserve forests than to cut them down.

In the end, the only way we are going to do this is through a global carbon trading scheme. Such a scheme would deliver hundreds of millions of pounds to developing countries, to invest in cleaner development and protect the world’s forests.

That’s why we need to push so hard for agreement over the coming months. At the G8, we need to agree a long-term green house gas stabilisation goal. And in the weeks and months after that, we need to agree the next steps: our shared responsibilities for reducing emissions and international systems for capping and trading carbon.

But we also need to take action in the shorter term. Because we can’t just say to developing countries – “wait”. Don’t build hospitals for your people. Don’t build the schools you need.

We stand ready to do our part through the new £800 million Environmental Transformation Fund recently announced by the Chancellor. This will provide resources for a range of activities being financed under the Clean Energy Investment Framework. We have already earmarked £50 million from this for the Congo basin to achieve the objectives we all have for sustainable livelihoods and climate change.

So the Bank needs to expand its work on sustainable rainforest management by piloting new ways to provide alternative incomes for people living in rainforests, rather than from cutting them down, as we move towards a system of carbon trading.

In the DRC, the Bank is already making progress. It has worked hard, with the government, to secure a moratorium on granting additional logging concessions. The legality review currently ongoing has my full support, and I’m looking forward to the government’s decisions on revoking concessions - if they have been given when they shouldn’t have been given - following this.

But we know that climate change is already happening. So the third, and possibly largest challenge is for the Bank to help developing countries adapt to the impacts of climate change. That means ensuring that new World Bank projects are “climate-proofed” so that their benefits will not be reversed by climate change. It must also help countries to adapt, for example by investing in more drought resistant crops, responding to changing disease patterns – for example, malaria will spread to new areas – and more resilient infrastructure.

Now that the Clean Energy Investment Framework is in place, the World Bank needs to set itself ambitious targets, and work with the other multilateral development banks on what can be done to do the necessary work and the resources to fund it. They must reflect the scale of challenge set out by recent reports, and the costs of not acting now. We will take a very close interest in this. I think we need both investment targets – like the one for renewables - and outcome targets – aiming to reduce the amount of carbon is pumped into the atmosphere as a result of projects the Bank funds. It will be helped in this by the work it is doing to measure carbon impacts.

Finally, the Bank should also become a leading advocate of action to fight climate change. It needs to challenge the richer countries to act, including on financing. It should support developing countries to play their part in designing an international agreement that helps them grow and tackle climate change..

So there we have it. There is a lot to be done; but given the size, and the strength, and the quality of the World Bank, it’s do-able.

In the end DFID, with its rising budget, will continue to support countries directly, but we also work through others to achieve the things we can’t alone. I have an open mind about what the balance of our funding will be between the World Bank, the UN, Europe, the African Development Bank, the Asian Development Bank, the Global Fund for Action Against AIDS, TB and Malaria, and many many others.

How will we decide? Well, it’ll be about results.

That’s why we exist. The World Bank. DFID. The multilateral system. To make a difference.

It’s what the UK public asks of us in everything we do. And so it’s what we should ask of the Bank. Because – while the world has changed - the need for the Bank to help us beat poverty hasn’t changed. So let’s get on with it.