The EBRD in Sub-Saharan Africa: Expanding Horizons, Expanding Harm?

The European Bank for Reconstruction and Development (EBRD) is expanding its operations to 6 Sub-Sarahan African countries and Iraq. This expansion is the focus of the Bank’s upcoming Annual Meeting, branded “Expanding Horizons, Enduring Strengths.” The EBRD is hailing this expansion as an opportunity to drive private sector development in a new region. But what’s missing is any acknowledgement that an expansion in operations requires increased attention to preventing and addressing project-related harm.

Setting aside the question of why the EBRD is expanding into Africa when so many Western institutions are already present (not to mention the African Development Bank), there is the question of what might be the potential harm to communities if the EBRD rolls out this expansion without ramping up efforts to prevent and remedy negative environmental and social impacts. Using data from the Accountability Console, we can examine the types of harm that have been associated with development projects in Sub-Saharan Africa to see whether, and how, they differ from the types of issues that have been raised about EBRD-financed projects to date.

Comparing complaint issues from EBRD’s current operations vs. Sub-Saharan Africa

The Accountability Console tracks complaints submitted to independent accountability mechanisms at development finance institutions (DFIs). These independent accountability mechanisms, or IAMs, are offices at DFIs that receive and address complaints from communities who have been harmed by projects the DFI has financed, or who fear harm from a project the DFI is considering.

The EBRD has had some iteration of an accountability mechanism since 2004. Here are the most common known issues that have been raised about EBRD projects to date:

Now let’s look at region-specific complaint data from the accountability mechanisms of development finance institutions that have investments in Sub-Saharan Africa.* The distribution of complaint issues is quite different from what has typically been raised at the EBRD before:

Comparing this complaint data gives us insight into issues that the EBRD should be anticipating, and taking active measures to prevent and remedy.

Inadequate consultation and disclosure is a prevalent issue across all projects.

Communities impacted by EBRD projects have frequently raised inadequate consultation and information disclosure, and this issue is the top complaint for communities impacted by projects in Sub-Saharan Africa. This highlights that even more than before, the EBRD needs to devote more attention to effective consultation with communities, in compliance with its Environmental and Social Policy.

Expansion into a new region will require sharing project information in more local languages and in a manner that is culturally appropriate to each community, with attention to the varied decision-making structures and local power dynamics that the EBRD will be encountering. In particular, the right of Indigenous communities to free, prior, informed consent will need to be respected in various new contexts. Failure to increase the resources and attention devoted to effective consultation risks replicating the negative impacts already being felt by communities in the region.

Displacement makes up a much larger share of complaints from Sub-Saharan Africa than from EBRD’s current countries of operation.

To date, roughly 6.5% of complaints about EBRD projects have raised displacement as an issue. Meanwhile, about 32% - nearly one third - of all complaints from Sub-Saharan Africa relate to displacement. The fact that this complaint data comes from a wide range of DFIs investing in Sub-Saharan Africa suggests a systemic issue rather than the practices of any one investor. This should raise a red flag for the EBRD that it must take special care not to finance projects that result in physical and economic displacement of communities.

Displacement is a notoriously difficult type of harm to remedy. Once a community is displaced, dispersal can make it difficult to track down everyone who was impacted. Our case experience supporting communities evicted from their homes in Uganda to make way for a drainage channel demonstrates that delays in remediating the displacement only exacerbates harm and can lead to downstream issues such as food insecurity and increased vulnerability to sexual exploitation and abuse.

Furthermore, displacement can cause less tangible, but no less serious dignitary and cultural harm to communities who are intimately connected to their land. For example, it is all but impossible to remedy the harm done to Indigenous communities after they have been displaced in violation of their right to free, prior, informed consent, as their opportunity to give or withhold such consent has been taken away.

By examining the outcomes of complaints about displacement from Sub-Saharan Africa, we can see how rare remedy is in these cases:

Most of these displacement-related complaints (about 83%) are found eligible by the IAM, and still most (though fewer, at 65%) produce an “outcome,” meaning a compliance investigation report or dispute resolution agreement. However, only about 42% result in commitments from the DFI or client to perform remedial actions, and a mere 28% see any of these commitments implemented.

Here is a closer look at the types of commitments that are being made to address harm from displacement in these projects. Commitments to strengthen consultation are the most common, followed by commitments to improve monitoring. This is closely followed by commitments to compensate communities for lost homes and land:

As it forays into Sub-Saharan Africa, the EBRD will be encountering new regulatory and legal environments, as well as different business norms and practices among its new clients. The EBRD should go in with clear eyes that displacement of communities is a significant issue in the region, and that it will need to take special care to ensure it does not fuel this pattern of harm in its own projects. 

Establishing a remedy and responsible exit framework at the EBRD is a necessary step for preventing and addressing harm under its expansion.

Fortunately, there have been recent developments in the DFI world towards strengthening prevention and remediation of harm that EBRD can build on. The International Finance Corporation (IFC) has recently published an Interim Remedial Action Framework (RAF) and Responsible Exit Principles, the first of their kind at a DFI.

The RAF clarifies how the IFC will enhance its systems for preventing harm to communities, as well as how it will contribute to remedy when its investments have contributed to harm. This includes funding fact-finding, technical assistance, and capacity building to enable remedy, as well as funding community development programs designed in consultation with affected people. The RAF also acknowledges that IFC can consider other options for remedial action, and does not exclude direct compensation.

Relatedly, the Responsible Exit Principles guide the IFC on measures to take before exiting investments to ensure that clients fulfil their environmental and social obligations, including remediating project-related harm.

The EBRD should follow the IFC’s lead and develop remedy and responsible exit policies of its own. However, the EBRD should treat the IFC’s new policies as the floor, not the ceiling. The RAF still falls short of key demands from project-affected communities, including clear application to investments in financial intermediaries. Similarly, the Responsible Exit Principles are a good start but they contain a glaring gap: they do not apply when an IFC client pre-pays its loan. A recent example from a joint IFC and EBRD investment in Uzbekistan’s cotton sector demonstrates how this gap allowed a client company to pre-pay its loan in an effort to avoid remediating harm, despite an ongoing investigation into labor rights violations with the project.

As the EBRD expands its operations, it should begin consulting stakeholders - including its brand new ones - on developing remedy and responsible exit policies that improve on the IFC’s. By doing so, the EBRD can take an important step towards ensuring that its expanding horizons do not expand harm.

ENDNOTES

 * These include the African Development Bank, Canadian Office of the Extractive Sector, European Investment Bank, French Development Agency, German Investment Corporation (DEG) /Dutch Entrepreneurial Development Bank (FMO)/Proparco, Green Climate Fund, International Finance Corporation, Japan International Cooperation Agency, U.S. Overseas Private Investment Corporation (now U.S. Development Finance Corporation), United Nations Development Programme, and the World Bank.