Two major players in development finance
News from 2017-12-21 / KfW Development Bank
KfW Head of Department Stephan Opitz talks about cooperation between the German and French development banks, KfW and AFD.
They are two major players in global development financing: the German development bank KfW, and the French development bank AFD have been working towards the same goals for many years when combating poverty, protecting the climate and supporting development in countries in Africa, Asia, the Middle East and Latin America. The co-financed measures in all regions of the world have since grown to a volume of around EUR 1 billion. Strategically speaking, both banks are working to ensure that the European development agenda keeps moving forward.
Mr Opitz, German and French people used to consider each other as arch-enemies. Today, friendship and cooperation between the German and the French is a matter of course. This has also been true for the development banks for a long time. How did the cooperation between KfW and AFD come about?
The cooperation between Germany and France began precisely within this context of political convergence since the Second World War, which was consolidated with the signing of the Elysée Treaty in 1963. Cooperation between the two countries took place in many ways, for example, in education and the economy. When KfW and AFD worked together in the 1970s and 80s, the goal was already very pragmatic: financing projects and making large investments that one bank could not make alone.
For more than a quarter of a century, we have also been strategically working as one: we have decisively shaped EU-blending, which is when financial contributions and loans are combined, we introduce issues for the European development agenda and also jointly lobby the European Commission to make the EU's development cooperation even more efficient and effective.
In retrospect, what were the first projects that were jointly financed?
In the beginning, most were larger infrastructure projects that required large investment sums, primarily in Africa: this included expansion of a harbour in Cameroon in the late 70s. Or building a dam in Mali and a hydropower plant in Burundi in the early 80s. KfW and AFD got to know each other better during this process; over the years, the cooperation developed, became closer and was also expanded to other countries and regions.
Are there certain countries and sectors that you focus on?
One key cooperation sector was and is Africa. The focus there continues to be placed on developing the energy and water supply. In addition to Africa, the Middle East and Afghanistan are playing increasingly large roles today. There, KfW and AFD are working to expand and improve the water supply in Kabul. In Egypt, we jointly supported construction of the wind farm on the Gulf of Suez and, in Morocco, KfW and AFD were involved in construction of the largest solar power plant in the world, Ouarzazate.
How do both organisations profit from one another?
Our close cooperation increases the visibility and efficacy of European development cooperation and, as previously mentioned, together we can provide more funds for individual projects. KfW and AFD co-finance a total of around EUR 1 billion. Furthermore, we established the Mutual Reliance Initiative (MRI) together in 2013 within the scope of the international Aid Effectiveness Agenda with the European Investment Bank (EIB). The MRI portfolio currently includes around 50 projects with investments of around EUR 4 billion.
Together, KfW and AFD are also founding members of the International Development Finance Club (IDFC). Since 2011, nearly two dozen national and regional FIs have been cooperating in this alliance. We initially chaired the organisation, now AFD does.
German and French people have different lifestyles. Are there also differences in the ways AFD and KfW operate?
For starters, we have many common goals: we both help the international community achieve the Sustainable Development Goals. KfW and AFD both work to reduce poverty in developing countries and protect the climate. The majority of the commitments are made for these things.But there are institutional differences. As a development bank, we are part of KfW Group, which primarily works within Germany. AFD is independent and performs development financing, while domestic business is executed by another institution.
But of course, the institutions are ultimately also influenced by the culture they come from. We have had a staff exchange programme for a long time. Colleagues work at the respective partner bank for two to three years. Of course, they perceive differences in the ways people work together and how hierarchies are handled.
Do you also think there are problems with the cooperation?
At the strategic level, the cooperation was actually always unproblematic for the most part. But we are also competitors to some extent in the individual regions: both we and AFD are recording considerable growth. AFD had a very strong focus on Africa 30 years ago. Starting in the 90s, they also became active in other regions like Latin America and Asia, where we have been active for a long time. And if the number of projects that are ready for implementation is limited, sometimes we can become rivals and tread on each other's toes. But it's good that we know each other so well, especially when there are occasional difficulties, so we can solve problems quickly.
At the highest political level, the new French President Emmanuel Macron and Chancellor Angela Merkel are striving for closer cooperation between the German and the French. Does this also apply to Financial Cooperation?
Yes, absolutely. The cooperation between KfW and AFD will continue to grow, both operationally and strategically. We expect that the number of projects we finance together will continue to increase. At the strategic level, we will continue to put our weight behind development policy. Ultimately, we are two major players in global development financing and want to represent European interests at the global level together with the EU and the European Investment Bank (EIB). We are also contributing our expertise and knowledge to the current debate about European development architecture.
The interview was conducted by Michael Ruffert.