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Business News of Thursday, 30 September 2021

Source: GNA

Governance structure of development banks needs a relook - ACET

Dr Edward K. A. Brown, Senior Director, Research and Policy Engagement at ACET Dr Edward K. A. Brown, Senior Director, Research and Policy Engagement at ACET

The African Centre for Economic Transformation (ACET) has advised government to consider reformation of the governance structure of development banks for efficiency.

Dr Edward K. A. Brown, Senior Director, Research and Policy Engagement at ACET, who gave the advice, said the current arrangement, which allowed government to appoint a majority of executives of the banks, had proven unproductive.

He said it was, therefore, important that government took a second look at that structure to minimise political interference in the operations of the banks.

Dr Brown was speaking at a National Development Banks (NDBs) Validation Workshop in Accra.

It was to present the findings of a study conducted by ACET, in collaboration with the Overseas Development Institute, to solicit inputs from relevant stakeholders for further recommendations to influence policy.

The study, which focused on two NDBs in Ghana; the Agricultural Development Bank (ADB) and the National Investment Bank (NIB), was to ascertain their overall governance arrangements and their operational performance and environment.

It was on the topic: “Challenges and Changes: The Political Economy of National Development Banks in Ghana - ADB and NIB Perspective.”

Dr Brown said by the nature of development banks, “…. government has a majority share so there will always be some kind of political interference.”

“The question is what is the nature of governance arrangement that allows the Development Banks to operate within the framework, which is developmental oriented?” he asked.

“And what we are trying to assess is to see the extent to which these banks, which have been established over the last 30 to 40 years, whether or not the institutional arrangements or governance arrangements are still fit for purpose…. but at least preliminary recommendations are that they should look at the governance arrangement.”

Dr Brown bemoaned the situation where success of development banks was measured on their balance sheets and profitability and called for adequate resourcing of the banks to allow them to execute their developmental mandate.

“One thing we have to recognise is that development banks are not necessarily there to make profit, they are there to provide support for SMEs to achieve their objectives, improve development and create jobs so if you are measuring development banks purely on their balance sheet and profitability then you are focusing on the wrong banks,” he said.

“They are supposed to provide patient capital. They are supposed to provide capital at rates that are lower than that of the commercial rates. They are not supposed to compete with the commercial capital….”

Dr Brown urged government to take examples from countries that had worked better, learn from that and see how it could adapt to build the institutions.

Mr Charles Odoom, the Head of Private Sector Development Unit at ACET, who presented the findings, said political interference continued to play significant roles in how the banks were managed.

As a result, he said, whatever was done by the banks had been to drive the agenda of the Government of the day, thereby shirking their primary mandate.

The study also found that the banks, particularly ADB, was performing creditably as a universal bank.

Professor Joshua Y. Abor, the Lead Consultant for the study, expressed optimism that the introduction of the New Development Financing Institutions Act, 2020 (Act 1032) would lead to a refocus of the banks to meet the needs of the people.

The study was also conducted in three other African countries - La Cote D’Ivoire, Rwanda and Tunisia, for six months.