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Development Bank of the Federal Republic of Germany and federal States (KfW)

Development bank of the Federal Republic and federal states
To reduce poverty, protect the climate, ensure peace and organise globalisation in such a way that those living in the world's poorer regions will benefit, too - by the year 2015 the international community wants to be a few steps closer to reaching these goals.

In practice, this means: food security and basic education for all, healthy economic growth that does not occur at the expense of the environment, reliable energy supply that helps preserve the climate, and financial services that are available to all and enable people to escape from poverty. As a development bank, we work on behalf of the German Government towards attaining these goals.

Sub-Saharan Africa

Ever More Success Stories
When the troops advance in Somalia, cameras are rolling. The next drought, AIDS catastrophe and unrest during elections are also mentioned in the news. Bad news from Africa. True, but that is only half the story. In the past years Africa has made great progress in terms of economic, social and political development, and in poverty reduction. A number of nations have turned into stable democratic societies, laying the groundwork for economic growth that also reaches the continent's poor. For some years now many countries have seen faster growth than the German economy. Sub-Saharan Africa has enjoyed strong economic growth of 5%-7% p.a. in recent years. Due to the impact of the global economic crisis, however, the total GDP of sub-Saharan Africa is set to increase by only 1.1% in 2009 - but the outlook for 2010 is bright again. Moreover, some African countries (Tanzania, Ghana, Rwanda) have been among the World Bank's top reformers in its recent "Doing Business Reports". These are success stories that rarely make it to the headlines; they are also the result of development cooperation with Africa.

...but the Need for Action Remains Great
What people see in the media is reality, but it does not paint the whole picture of this huge continent with its over 50 countries. Despite all its problems, Africa has made economic and political achievements. For several years the economic growth of 15 African countries has been at five to six percent, which is considerably higher than the figure for Germany. And this does not even include the oil-exporting countries. Rising investment, policy reforms in politics and economics - all of which boost growth and create new jobs - that is African reality, too. Yet the need to act remains great. KfW Entwicklungsbank is working to achieve economic development that gives also poor people access to clean drinking water, education, health care and work opportunities. It focuses its efforts on improving the economic and social situation in the long term for the many people who live in deep poverty.

Take agriculture, for example. In Mali, one of the world's poorest countries, three-fourths of its inhabitants live below the poverty line and are forced to make ends meet on less than one dollar a day. Decentralised irrigation projects that get the farmers involved have helped to increase rice and grain production fourfold, doubling the farmers' income. Another example is poverty reduction: in the past seven years Mozambique's annual economic growth has hovered at around eight percent and the country has reduced absolute poverty among its population from 70 percent to 54 percent.

The People Have to Decide for Themselves
Decentralisation of public administration as well as water supply and sanitation, the financial sector and economic promotion, good governance and also health care and education are all key fields of activity for German Development Cooperation with Africa. In Germany it goes without saying that a community decides for itself where a new industrial park or a school should be built, and that the federal government and the federal states set the framework. In many African countries, however, frequently a civil servant from the ministry in the capital decides where a market or a classroom is to be built in rural areas. As a result of this bureaucracy, such project plans bypass the people targeted by these projects. Here, too, KfW Entwicklungsbank is encouraging change.

Supporting national poverty reduction strategies that have been designed by the countries on their own also provides important leverage in the form of direct payments into the state budget. By way of such programme-based approaches or budget support - which often supplement other promotional approaches, particularly in those African countries that are reform-oriented and practice good governance - the donor countries jointly avail themselves of and strengthen their partner countries' processes and procedures while providing funds to help implement poverty reduction measures. This enables the partner country government to chart the course itself. At the same time, an intense policy dialogue takes place between donor countries and the government and specific reforms are agreed in order to improve the overall conditions for state action. The content of the reforms is always tailored to the needs of the respective country and is agreed jointly among the other donors, KfW Entwicklungsbank - acting on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) - and the partner country.

Setting a Good Example: Transparent Budget Management
Countries like Mozambique and Rwanda now have transparent budget management that is controlled by parliament and independent courts of auditors. The state budgets are orientated more strongly towards the contents of the poverty reduction strategies. In this regard the procedure has, for example, brought about a significant increase in expenditure for health care, education and economic reforms as well as a reduction in military expenditure.

By pooling donor funds and coordinating donor efforts, greater influence can be wielded on developments and misguided developments can be put back on track. In numerous countries KfW Entwicklungsbank is including military budgets and private presidential assets in discussions about programme-based approaches. In Uganda, for instance, the military budget was higher than agreed. The donor community then announced it would cut back its support, which was not possible previously. As a result, the military budget and private presidential funds were reduced, ministers were obliged to reveal their financial situation, and the share of military expenditure fell to below ten percent.

Simultaneously the relevance of economic development is increasing. In addition to social issues, the necessity of also creating the framework conditions required for sustainable economic growth has been acknowledged. This includes greater investment in the financial sector, the development of energy, water and transport infrastructure and of agriculture. These are the preconditions for economic activity to flourish. Here, too, KfW Entwicklungsbank is giving impetus to development.

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