Combating vulture funds

Coming to the aid of African countries that are victims of "vulture funds" or that are legally poorly equipped to defend themselves against foreign investors is the objective of the African Legal Support Facility (ALSF) established by the African Development Bank (AfDB)." Vulture Funds" are hedge funds buying up the bad debt of poorer countries at low prices, seeking to sell it on at an inflated price.  Set up in 2009 (see below), the ALSF has reached an agreement with the Democratic Republic of the Congo (DRC) and is now seeking to consolidate its position. The Courier met with the director, Mamoudou Deme, on a visit to Brussels in January.

“The aim of our visit to Brussels was two-fold: to meet with representatives of the European Union, particularly representatives of the Commission’s Development Directorate-General, and also to meet with NGOs that are concerned with the developing countries' debt, especially the Belgian National Centre for Development Cooperation (CNCD). The functions of these meetings were to explain the work of the ALSF and to explore the possibilities of cooperation,” explained Mamoudou Deme.

Whilst the AfDB Facility has just recently been established, “the idea actually dates back to 2005,” its director points out. “At the time, the Council of African Ministers of Finance had launched an appeal to set up a body whose function would be to offer technical and legal assistance to African states on three issues: debt, negotiating commercial contracts for natural resources, and strengthening capacity.” This appeal was repeated in Addis Ababa in 2007 at the African Union Summit. The African Development Bank looked into the idea in 2008, when the 77 members of its Board of Governors gave the green light to set up the Facility. In 2009 the Facility’s Governing Council and Management Board were launched.

“Our work mainly involves recruiting lawyers who are able to assist these countries when they face litigation linked to debt or to contracts,” continues Mamoudou Deme, “but we also organise and participate in seminars on strengthening capacity, with sister associations.” The first such seminar was held on 14 February in Kigali (Rwanda) for the countries of East Africa. 

Fifteen applications + DRC

In November 2010, the Facility completed its first transaction when it granted the DRC $500,000.   Around 15 applications in all have been lodged with the AfDB’s Facility. While not wanting to discuss the details, Mamoudou Deme explained to us that 14 of these concern the negotiation of mining, agro-industrial, or infrastructure-related contracts. Of these 15 applications, the Facility is preparing to offer assistance in six. But here comes the crunch: “Our budget was set at 16 million dollars and we want to mobilise between US$50M and US$100M by 2012.” These are sums that must come from Member States as well as donors. 

The African Development Bank has 77 members: 53 independent African countries (regional members) and 24 non-African countries (non-regional members), including eight EU countries and most of the OECD countries. As well as the Legal Assistance Facility, the AfDB created the Water and Sanitation Department (OWAS) in 2006, which works to consolidate its water sector activities in the region. One of the most important decision-making bodies of the AfDB’s institutional structure is the Board of Directors. This is made up of 18 members, 12 of whom are elected by the governments of the regional member countries and six of whom are elected by the governments of the non-regional member counties. Some of the AfDB’s loan activities are undertaken jointly with the European Investment Bank (EIB).  

A plague

“These vulture funds are a plague, not only for developing countries but also for wealthy nations, because they are the principal beneficiaries of debt reduction,” explains Renaud Vivien, a lawyer on the Committee for the Abolition of Third World Debt (CADTM), an international network present in around 30 countries, mainly in the South. In Belgium, the CADTM is a member of the CNCD. “If there is one lesson to be learned from previous attacks by vulture funds, it is that they wait until their victims achieve a little financial breathing room, such as a slight debt reduction, before attacking them in the courts,” he continues. So what is the attitude of creditors in the North, in particular the 19 countries that make up the Paris Club, or organisations such as the World Bank? “For the moment, they are content with codes of good conduct. Only Belgium and Great Britain have taken measures, but they are far from being sufficient. Indeed, the Belgian law adopted in 2008 limits itself to protecting its public development aid by making it ‘untransferable’ and ‘unseizable’. In France and the United States some bills have been drafted, but these have not as yet come to anything.”

Marie-Martine Buckens