The African Development Fund Replenishment: China and the Procurement Paradox

Multilateral development bank (MDB) procurement guidelines are one of the many channels that the US and other shareholders are using to thwart China’s influence globally. The focus on procurement reflects China’s bidding successes at major MDBs, where they surpass all other countries.

In recent months, both the World Bank and the Asian Development Bank (ADB) have modified their procurement guidelines in response to donor pressure, particularly from the US. Right now, shareholders are pursuing comparable reforms at the replenishment negotiations of the African Development Fund (AfDF), the arm of the African Development Bank (AfDB) that provides grants and highly concessional loans to the poorest countries.

The focus on procurement makes sense for an institution that is a major financier of infrastructure in a region where weak procurement capacity perennially undermines project preparation and implementation, provided the negotiation outcomes include meaningful initiatives to build this capacity. The risk is that shareholders press for inflexible procurement rules that introduce additional transaction costs and further strain low-capacity countries, an outcome that could—paradoxically—undermine the ability of local bidders to more effectively compete against China.

China’s Wins and Shareholder Backlash

MDB procurement guidelines are designed to support transparent, competitive bidding practices with the aim of promoting value for money and sustainable outcomes. The use of open processes and objective selection criteria has helped to reduce the risks of corruption and bid-rigging, and major civil works contracts routinely attract international bidders. The biggest beneficiary of these procurement processes has been China. (See Figure 1.)

Our colleague Charles Kenny took a close look at China’s record at the World Bank, noting that many Chinese contractors may be able to offer the most competitive bids in part due to government subsidies. MDB procurement systems are designed to choose the best bidder based on international competition, whatever the source of competitive advantage. But some shareholders, especially the US, have been crying foul and pressing the MDBs to adjust their procurement regimes to advantage other suppliers, especially those based locally. Domestic bidders already win more than 50 percent of procurement at both the World Bank and the ADB. (See Figure 2.)

Pressure on the World Bank and the ADB has paid off: in March, the World Bank announced it was adopting new qualitative scoring rubrics, and in July it announced that companies bidding on international civil works contracts would be subject to a 30 percent local labor requirement. The official rationale is that this requirement will “build a skilled and better-equipped workforce and strengthens local economies.” Left unsaid is that this could reduce China’s competitiveness, especially in cases where labor is imported. Practically speaking, however, this change seems unlikely to have a material impact on bidding outcomes (30 percent local labor is not especially high) but will add to a process that clients have already charged with being overly cumbersome and bureaucratic.

More recently, the ADB announced that beginning in 2026, “at least half of all person-days worked on internationally advertised construction contracts must be completed by local labor” (e.g., a 50 percent local content requirement). In addition, the ADB is mandating the use of merit point criteria (MPCs), which enable more qualitative bid assessments related to experience, technical capability, and innovation. The ADB asserts MPCs will lead to stronger results and improved value for money. However, because these include a significant degree of subjectivity, they also increase bid-rigging risks.

The Battle Brewing at the African Development Fund

The battle over procurement reform is now playing out through the fundraising negotiations for the AfDF. Chinese companies do well in procurement bids, winning an average of 32.5 percent of total contracts between 2020–25. (See Figure 3.) No other country comes close.

The US, and possibly other G7 countries, are expected to press for reforms comparable to those at the World Bank and the ADB, including the use of local content requirements and merit criteria. But there is a risk that some countries would be unable to meet even a 30 percent local content threshold, especially those with small populations. (See Figures 4 and 5.)

Procurement has long been a pain point for the AfDB. An independent evaluation of the AfDB’s procurement regime in 2014 concluded that weak institutional capacity of member countries severely constrained efficiency and effectiveness of procurement and criticized the Bank’s capacity-building efforts.

A 2022–23 evaluation by the Multilateral Organization Performance Assessment Network (MOPAN) scored the African Development Bank well on many fronts but pointed to project implementation as a challenge, citing problems with quality-at-entry reviews, unrealistic planning and targets, overrated implementation capacity, and procurement delays. (MOPAN is a network of donors that assess the performance of MDBs by surveying recipient country perspectives.) In its mid-term review of the current replenishment, the AfDF also acknowledged that the pace of project implementation remains slow, with 32 percent of projects facing performance challenges and delays.

A World Bank procurement evaluation offers some relevant insights into challenges working in sub-Saharan Africa, noting that: “common issues that repeat across projects and countries include inadequately prepared bidding and technical documents and lengthy bid evaluations. These issues can double the time it takes to complete procurements, and urgent problem-solving occupies large amounts of staff time in some projects and countries.” The report also emphasized the difficulty of finding personnel with expertise in procurement and recommended doing more to train procurement experts where capacity is low.

In response to AfDF donors, management has proposed putting together country-specific guidance notes to help 15 countries strengthen their procurement systems and announced plans to develop a Project Procurement Tracking System by 2027. These proposals are a step forward but will on no account satisfy shareholders who are looking for more ambition, including changes that could lead to a decline in wins by Chinese companies.

There is definitely scope for AfDF investments in procurement capacity to be more robust and strategic, especially as the benefits could accrue beyond MDB contracting opportunities. Notably, a forthcoming CGD paper assessing the link between investment environments and capital flows found that higher flows correlated strongly with digitalization and transparency of e-procurement procedures for government contracts.

Beyond calling for more investing in capacity, shareholders should proceed with caution. New binding procurement rules, if enacted, could further strain limited capacity if they include requirements like those at the World Bank, which mandate that all bidders outline the roles to be filled by local personnel, their hiring strategies and proposals to develop skills. In addition, successful bidders must provide monthly reports on compliance and borrowing governments must develop indicators to track compliance and report them quarterly.

As shareholders meet to consider the best way forward, we hope they suggest the following:

• That the AfDF show much more ambition on capacity building, including through the provision and training of in-country advisors with procurement expertise. They should also target those countries with the most upside potential (e.g., significant procurement opportunities but limited capacity).
• That local content requirements be no higher than 30 percent (the World Bank policy).
• That local firms be exempt from local content requirements. A policy that covers all firms could discourage participation by domestic bidders put off by the bid preparation, compliance, and monitoring requirements.
• That countries with populations under two million be exempt from local content requirements. This would apply to only nine countries and still capture the vast majority of procurement opportunities.
• That there is scope for flexibility in other countries in consultation with AfDF authorities.

Finally, the AfDB should make maximum use of e-procurement and solicit feedback from bidders to ensure that the system is efficient and user-friendly.