Expand financing to $100 billion by 2025: Modi to AIIB
AIIB recommends infrastructure investment in Asia must rise to $2 trillion a year:
Asian Infrastructure Investment Bank (AIIB) helps its members to meet an estimated $21 trillion financing gap between the region’s demand for infrastructure and available financial resources. Asian developing countries now account for 60% of global growth, while roughly two-thirds of global trade is part of value-chains passing through Asia. Yet still today, 11% of Asia’s population remains in poverty. AIIB has approved investment for projects worth over $5.3 billion since it started operations about two and a half years ago.
Addressing delegates at the bank’s 3rd AGM in Mumbai recently, Jin Liqun, AIIB president, said much more needs to be done to ensure that the future continues to bright for all of Asia. “Solid global growth is crucial for our members to meet their objectives and an open trading system is a foundation of that global growth. Between now and 2030, Asia investment in infrastructure must rise to $2 trillion a year, or roughly triple of what it has been in the past. I look forward to working with all of you towards this end,” he added.
After Asia’s economic growth far outpaced the global average for nearly 3 decades, Asia’s economy has become a global heavyweight. Indeed, Asia is assuming leadership in new areas. Said Jin “It is the dream for all of us Asians to live a middle-class lifestyle with good education and healthcare, a clean environment and consumer comforts. As developing countries increase their share of the world economy, they should have greater weight in the multilateral institutions.”
Most Asian countries see trade as a job creator. Unfortunately, protectionism practiced by some countries is likely to dim the prospects for all countries in the world, including themselves. Jin, however, warned: “Looking at the prospects for developing Asia, I would ask - will we continue to have an open global trading system or will the world retreat into protectionism? I urge some developed countries to resist protectionism and remain open and developing countries to continue opening up.”
IMPERATIVE FOR ASIA
Asia accounts for 50% of the global population but only constitutes 30% of the world GDP. Making countries, many of which are land-locked, more connected through rail and road network using the resources of AIIB, to boost trade and economic growth, can reduce the disparity. AIIB vice president and chief investment officer D.J. Pandian said it is important to innovate and collaborate with multilateral financial institutions. For instance, AIIB has done a project with the ADB in India in power transmission and have approved a project in Bangalore Metro in collaboration with EIB, he pointed out.
It is imperative to create and leverage collaborations in order to support cross country projects, which can be through partnerships with various governments, corporates, institutions as well as public and private sectors. AIIB will consider investing in projects outside Asia as long as they serve to benefit the Asian regions too.
Sir Danny Alexander, vice president, AIIB, said: “Lean, clean and green is the way AIIB works. It invests in sustainability. So far, AIIB has invested in one solar power project in Egypt.”
FUND $100 BN BY 2025
AIIB’s membership has grown from 57 founding members to 87 from all continents, with addition of Lebanon during its third annual meeting held in Mumbai. India has hosted another 2 major events in 2 previous years for international multilateral banks the New Development Bank (NDB) and African Development Bank (AfDB). AIIB is the first major multilateral development bank where principal contributors are the borrowing members themselves. While 75% of the capital in AIIB is from Asia, several non-Asian regions like Europe, North America, some East African and Latin American countries have also joined the bank as members.
Addressing the inaugural session, prime
minister Narendra Modi said: “I call upon AIIB to expand from financing $4 billion to $40 billion by 2020 and to $100 billion by 2025 with huge need for infrastructure in member countries.”
With its projects leveraging a total of over $30 billion in public and private investment, the Basel Committee on Banking Supervision has given AIIB a 0% risk weighting. Piyush Goyal, Union Minister for Finance, said there is need to strengthen the multilateral cooperation to help meet the challenges of climate change, economic slowdown in some parts of the world and rising protectionism.
COOPERATION WITH ISDB
For the first time, AIIB and the Islamic Development Bank Group (IsDB Group) have signed a MoU to establish a framework for strategic cooperation, including actively seeking to co-finance projects in common areas of operations. The MoU theme will be ‘Mobilizing Financing for Infrastructure: Innovation & Collaboration’. It has a strong focus on sustainable infrastructure including energy, power, transportation telecom, rural infrastructure, water supply, sanitation, environmental protection, urban development and logistics.
In this context Jin said: “We have complementary skill sets and expertise. We believe working together on joint investments and initiatives will strengthen our capacity to deliver on our respective missions and benefit our members.”
Both the banks intend to share knowledge and exchange experiences among employees through joint temporary assignments, secondments and training. IsDB has been working for over 40 years, with an annual volume of operations above $10 billion and subscribed capital of $33 billion, for its 57-member countries across 4 continents.
Dr. Bandar M.H. Hajjar, IsDB group president, said: “We have a number of common member countries in Asia and also in Africa and a significant overlap in sectors and financing activities. We believe in innovation, science and technology to stimulate growth and will ensure these for the banks going forward.”
To address infrastructure gaps in Asia, the AIIB has followed a collaborative approach and invested $150 million in the IFC’s Emerging Asia Fund and also co-financed a project with the ADB to improve energy connectivity in India by strengthening its power transmission system.
DEVELOPMENTS IN 2 YEARS
AIIB’s first projects were approved in June 2016 in Bangladesh, Indonesia, Pakistan and Tajikistan. AIIB approved a $165 million loan to Bangladesh for the project in 2016 to enhance electrical distribution capacity. Upon completion in 2019, the project is expected to benefit about 12.5 million Bangladeshis.
According to the annual report of AIIB, its board of directors in June 2017 approved its first equity investment of $150 million into the India Infrastructure Fund. AIIB’s first investment in China came in the form of $250-million loan that was approved in December 2017 for a project aimed to provide gas service connections to approximately 217,000 rural households in about 510 rural villages in Beijing so that China’s coal usage can be reduced by 650,000 tons annually. AIIB’s first solar power program, approved in September 2017 involves 11 photovoltaic power plants with an aggregate power generation capacity of 490MW in Egypt. AIIB’s support has transformed an open desert in Benban into a solar power park to hasten Egypt’s use of renewable energy sources. 40% of projects in 2017 fall under the energy sector category.
In 2017, 15 projects with investments of $2.5 billion have been approved. AIIB’s approved projects rose, with a faster pace, to 23 from 8 a year ago; its investments in projects and funds amounted to $4.22 billion; its private co-financing (private mobilization) was to the tune of $566 million. In addition, AIIB has made an investment of $100 million to help Indonesia access infrastructure finance through the creation of the Regional Infrastructure Development Fund and to the IFC Emerging Asia Fund to facilitate private equity investments in emerging Asia.
In 2017, AIIB began refining its ‘Strategy on Mobilizing Private Capital for Infrastructure’, and in early 2018 the strategy has been approved by its board of directors. In 2017, the total amount of private co-financing by AIIB was $561 million, a substantial increase from the $5 million in private mobilization in 2016.
AIIB president Jin Liqun welcoming prime minister Narendra Modi at annual meeting in Mumbai