Ex­pand fi­nanc­ing to $100 bil­lion by 2025: Modi to AIIB

AIIB rec­om­mends in­fra­struc­ture in­vest­ment in Asia must rise to $2 tril­lion a year:

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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

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