Infrastructure investment as a development tool

As a former employee of a multilateral development bank, I was eagerly awaiting our group’s visit to the Asian Infrastructure Investment Bank (AIIB).  Part of my interest stemmed from the fact that this institution has been presented by the Western media as China’s alternative to the World Bank.  However, under its current structure the regional scope of the AIIB’s lending operations positions it as a competitor to the US and Japan-dominated Asian Development Bank (ADB).

The initiative that led to the creation of the AIIB was launched by Chinese President Xi Jinping during a speech to the Indonesian Parliament in 2013.  Despite rumors of strong US opposition –the US government is believed to have lobbied against the AIIB in an attempt to persuade its allies to ignore the project– the initiative consolidated after the UK announced its decision to apply for membership in 2015.

The AIIB started full operations in 2016 and currently has 35 regional and 18 non-regional members, with another 24 countries as prospective members.  Although AIIB’s objectives and lending portfolio are primarily focused on regional members, loans can also be issued to non-member countries in special circumstances.  The procedure to invoke non-regional lending requires the project’s approval by a Super Majority, which means that it needs the affirmative vote of two-thirds of the total number of Governors, representing not less than three-fourths of the total voting power of the members.

One of the concerns that critics have expressed with regards to the creation of AIIB is whether the institution will provide value added given the presence of the World Bank and ADB in the region.  Nonetheless, with infrastructure needs estimated to exceed $26 trillion through 2030 and an infrastructure financial gap of 2.4% of projected GDP for the next five years, according to figures from an ADB study, there seems to be enough room for complementarity between AIIB and the other multilateral development banks operating in the area.  Indeed, AIIB has sought to reinforce this view by recently approving a $600 million loan for the construction of the Trans-Anatolian gas pipeline.  This project, which aims to connect Azerbaijan to Europe, is co-financed by the World Bank and other multilateral institutions, as well as the private sector.

Including the aforementioned project, the AIIB approved 12 loans for a total of $1.7 billion in its first year of operation, exceeding its initial target of $1.2 billion for that period.  That figure is in itself an indication of the demand for infrastructure funding by countries in the region.  It will be very interesting to see how future projects unfold and whether the bank reveals any preference to finance projects associated with other landmark Chinese initiatives like the One belt, One road.

AIIB-Beijing
The AIIB’s headquarters are located in Beijing.
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s