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June 2019

THE POWER OF COLLABORATION

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In July 2019, Luxembourg was the first non-Asian country to host the annual meeting of the Asian Infrastructure Investment Bank (AIIB), with some 500 delegates and up to 1 500 participants expected for the event.

As a Chinese proverb goes, “Better roads lead to better life.” It’s been the aim of the AIIB since its establishment in 2016, founded with the aim of supporting sustainable economic and social development across Asia through a focus on sustainable infrastructure, cross-border connectivity and private capital mobilisation.

FINANCING ASIA’S SUSTAINABLE FUTURE

Asia is the fastest-growing part of the world economy, however its fast growth over the past decades has put pressure on its infrastructure. Asia’s infrastructure funding gap is estimated at USD 26 trillion through 2030, while USD 200 billions of this amount is needed per year for climate change resilience.

“We are focused solely on infrastructure, as we recognise it as important to lift living standards and support economic growth, as well as investing in the right infrastructure to tackle climate change. In the long term, the AIIB aims to be the go-to bank for providing infrastructure financing solutions to developing economies in Asia and beyond,” said Danny Alexander, Vice-President of the AIIB, at the conference “AIIB in Luxembourg: infrastructure as a global asset class” organised last March 14th by the Ministry of Finance, in collaboration with the AIIB.

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Our membership is global, with members in every continent.

DANNY ALEXANDER

By end-2018, the Beijing-based multilateral development bank had provided financing in loans and other lending modalities, with commitments totalling close to USD 7.5 billion, including a number of projects outside Asia such as India, Egypt and Myanmar. Projects cover various infrastructure sectors such as transportation, renewable energy, sustainable cities, telecommunications and urban development.

“Through the projects it supports, the AIIB is improving cross-country connectivity, both within Asia to bring countries closer together, but also between Asia and the rest of the world,” he adds.

This year marked the bank’s first two projects in Sri Lanka for which loans of respectively USD200-million and USD80-million were approved to improve housing conditions for low-income communities by constructing affordable housing as well as reducing the risk and damage from landslides.

In 2019, the bank aims to finance projects worth about USD 4 billion in 15 to 20 countries, an average of 20 percent more than the USD 3.3 billion it financed in 2018.

A JOINT INTERNATIONAL EFFORT

Within three years of operation, the multilateral bank has grown from 57 to 93-member countries, with Luxembourg being the first European country to have joined the bank.

“Our membership is global, with members in every continent. This shows our member’s commitment to multilateral cooperation and strengthens AIIB’s role in the international financial community,” explains Danny Alexander.

To date, the AIIB has the second largest membership among multilateral development banks. It is also the first time the major shareholders of such a bank are developing countries.

Co-financing partnerships have been key to the AIIB’s early momentum and demonstrate the value of collaboration across the Multilateral Development Bank community. Early in its operations, the Bank signed a co-financing framework with the World Bank and MOUs with ADB, the European Bank for Reconstruction and Development and the European Investment Bank, respectively, to set the stage for jointly financing projects.

As of today, 40 percent of projects undertaken by the bank are stand-alone projects while 60 percent are developed in cooperation with other multilateral development banks.

PRIVATE CAPITAL MOBILISATION

Opportunities in investing in infrastructure projects are vital for long-term growth in Asia but are still largely untapped by investors. In this context, mobilising private capital is a major part of the AIIB’s agenda.

“We cannot bridge Asia’s funding gap without drawing in much greater amounts of private sector capital. Multilateral development banks like the AIIB are playing an important role to encourage more private sector investment by partnering with them on high-quality projects that will drive economic and social benefits for local communities,” notes Dany Alexander.

In 2017, the total amount of private co- financing by the AIIB was USD 561 million.

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We cannot bridge Asia’s funding gap without drawing in much greater amounts of private sector capital.

DANNY ALEXANDER

The multilateral bank is developing strategies to help attract private sector investors to cross-border projects, mainly by issuing bonds in world financial markets and through interbank market transactions.

Earlier this year, the AIIB has approved a USD 500 million fund to be used for corporate bonds to finance infrastructure-related investments, in a bid to boost private capital into the sector. The aim is to help develop infrastructure as an asset class, grow debt capital markets for infrastructure and promote investments with a focus on ESG issues in Asia.

“We can unlock the greatest potential to mobilise private capital for infrastructure from institutional investors by developing infrastructure as an asset class and deepening the sustainable debt capital market in Asia. Integrating ESG standards into capital markets in Emerging Asia will help build capacity for and interest in responsible investing, which is necessary if we are going to build a sustainable future.”