Global Infrastructure Forum: Perspectives from new development finance institutions
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The financing needs associated with sustainable infrastructure are enormous. The Addis Ababa Action Agenda calls for greater long-term financing of infrastructure and underscores the direct and catalytic role of multilateral, regional, and national development banks. While traditional MDBs continue to play an important role in financing infrastructure, newer development finance institutions (DFIs) have the potential to mobilise significant additional resources, enhance South-South cooperation, and explore new financing modalities. In Latin America, CAF, the development bank of Latin America, has emerged as a major financier of infrastructure projects in the region. Two new institutions, the AIIB and the NDB, have mandates that explicitly focus on infrastructure. This session explored the role and priorities of new DFIs, as well as sub- regional institutions, and how they can how boost investment in resilient, sustainable infrastructure and contribute to achieving the Addis Ababa Action Agenda and the 2030 Agenda for Sustainable Development.
Moderator – Amar Bhattacharya, Brookings Institution
Panelists
Pravin Jamandas Gordhan, Minister of Finance, South Africa
Enrique García Rodríguez, Executive President, CAF
Natalie Lichtenstein, General Counsel, AIIB
Paulo Nogueira Batista Jr., Vice President and Chief Risk Officer, NDB
Discussant – Shari Spiegel, Chief of Policy Analysis & Development, Financing for Development Office, UN
Amar Bhattacharya
- infrastructure central issue, but also facing extraordinary period
- how much does the world today spend on infra – 3.4 trillion a year, more than a third is China
- bulk of increase come from other developing countries
- huge infrastructure needs, adds up to 80 trillion up to 2030
- more than we have on the ground right now, have an opportunity to change the footprint
- huge needs clear potential but not the adequacy in projects, don’t use the term ‘bankable’, instead ask if they are well designed
- there is plenty of world savings but not available for infrastructure, costs of finance are simply too high
- lot of infra not built with sustainability in mind
- help recycle savings in the south, use for development, enhance south south cooperation, push the frontier
Pravin Jamandas Gordhan, ‘father of the NDB’
- 2010 G20 meeting in Seoul, India made the point there is lot of money around and a huge need for infrastructure investment – what can we do as G20?
- Nick Stern, Stieglitz, etc, how to conceptualise a new venture – now the NDB
- Lot of money available should be invested in the long term on a sustainable basis, inward and outward flows in 2008/09, 2013, again today – damaging effect on emerging markets
- How do we capture some of these funds and direct them
- Reflection of institutional considerations, arrangements in terms of development funding, expertise, etc, is lopsided
- Have developed their own longwinded bureaucratic processes on what works and doesn’t work
- but are the needs of developing countries understood, uplifting people from poverty?
- AIIB and others are reflective of the necessity to change the institutional configuration, create a different balance of forces – what underpins this institution, what is different?
- Tap into savings of developing countries, and ownership, culture will develop over time, democratic, accountable, internal culture, great sensitivity to human needs but there are also mega trends such as climate change
- Will begin to create a set of circumstances when investing in large intra is the norm
- How you rebalance this information is part of the challenge
- How does one ignite growth,- infra is a major contribution, but sometimes also a panacea
- In promoting growth have new obligations, inequality, who benefits, characteristics of model, decision making, eg inclusivity, urban/rural divide
- Period in which both contestation and cooperation will be seen
- Will talk with established institutions, look for cooperation and co-funding, while contest established wisdom and culture and orientation, otherwise just joining existing configuration
- All in all, exciting venture, one that will enable us to create new institutions
Enrique García Rodríguez, CAF
- CAF created 25 years ago, sub regional, today 20 countries
- When joined said that we should not copy what other institutions do – we should be more aggressive, and the name of the game is infrastructure
- We had to help access to capital markets
- Total investment in infra 3% of GDP in Latin America
- Quality of investment is not perfect, eg the issue of social impact and the environment have to be included at the beginning, feasibility stage
- Savings about 20% this year, needs to be higher – need to be capable to attract resources from the rest of the world
- Internal savings, pension funds, etc
- Implementation, sometimes thinking about elections, not thinking long term
- How you deal with big projects
- 60% of portfolio in infrastructure, work with public and private sector
- crucial with co-financing
- sometimes one of the problems is governance, Spain and Portugal outside the region, but all recipients and contributors
- voting power, one director one vote
- all creates a sense of commitment – have to have some financial results
Natalie Lichtenstein, AIIB
- 22 regional countries agreed to form AIIB on a few basic principles, incl broad contours of what infrastructure it would be – but now for directors to decide
- finishing the articles by middle of 15, joined by another 35 countries, many non-regional – 75 signed
- shareholding split, based on capital, approx. 70-75% regional
- a mix of a lot of thinking of Asian institutions, but also European institutions
- looked at all of these models for governance structure
- you don’t start with a clean slate, as shareholders have expectations
- learned the importance of being open, learned this from 30yrs at the WB
- tried in the legal structure to say you can have a subsidiary, trust fund, different types of operation, but don’t have to remember the articles to do that
- have allowed for new categories of operations, recipients that aren’t necessary members, as long as board of governors by super majority agrees
- giving the shareholders a sense of what they can decide, keep as open as we could
- policies not wildly different from other institutions, incl on env & soc
- have discussed draft policies, agreed in Jan at first meeting
- we did this without having a functioning institutions, board will come back to them and see what really fits
- also have financing terms, can provide guarantees on loans, some restrictions on equity
- AIIB board of directors should meet quarterly, by June should have projects to approve
- Will do some co- financing, target 1.2bn
- Been looking at transport and energy, some co-financing, some freestanding
- Will develop energy strategy later in the year
- Interesting starting something from scratch
Paulo Nogueira Batista Jr, NDB
- we are eager to learn from CAF, we will also be cooperating with the AIIB
- it was 2011/12 when the BRICS started discussing at a leaders level the possibility of their own political institutions
- in the New Delhi summit finance ministers were asked about the viability
- these initiatives were set up at the highest possible level
- there is a need for further efforts, to complement existing institutions
- if they were working perfectly I doubt they would have taken this step
- the discussion of the NDB and CRA, took up enormous time
- would not have gone to that problem if the existing institutions accommodated their views
- wanted to bring something new to development finance
- after 2 yrs of negotiation, during the milestone meeting in Durban, decided to establish NDB and CRA
- one more year of negotiations, and in Fortaleza two treaties were signed
- ratification sooner than expected – by June 2015 all five countries had ratified
- have made good progress, set up initial set of policies
- board of directors is not resident, everyone hates resident boards, think its leaner and less costly this way
- first capital instalment was paid, more latent capital than we expected
- started formal recruitment a few weeks ago, signed off first bond, green bond
- board of directors met this week for the first time, signed off first project package on Wed and met yesterday to discuss strategy
- plan to be agile, nimble, quick, hope to have same agility as CAF
- governance, equal voting power, no veto – decision rules, no anonymity
- exploring lending and borrowing in national currencies
- we are a green bank in our DNA, mandate wider than the AIIB, includes not just infra but also sustainable development, but I guess narrower than WB
- it is a project bank
- responsive to board, to respond to their national circumstances
- the way we are communicating, want to listen, not talk down, learn, function as a platform for collaboration
- quite a challenge, this is the first time inst is set up excl by emerging markets with a global reach – will be open to new members
- will be able to collaborate but also to contest
- not in the business to develop some pre set approach, we want to develop our own approach, make new mistakes, not by standards of existing institutions
Shari Spiegel
- infra forum came from the Addis Ababa agenda, came out of discussion towards the end
- led by MDBs, not just existing, but all MDBs, also national development banks
- several infra discussions in the preparatory process
- AA Action Agenda, subject to interpretation, GIF should improve alignment and coordination between old and new inst
- Most member states looked at current initiatives, should avoid replication
- Importance of innovation, nobody knows how to do this effectively
- Bankable projects are not in there, the PPP discussion pointed out means investable projects – many are important from social aspects, but not bankable
- What is the role of public, private, etc
- De-risking has come up repeatedly, often transferring risk rather than de-risking, need to be priced and structured accordingly
- Important to continue to innovate
- Hosting rotated, hoping the new institutions will also be part of this
Bhattacharya
- cooperative nature is important, make the maximum of public money
- on private leverage, impossible to create a kind of investment grade out of leverage
Rodríguez
- how do you compensate, public sector being insufficient, will you have special interest rate?
Q German foreign office, NDB what do you differently when designing a project in a shorter time frame without jeopardising quality
Batista
- cooperation with national development banks, eg renewable energy projects, benefited from the expertise – could turn around the discussion very quickly
- some negotiations were tough, but among partners
- political decision to begin in five countries and reach consensus more quickly rather than a bigger group
- we have been rated by Chinese domestic agencies, for bond, started process with other standards, in the process of discussing
Q IFC opposition to other institutions, which ones do you admire in terms of private sector
Gordhan
- trying to create a new brand in how to do things, depends on your rates
Lichtenstein
- all of these institutions looks about the same from far above, when you land they are all different
- we have retirees former members from various different institutions
- AIIB can do all kind of things, also non-sovereign, could be useful for infra
Batista
- opposition is not what was said
- diversity of approaches, perhaps a problem with the mindset, respect to diversity – part of the same model
Oxfam China role of civil society, the new banks what is the plan to engage civil society, important role in making projects sustainable and monitoring delivery of projects.
Batista
- hasn’t really started yet, been extremely occupied with setting it up
- have received correspondence, have had our first meeting here in DC
- early days, our approach is to engage, to listen, to learn from the experience of NGOs
- understand their objectives and goals, wants to be transparent, and learn from you
- don’t think we will have any big problems, we don’t see green sustainability issues as constraints, expect we will see common ground
Lichtenstein
- recognise the engagement with CSOs is a normal part for how an MDB is organised
- no concrete plan, but it is part of what we expect to take up
- when we did discuss with our family members the policies for the bank we posted the draft social and env safeguards online, we engaged
- finite timeline as we wanted to approve projects, therefore we needed an approval in January
- will review policies after we have some actual experience
