Post on 26-Apr-2020
AIIB Strategy BriefingBackground, Strategies, Investment and Challenges
AIIB 2nd Annual Meeting of the Board of Governors
Governor Seminar I
June 2017
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I. Background and Context of Setting Up AIIB
II. Strategy and Thematic Priorities
III. Investment Strategy and Investments to Date
Presentation
I. Background and Context of Setting Up AIIB
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20,000
40,000
60,000
80,000
100,000
120,000
140,000
GDP per capita, PPP, in 2015 (constant 2011 international dollar)
CHINAINDONESIAINDIA
VIETNAM
AFGHANISTAN
QATAR
PHILIPPINES
JAPAN
NEPAL
BANGLADESH
CAMBODIA
PAKISTAN
MYANMAR
UZBEKISTAN
SRI LANKA
IRAQ
THAILAND
TURKEY
KAZAKHSTAN
SAUDI ARABIA
TAJIKISTAN
AZERBAIJAN
MALAYSIA
ISRAEL
OMAN
SINGAPORE
UNITED ARAB EMIRATES
High income
Upper middle
KOREA
Note: Analysis includes 43 countries – Afghanistan, Armenia, Azerbaijan, Bahrain, Bangladesh, Bhutan, Brunei Darussalam, Cambodia, China, Cyprus, Georgia, India, Indonesia, Iraq, Israel, Japan, Jordan,
Kazakhstan, Korea, Kuwait, Kyrgyz Republic, Lao PDR, Lebanon, Malaysia, Maldives, Mongolia, Myanmar, Nepal, Oman, Pakistan, Philippines, Qatar, Saudi Arabia, Singapore, Sri Lanka, Tajikistan,
Thailand, Timor-Leste, Turkey, Turkmenistan, United Arab Emirates, Uzbekistan, and Vietnam
Source: World Bank, AIIB analysis
Legend: Low income
Lower middle
Upper middle
High income
An uneven development picture in Asia
Country (width reflects population in 2015)
Many countries (with more than half of Asia’s
population) in low or lower-middle income group
With 29% of Asia’s population below $3.1 per day
(poverty) and 8% below $1.9 (extreme poverty)
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Infrastructure has a central role in development
I. Background and Context of Setting Up AIIB
Investing to make up for past
shortfalls
China in 2000s; Korea spent around
12% of GDP on infra in 1990s; Japan
11% of GDP in 1980s
But many developing Asian
economies lag behind
Investment ramp up necessary to
make up for past shortfalls
And sustaining future economic
development
Replacing older infrastructure
Providing for population increase
Deepening capital
% GDP on Infrastructure
An illustrative breakdown
There is no substitute for infrastructure in
development; sustained investment is necessary
Depreciation
Deepening
Population growth
Developing countries need to
sustain at least 7 percentage
points of GDP towards
infrastructure investment
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Population growth and urbanization will drive demand
I. Background and Context of Setting Up AIIB
Population growth and urbanization
Asia’s population still growing, 42 million per year
Increase in urbanization rate from 48% today to 64% by 2050
Implying 1.25 billion more urban dwellers by 2050
Note: Uses a population of 25.2 million in Seoul Metropolitan Area (as of 2Q 2016)
Source: UN World Urbanization Prospects, Seoul Metropolitan Government, AIIB analysis
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292
545 496346
2,064
42
390581
674
1,137
3,313
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Oceania Northern America Europe Latin America Sub-Saharan Africa Asia
Urban population (million)
2014
2050
0.6x
4x1.4x 7x
32x
50xAdditional urban population = Seoul Metropolitan
Areas
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And also to meet climate change challenges
I. Background and Context of Setting Up AIIB
Asia needs more power generation
Low access to modern energy (500m without regular electricity access)
Asia’s energy consumption will continue to grow faster than rest of world
With dominance of fossil fuel, and rapidly increasing CO2 emission
Opportunity for transition
Reducing carbon emission from BAU
Big opportunities provided by renewable technologies and improved economics
Will require large scale infrastructure deployment to meet this challenge
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Culminating in large infrastructure demand
I. Background and Context of Setting Up AIIB
Global and Developing Asia Infrastructure Demand, in USD trillion
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With energy and transport seeing largest needs
I. Background and Context of Setting Up AIIB
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Low interest rate environment did not lift investment
I. Background and Context of Setting Up AIIB
Low yield
Interest rates have fallen post
financial crisis
Search for yield
Low investment rate
Post-crisis project financing in
Asia remains low
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2
3
4
5
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0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013 2014
Power
Transport
Project financing in Asia - USD billions Per cent
6-mth Libor (RHS)
Source: Thomson Reuters Project Finance
Constraints
Many governments facing fiscal
constraints
Context
Huge unmet infrastructure needs in Asia
Low global growth, historically low interest rates with ample capital searching for yield
Slow pace of governance reform in major MDBs
MDBs are uniquely placed to accelerate sustainable infrastructure investments
High standard of environmental and social requirements
Closely working with country governments
Longer tenor suitable for infrastructure financing
Intermediate, leverage, and mobilize financing
Broad consensus on urgency and need of sustainable infrastructure
Paris Agreement to address climate change
Spurs growth by supporting trade and productivity
Generates employment and provides services to the poor
Accelerates and locks in transition toward sustainable energy, transport, and cities
Setting up AIIB to address Asia’s needs
I. Background and Context of Setting Up AIIB
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Chinese President Xi and Premier Li announced the AIIB initiative during the
respective visits to South East Asian countries, Oct 2013
AIIB is set up to bring countries together to address the daunting infrastructure needs across Asia
MOU signed by 22 countries Oct 2014
AOA was signed in Jun 2015 and took effect on 25 Dec, 2015
The Bank began operations in Jan 2016
Mooted in late 2013, began operations in 2016
I. Background and Context of Setting Up AIIB
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With wide ranging membership
I. Background and Context of Setting Up AIIB
Fiji
Hong Kong
Membership in AIIB continues to be open to members of the IBRD or the ADB. Since launching, 20 prospective new members
have been approved to join AIIB, bringing the Bank’s total membership to 77. AIIB’s role in facilitating infrastructure
development is an important priority for shareholders’ long-term economic development goals
Additional sources: Various
public press releases; AIIB;
77 members include 53
members, 4 prospective
founding members (who
have signed, but not yet
ratified the Articles) and 19
prospective new members
EuropeAustria
BelgiumCyprus
DenmarkFinlandFrance
GermanyGreece
HungaryIcelandIreland
ItalyLuxembourg
MaltaNetherlands
NorwayPoland
PortugalRomania
SpainSweden
SwitzerlandUnited Kingdom
Central AsiaKazakhstanKyrgyzstan
TajikistanUzbekistan
Russia
Mongolia
South-Eastern AsiaBrunei
CambodiaIndonesia
LaosMalaysia
Myanmar
PhilippinesSingaporeThailandTimor-LesteVietnam
AustraliaNew Zealand
Western AsiaAzerbaijan
BahrainIsrael
JordanKuwaitOmanQatar
Saudi ArabiaU.A.E.
South Africa
Brazil
Turkey
Georgia
Southern AsiaAfghanistanBangladesh
IndiaIran
MaldivesNepal
PakistanSri Lanka
The Bank … will help to mobilize
much needed additional resources
from inside and outside Asia
….and will complement the
existing multilateral development
banks
Articles of Agreement
China
Prospective regionalProspective non-regional
Members
RegionalNon-regional
Armenia
Peru
Venezuela
Canada
Sudan
Ethiopia
South Korea
Egypt
Chile
Bolivia
Samoa
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And strong governance structure
I. Background and Context of Setting Up AIIB
For Share Votes, each member has one vote for each
share of capital stock held
Each Founding Member to be allocated six hundred
Founding Member Votes
Basic Votes ensure that smaller member countries have
a minimum voting power, constituting 12 percent of the
total number of votes at any time.
Members' voting power is the sum of their Basic Votes,
Share Votes and, where applicable, Founding Member
Votes
Board of Governors
President
Vice Presidents (5)
Board of Directors
One governor per member
All power vested on governors
Non resident Board (for leanness)
12 Directors, 2 year terms
Supervises Management
Elected by governors on merit
5 year term
From regional member
Appointed by BOD based on
recommendation by President
Based on merit
Compliance,
Effectiveness and
Integrity Unit
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Who is AIIB?
o 18-month old multilateral financial institution – began operations in January 2016
o USD100 billion subscribed capital, 20% paid-in capital
o 77 member countries from Asia (45 regional) and beyond (32 non-regional)
o Presently has ~100 staff (and still growing!) from around the world
o Principles – lean, clean and green
What does AIIB do?
o Invest in infrastructure and other productive sectors to foster sustainable economic development,
create wealth and improve infrastructure connectivity in Asia
o Promote regional cooperation and partnership in addressing development challenges by working
in close collaboration with other multilateral and bilateral development institutions
Mandate of AIIB
II. Strategy and Thematic Priorities
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Lean
Focused on infrastructure project financing
Work with other multilateral institutions and partners
Streamlined staff structure
Clean
Zero tolerance for corruption
Strong emphasis on integrity and honesty in corporate culture
Green
Invest in sustainable infrastructure
Help Asian countries and members meet climate change targets
Forging a new path
II. Strategy and Thematic Priorities
Adds financial capacity to MDB system
High standards in environmental and social requirements as well as procurement
Strengthens the voice for emerging economies and borrowers
Innovates with a lean business model supported by financial strength and clear focus
AIIB complements existing MDBs in several critical areas
II. Strategy and Thematic Priorities
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AIIB’s key differentiation
One single balance sheet for sovereign-backed and private sector loanso Greater flexibility
o Open to financing sub-national entities, SOEs, private sector companies, or hybrid structures
Investment in countries across all income levels, with attention to lower income countrieso Based on project’s inherent benefits
No budgetary, programme or reform lendingo Focused project financing
o Projects must have infrastructure or productive assets
No concessionary financeo Financing done on commercial terms
o But with a Special Fund (with country contributions) to support project preparation in low income
countries
II. Strategy and Thematic Priorities
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AIIB as the Lean, Clean and Green infrastructure investment bank for the
21st Century, focused on three priority themes
Sustainable infrastructure (sustainable energy, transport and cities)
Cross-country connectivity
Mobilization of private capital for infrastructure
Thematic priorities
II. Strategy and Thematic Priorities
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A brief strategy map
II. Strategy and Thematic Priorities
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Forging partnerships for better projects
Regulatory environment
Policy Guarantees
Professional service
Think tanks, knowledge base
Project owners
Implementation experience
Multilateral financing institutions
Investors
Banks
Finance Sponsors
PolicyExpertise
Roles often overlap, but 4
key types of entities would
be required to sustain
infrastructure investment
AIIB plays the role of
financier (and some
expertise) but will require
partnerships with other
entities
Within finance, partnerships
in co-financing also useful in
risk diversification and
increased balance sheet
capacity
Improve bankability
II. Strategy and Thematic Priorities
A brief on project process
III. Investment Strategy and Investments to Date
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Forms of AIIB Financing Available
Sovereign-backed financing (requires sovereign guarantee)
oLoan
Non Sovereign-backed financing (Private, SOEs, Sub Sovereign, Municipalities)
oLoan
oEquity
oOthers : bonds, credit enhancement (e.g. guarantees), funds, etc.
III. Investment Strategy and Investments to Date
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Key features of operations
Financing can be single product or combination
Investment in infrastructure or productive sectors
A cap of total investment to crowd in co-financiers
No controlling stakes, unless under exceptional circumstances
Usually no tied projects (procurement must be open)
Strong environment and social safeguards
Key Features of Investments
III. Investment Strategy and Investments to Date
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Practical considerations
At this juncture, funding mainly in USD and based on floating rates (Libor +
spreads). More currency capability and derivative instruments are being developed
Credit enhancement instruments (e.g. guarantees) are allowed for, but not fully
developed as a product yet
Long or short tenors have to be considered against fundamentals of projects and
market conditions
Bankability
o Sovereign-backed projects should meet the key conditions set in “AIIB General
Conditions Sovereign Backed Loans”
o Non-sovereign projects need to be financially viable
Key Features of Investments (Practical Considerations)
III. Investment Strategy and Investments to Date
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Approved investment and future projects
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1500
2000
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3000
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
Approved Investments
Many “connectivity” and energy
related projects
More sovereign projects in initial
stages
Investment outlook
Continued focus on priority areas
More private sector projects
Investment in funds
See website for projects under
consideration
Highways, roads
Transmission
Urban redevelopment
Hydropower
Gas power plant
Gas pipeline
Port
Rail
Gas extraction;
pipeline
Dam rehabilitation
Investment fund
US$ millions
III. Investment Strategy and Investments to Date
Powerlines
Equity funds
Selected projects
III. Investment Strategy and Investments to Date
26Co-financing Project Standalone Project
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Progressive pipeline and capability building
Granulation of country and sector knowledge to ensure value adding
Early involvement to prepare projects
Taking inclusive approach to work with clients, consultants and co-financiers
Conscious of the risks of creating ‘stranded assets’
Investment strategies
III. Investment Strategy and Investments to Date
To sum up
AIIB is set up to complement existing institutions and address Asia’s
development needs by focusing on infrastructure project financing
Significant progress in first 18 months since inception in Jan, 2016
Started with 57 member countries (regional and non-regional), expanded to 77
US$20 billion in paid in capital
Just crossed US$2.5 billion in loan and equity investments in 2Q17
Will continue to develop and refine strategy, scale up to meet clients’ needs and
build up the institution
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