AIIB Strategy Briefing

Transcription

1 AIIB Strategy Briefing Background, Strategies, Investment and Challenges AIIB 2 nd Annual Meeting of the Board of Governors Governor Seminar I June 2017

2 Presentation I. Background and Context of Setting Up AIIB II. Strategy and Thematic Priorities III. Investment Strategy and Investments to Date 2

3 I. Background and Context of Setting Up AIIB An uneven development picture in Asia GDP per capita, PPP, in 2015 (constant 2011 international dollar) 140, ,000 Legend: Low income Lower middle Upper middle High income QATAR SINGAPORE UNITED ARAB EMIRATES SAUDI ARABIA 100,000 80,000 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) JAPAN OMAN KOREA ISRAEL AFGHANISTAN 60,000 NEPAL TAJIKISTAN BANGLADESH MALAYSIA 40,000 CAMBODIA PAKISTAN KAZAKHSTAN TURKEY High income 20,000 Upper middle MYANMAR VIETNAM UZBEKISTAN INDIA PHILIPPINES SRI LANKA INDONESIA CHINA AZERBAIJAN THAILAND IRAQ 0 Country (width reflects population in 2015) 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 3

4 I. Background and Context of Setting Up AIIB Infrastructure has a central role in development 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 Depreciation Deepening Developing countries need to sustain at least 7 percentage points of GDP towards infrastructure investment Population growth There is no substitute for infrastructure in development; sustained investment is necessary 4

5 I. Background and Context of Setting Up AIIB Population growth and urbanization will drive demand 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 Urban population (million) 4, , Additional urban population = 50x 3,313 Seoul Metropolitan Areas 3,000 2,500 2,000 1,500 1, x x 4x Oceania Northern America Europe Latin America Sub-Saharan Africa Asia 7x 32x 1,137 2,064 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 5

6 I. Background and Context of Setting Up AIIB And also to meet climate change challenges 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 6

7 I. Background and Context of Setting Up AIIB Culminating in large infrastructure demand Global and Developing Asia Infrastructure Demand, in USD trillion 7

8 I. Background and Context of Setting Up AIIB With energy and transport seeing largest needs 8

9 I. Background and Context of Setting Up AIIB Low interest rate environment did not lift investment Low yield Interest rates have fallen post financial crisis Search for yield Low investment rate Post-crisis project financing in Asia remains low Constraints Many governments facing fiscal constraints Project financing in Asia - USD billions Per cent mth Libor (RHS) Transport Power Source: Thomson Reuters Project Finance 9

10 I. Background and Context of Setting Up AIIB Setting up AIIB to address Asia s needs 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 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 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 10

11 I. Background and Context of Setting Up AIIB Mooted in late 2013, began operations in 2016 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

12 I. Background and Context of Setting Up AIIB With wide ranging membership 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 Members Regional Non-regional Prospective regional Prospective non-regional 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 Canada Peru Chile Bolivia Venezuela Brazil Europe Austria Belgium Cyprus Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Luxembourg Malta Netherlands Norway Poland Portugal Romania Spain Sweden Switzerland United Kingdom Western Asia Azerbaijan Bahrain Israel Jordan Kuwait Oman Qatar Saudi Arabia U.A.E. South Africa Georgia Turkey Egypt Sudan Central Asia Kazakhstan Kyrgyzstan Tajikistan Uzbekistan Ethiopia Armenia Southern Asia Afghanistan Bangladesh India Iran Maldives Nepal Pakistan Sri Lanka Russia Mongolia China Hong Kong South Korea Australia South-Eastern Asia Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Timor-Leste Vietnam Fiji New Zealand Samoa 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 12

13 I. Background and Context of Setting Up AIIB And strong governance structure Board of Governors One governor per member All power vested on governors Board of Directors Non resident Board (for leanness) 12 Directors, 2 year terms Supervises Management Compliance, Effectiveness and Integrity Unit President Vice Presidents (5) Elected by governors on merit 5 year term From regional member Appointed by BOD based on recommendation by President Based on merit 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 13

14 II. Strategy and Thematic Priorities Mandate of AIIB 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 o Invest in infrastructure and other productive sectors to foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia Promote regional cooperation and partnership in addressing development challenges by working in close collaboration with other multilateral and bilateral development institutions 14

15 II. Strategy and Thematic Priorities Forging a new path 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 15

16 II. Strategy and Thematic Priorities AIIB complements existing MDBs in several critical areas 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 16

17 II. Strategy and Thematic Priorities AIIB s key differentiation One single balance sheet for sovereign-backed and private sector loans o 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 countries o Based on project s inherent benefits No budgetary, programme or reform lending o Focused project financing o Projects must have infrastructure or productive assets No concessionary finance o Financing done on commercial terms o But with a Special Fund (with country contributions) to support project preparation in low income countries 17

18 II. Strategy and Thematic Priorities Thematic priorities 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 18

19 II. Strategy and Thematic Priorities A brief strategy map 19

20 II. Strategy and Thematic Priorities Forging partnerships for better projects Multilateral financing institutions Investors Banks Project owners Implementation experience Roles often overlap, but 4 key types of entities would be required to sustain infrastructure investment Finance Sponsors AIIB plays the role of financier (and some expertise) but will require partnerships with other entities Professional service Think tanks, knowledge base Expertise Policy Regulatory environment Policy Guarantees Within finance, partnerships in co-financing also useful in risk diversification and increased balance sheet capacity Improve bankability 20

21 III. Investment Strategy and Investments to Date A brief on project process 21

22 III. Investment Strategy and Investments to Date Forms of AIIB Financing Available Sovereign-backed financing (requires sovereign guarantee) o Loan Non Sovereign-backed financing (Private, SOEs, Sub Sovereign, Municipalities) o Loan o Equity o Others : bonds, credit enhancement (e.g. guarantees), funds, etc. 22

23 III. Investment Strategy and Investments to Date Key Features of Investments 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 23

24 III. Investment Strategy and Investments to Date Key Features of Investments (Practical Considerations) 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 24

25 III. Investment Strategy and Investments to Date Approved investment and future projects US$ millions Approved Investments Gas extraction; pipeline Dam rehabilitation Investment fund Powerlines Equity funds Many connectivity and energy related projects More sovereign projects in initial stages 1500 Gas pipeline Port Rail Investment outlook Continued focus on priority areas 1000 Hydropower Gas power plant More private sector projects 500 Highways, roads Transmission Urban redevelopment 0 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Investment in funds See website for projects under consideration 25

26 III. Investment Strategy and Investments to Date Selected projects Co-financing Project Standalone Project 26

27 III. Investment Strategy and Investments to Date Investment strategies 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 27

28 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 28