Africa iShare webinars - AIIB: an alternative to Bretton Woods?

This is the presentation made under our series on webinars on China-Africa relations.

1. Presentation by Nattabi Patricia Kirumira Made on 18 th March 2021 Email: [email protected]

2. What is the Asian Infrastructure Investment Bank (AIIB)?

3. Legal framework

4. Purpose, functions & objectives of the AIIB Purpose Under Article 1 of the Bank’s Article of Agreement, its purpose includes; To foster sustainable economic development, wealth creation and improve infrastructure connectivity in Asia through Investment mainly in infrastructure To promote regional cooperation and partnership in addressing challenges of development Functions Under Article 2 of the Articles, its functions include; Promotion of investment for public and private capital in infrastructure mainly in infrastructure Distribution of resources for harmonious economic growth Mobilize and encourage private investment and supplement it in case its lacking. Objectives From policy statements, its operating documents and scholarly articles we can gleam that some of the objectives for the creation of the bank included; Complementing the existing International Financial and Multilateral Development Finance systems like the International Bank for Reconstruction and Development, the Asian Development Bank, African Development Bank etc., through partnerships and cooperation. Providing alternative finance to its member states.

5. Purpose, functions & objectives of the AIIB cont. … Focusing especially on infrastructure development and connectivity between economies and region to promote faster integration and remove barriers of trade. Mobilizing of resources to do away with financing bottlenecks. For China’s foreign policy Concern that the traditional IFI system was not evolving fast enough to accommodate the present changing nature of the global economy, the demands of the developing world for more resources and increased participation in the governance system. It is an outlet for China’s internal overcapacity in construction through engaging in infrastructure projects abroad. To encourage foreign enterprise and expansion for domestic companies with new lending sources in the long run enabling access to new markets and increasing global competitiveness thus raising up the value chain. To find investment opportunities for China’s large foreign exchange reserves through multilateral means thereby sharing risks of investment and lending but engaging in the decision making process of how the monies are used. Internationalization of the RMB China is a point where its internal economic strategy is transitioning from investment led growth to consumption led growth. Reformation of the financial sector will help encourage its companies reach for external opportunities to support this

6. Composition, Membership & Governance Structure According to Article 3 of the Articles of Agreement, the membership to the Bank is open to all sovereigns, particularly mentioned are members of the IBRD and the ADB. At the time of signing, depositing and ratification of the Articles of Agreement, on December 31 2015, the Bank had 51 members. Membership is determined by signing the articles, subscription to shares and payment of subscription as laid out in the Articles of Agreement. Membership is divided into Four major categories; Regional Members, who are in Asia and Oceania. Top five share holders in this category include China with 297,804 shares (30.89 % shares and 26.65% voting power), India with 83,673 shares, Russia with 65,362, Korea with 37,388, Australia with 36,912. Non-Regional Members. The top five share holders include Germany with 44,842 shares, France with 33,756 shares, Brazil with 31,810 shares and the UK with 30,546 shares Founding Members who at the time the Articles of Agreement had come into force had signed the documents and complied with the conditions set out. These members have special voting rights under the articles. (Article 28) Prospective Members (18)

7. Governance Structure Article 21 of the Articles of Agreement Board of Governors each representing a member state. Board of Directors to whom the Board of Governors can delegate, composing 12 Directors, 9 regional and 3 non-regional. A President elected by a super-majority of the BOGs (5 year tenure) (Currently its Mr. Jin Liqin who has been elected twice) Vice President elected by the Board of Directors Senior Management Team with a Chief Risk Officer, Chief Finance Officer and General Counsel. International Advisory Panel (has Dr. Ngozi Okonjo Iweala, former Finance Minister Nigeria, Former Managing Director of the World Bank)

8. The AIIB and the Belt & Road Initiative (BRI)

9. AIIB relationship with International Law, International Financial System & the Bretton Woods System The Bank’s international law character is placed within its Articles of Agreement, signed by sovereign states, therefore governed by public international law and established rules, practices and norms of the international financial systems. Under Article 45, the Bank has full legal personality to contract, acquire and dispose of property, to engage in legal proceedings. Therefore, the Bank has entered into several cooperation agreements with sovereign states, international organizations and MDBs According to it’s Rule of Law document, the Bank entered into a Headquarters Agreement with China “ to define the legal status, privileges and immunities for AIIB’s operation and functioning in China. ” The Articles of Agreement and the Headquarters Agreement are both registered at the UN Secretariat in accordance with Article 102 of the UN Charter. The AIIB has observer status under United Nations General Assembly under (UNGA Resolution A/RES/73/216.

10. Cont ….

11. Africa and the AIIB Egypt and South Africa are founding members of the AIIB. Currently there are 18 members ( 5 actual, and 13 prospective members) Morocco, Algeria, Tunisia, Libya, Egypt, Sudan, Ethiopia, Djibouti, Kenya, Rwanda, Benin, Togo, Ghana, Cote d’Ivoire, Guinea, Madagascar, Senegal, South Africa. As many African countries are part of the BRI and are active financing and investment destinations for China, the African continent has many reasons to seek out partnership in the Bank. Only three projects in Africa have been approved by the AIIB, all in Egypt, i.e.; The 2017 Egypt Round II Solar PV Feed-in Tariffs Program (partly financed by the AIIB, the International Financial Corporation and private companies) The 2018 Sustainable Rural Sanitation Services Program (Partnership with the World Bank) The 2019 National Bank of Egypt On-Lending Facility for Infrastructure. The AIIB also entered into a partnership agreement with the AfDB and the Islamic Development Bank.

12. Opportunities for African countries Eligibility to borrow under the Articles of the AIIB includes members or an agent, instrumentality, political subdivision of the member, an entity or enterprise operating in the territory of a member or to international organizations and entities. Non-member can receive financing if an application is approved by the Board of Governors. (Art. 11) The AIIB provides the opportunity of a competitive alternative to member states for development finance, at negotiable prices and interest rates without threat of unnecessary conditionality that hinders progress and meaningful growth. Additionally, through cooperation and partnership with other organizations the Bank not only diversifies and increases sources of capital, it encourages productive distribution of these resources to a focused area of investment, i.e., infrastructure. Encouraging more investment in infrastructure from newer sources of capital ensures that developing countries especially can access necessary funds to solve their development needs while accessing monies elsewhere for other needs. Having African members in such an international financial organization, increases chances for participation in governance, and thereby integrates smaller economies into the global economic landscape, providing a sense of stability to the international financial system.

13. AIIB loans and project finance Easier accessibility to funding Market-based Loans rather than policy The AIIB’s narrower mandate allows it to have more flexibility, make quicker decisions and reduce time between disbursement of funds and implementation of project thereby reducing operation costs. Because it has an international membership lending risks are spread out, this encourages creditors to take risks even in countries with low credit ratings. Because it is new, the AIIB is responsive and reactionary to the changing global needs and can adapt through innovation and encourage the use of these resources for those purposes, i.e. its Infrastructure for Tomorrow initiative is about supporting green investment, innovation and connectivity. Its “Lean, Clean and Green” principles will hopefully have a positive impact on the projects that are finance and the companies that are supported by encouraging them to adopt higher ESG standards in their operations.

14. References Articles of Agreement of the AIIB. https://www.aiib.org/en/about-aiib/basic-documents/articles-of-agreement/index.html Safiye Ergun, Chinese engagement in Africa through the Asian Infrastructure Investment Bank, Cappodocia Journal of Area Studies. December 2019. Lean, Clean and Green: A new model of multilateral development bank for building infrastructure in Asia and beyond – An interview with AIIB President Jin Liqun , Journal of Infrastructure, Policy and Development (2018) Volume 2 Issue 1. China’s emerging institutional statecraft: The Asian Infrastructure Investment Bank and the prospects for counter-hegemony. Project on International Order and Strategy at BROOKINGS. The Rule of Law at the Asian Infrastructure Investment Bank. aiib.org/law