Multilateral development banks (MDBs) like the AIIB struggle to resist mission creep when under pressure from diverse memberships and ambitious managements. The Corporate Strategy reaffirms some important foundational elements of its purpose. There is a clear focus on infrastructure project financing, albeit with ambition to play a bigger role in assisting project preparation. Provision of policy advice is largely left to others with greater capacity for such dialogue, such as the Asian Development Bank and the World Bank, thereby also managing potential sensitivities regarding the Bank’s largest shareholder.
The Strategy’s affirmation of the Bank’s commitment to its core values — being lean, green and clean — and high governance and operational standards goes to the core of the credibility it has established with clients, shareholders and international financial markets. The Bank’s operations will remain focussed on Asia, with a cautious approach to building capacity for non-regional lending. It is eschewing for now any review of the constrained non-regional strategy, limited to 15 per cent of total lending previously agreed by the Board.
The Strategy sets clear priorities and establishes ambitious targets on the AIIB’s overall share of financing for climate (50 per cent by 2025), cross border connectivity (25–30 per cent by 2030) and private sector operations (50 per cent by 2030).
The first of these priorities builds on the Bank’s 2017 Energy Sector Strategy alongside the more recent development of innovative approaches to fostering green finance. But some shareholders will be disappointed by public comments that undermine the carefully negotiated efforts in 2017 to preserve a technology-neutral approach to assist members to meet energy needs while lowering emissions.
On the second priority, Article 1 of the Bank’s articles explicitly includes enhancing infrastructure connectivity as a key focus for the AIIB, but it is a challenging area for all MDBs. Success depends primarily on resolving ‘soft infrastructure’ issues like compatible regulatory arrangements and policy settings, for which the AIIB has decided to rely on others.
Unlocking the deep pools of institutional investor finance for infrastructure is something of a holy grail for all MDBs. The AIIB’s proposals are unlikely to be a game changer, but the target implies a commitment of significantly more than 50 per cent of the Bank’s risk bearing capacity to the task. The Bank will continue to experiment, including through intermediary financing, encouraging capital market development and asset recycling. Distinguishing genuine private sector financing from non-sovereign sources that enjoy significant implicit public backing and less market discipline will be important.
For an MDB regularly having to refute suspicions that it is ‘China’s bank’, technology investments will pose particular risks that need to be weighed carefully against the expected benefits.
Uncertainties remain about implementing the Strategy. For example, whether the Bank can expand its support for low-income members in the absence of seeking donor resources, and the associated exposure to enhanced donor leverage over the Bank’s policies, for a concessional window. It is not clear how the Bank can forge the closer ties to clients, critical to moving along the project cycle, while avoiding the high costs and redundancy of the other MDBs’ regional offices. Questions linger about how ambitious the Bank should be in expanding into social infrastructure on the back of its experience, almost wholly led by others, in the COVID-19 response health system investments.
Success is going to depend on effective partnerships, continued significant capability-building and entrenching the right institutional culture.
Avoiding excessive focus on lending volumes and establishing a genuine learning culture that seeks to improve development impact are two key challenges for all MDBs. Unfortunately, the Strategy leaves questions of impact to be monitored at the project level. For institutional learning in the Bank to focus on its effectiveness in its mandated objective to improve regional economic and social outcomes, it needs to monitor this dimension of project quality at the corporate level alongside the current focus on disbursement and implementation. The Strategy would have benefited from an explicit commitment to embedding such a learning culture as a key priority.
Issues of institutional and management culture are always the hardest, especially in a multicultural setting. This is inextricably linked to the AIIB’s ambitious capability-building agenda, as it seeks to triple the size of its current professional staff to around 900 by 2030. Attracting the right people is key not just to addressing skill gaps but to building the desired culture to attract more of the right people. This has not been helped by turnover in the key management role — the Bank has had three Human Resources (HR) Director Generals in its first five years.
Adjusting to COVID-19 operational constraints will have tested HR flexibility, and accommodating the requirements of a new post-COVID-19 normal will further compound this challenge. More fundamentally, growing geopolitical uncertainties will not help in attracting quality expatriate staff to Beijing. But this will be essential if the Bank is to build the diverse and inclusive foundations of an effective multilateral institution and deliver on its shareholders’ long-term vision.
Chris Legg is a former chief advisor at the Department of the Treasury, Australia. He was Australia’s chief negotiator in establishing the AIIB and represented Australia, New Zealand, Singapore and Vietnam on the AIIB’s Board of Directors through 2016–2020.