In Yesterday’s Financial times, there was an article about China’s announcement to double the funding for it’s new Asian Infrastructure Development Bank (AIIB), from the $50B announced last month to over $100B.
This is notable in its own right; most of Asia and Africa are in desperate need of infrastructure investment. But what was just as interesting to me is how the AIIB is being written about — it is a brilliant example of the filters our perspective imposes on how we view the world. Digging deeper, I found three different articles about the establishment of the AIIB, one written by Bloomburg, one by the East Asia Forum, and one by Devex. Each article was a good piece of news analysis, and each raised valid points worth considering. But most notably to me, there was almost zero overlap between the three in the conclusions they drew. In other words, forming a well-rounded view would be impossible by reading any of them alone.
The article in Bloomburg unsurprisingly takes an American slant: it paints the move as a geopolitical threat, which it undoubtedly is. The somewhat sensationalist headline reads “China’s $50 Billion Asia Bank Snubs Japan, India”. The AIIB will be a direct competitor to both the World Bank, which by unwritten charter always has an American president, and to the Asian Development Bank (ADB), which is funded by the US and Japan and is traditionally helmed by Japanese bankers. During the recent recession, the US and western Europe have been scaling back their global infrastructure investments, while China has been rapidly expanding theirs, not just in Asia but in Africa and Latin America as well. It is hardly surprising that China would be frustrated by their lack of ability to influence policy and priorities commensurate with their growing share of the world’s infrastructure investment portfolio.
The East Asia Forum article paints a rather different view. It reads rather like a Chinese government press release: jingoism concealed within dry, technocratic, and tendentiously cautious prose. An example, “If the new bank is managed professionally to finance commercially viable investments in economic infrastructure, it can begin to correct a very significant failure of global financial markets.” But setting the bias aside, the analysis is a sound, cogent discussion of the business case for creating the AIIB and the challenges it can expect to face in fulfilling its mission.
The Devex article looks at the same news from the viewpoint of the international NGO and aid community. Its headline “AIIB is coming… fast” draws the readers interest towards the potentially disruptive effect the AIIB will have on how NGO’s and aid organizations receive their funding. Their analysis highlights that unlike the World Bank and ADB, the AIIB’s focus is on infrastructure rather than elimination of poverty. They also call out that while the World Bank and ADB due diligence process includes social and environmental protections, the Chinese track record on environmental issues makes it unlikely that the AIIB will do likewise.
And what of my own filters? My own views are just as informed by my experiences and biases as the ones above. As a believer in classical economics and as someone who has invested a significant portion of his career in working in the developing world, I view this as an almost unreservedly positive development. Here is how I see it…
- The world is desperately in need if infrastructure investment. Even the World Bank, ADB, and AIIB combined won’t begin to satisfy the demand
- The US and EU aren’t stepping up to the plate. The US in particular is letting its own infrastructure crumble, let alone addressing the needs of the developing world. China is filling the void. Here in Kenya, I have been told by bankers, policemen, and taxi drivers that infrastructure projects are first and foremost the government’s way of enriching its friends, but when they actually want something built, they bring in the Chinese
- Competition is a good thing. The World Bank is moribund and has no sense of urgency. Paul Wolfowitz tried to do something about this during his brief stint as president, but was so tainted as one of the prime instigators of the Gulf War that his ideas were tossed out along with him. A competitive threat, most particularly in the area of responsiveness and time to market, may be just the kind of wake-up call it needs.
- The AIIB’s likely lack of concern for the environment is problematic, but the key is making the individual governments and the infrastructure projects themselves accountable; external political pressure on China has been spectacularly unsuccessful on most issues and is unlikely to be more successful here. Also, it is a mistake to think that improved infrastructure is automatically worse for the environment. Lack of infrastructure can be just as damaging. Look at Madagascar. Look at the Sahel.
- Lastly and most importantly, the focus on infrastructure instead of directly on poverty elimination is a very good thing. Aid programs are devastatingly unsuccessful. Here in Kenya, it is estimated that less than 40% of the material aid that comes into East Africa actually reaches its intended recipients (more on what to do about that in a future blog post). Time and again, I have seen first hand that the key to ending poverty is the commercial success of the impoverished. Education is the number one factor enabling that success. Financial inclusion is another key element. But without access to infrastructure, the best skills and available capital will have nowhere to go.
Would love your thoughts