Will the Asian Infrastructure Investment Bank become the new musketeer?

On Monday, China officially launched the Asian Infrastructure Investment Bank (AIIB) in a ceremony with representatives from the bank's 57 founding-member countries. AIIB will have a capital base of US$100 billion, three-quarters of which come from within Asia.
 

At the inaugural ceremony in the Great Hall of the People, Chinese President Xi Jinping reaffirmed the new institution's mission, saying that "Our motivation [for setting up the bank] was mainly to meet the need for infrastructure development in Asia and also satisfy the wishes of all countries to deepen their co-operation."

Indeed, the AIIB is a major piece of China's regional infrastructure plan, which aims to address the huge needs for expanding rail, road and maritime transport links between China, central Asia, the Middle East and Europe. But the AIIB should also represent a huge opportunity for cooperation not only between countries in the region but also with other multilateral development banks.

Our experience working on transport mega-projects co-financed by several multilateral development banks (MDBs) already shows that this collaboration is much needed and critical for the success and viability of mega-projects. The most recent experience with the Quito Metro Line One Project, for example, shows that the co-financing banks – World Bank, Inter-American Development Bank, Andean Development Corporation and European Investment Bank –  brought not only their financial muscle but also their rich and diverse global knowledge and experience.  Incidentally, because of the Quito Metro project, all the MDBs involved in the project were dubbed as the  “musketeers, ” precisely due to the high degree of collaboration and team work that is making this project a success.

The Quito Metro is an urban mega-project worth US$1.7 billion. Given the total cost and potential risks, it was crucial that a pool of MDBs co-financed the project to share and dilute the potential risks – a single MDB could not finance too large a share of a mega-project, for its own credit rating could suffer.

In the case of the Quito Metro project, moreover, the client chose that the four MDBs financed a single construction contract, worth more than a billion dollars. Jointly co-financing the same construction contract demanded additional collaboration amongst the various multilaterals, and hence these MDBs agreed to sign a framework for collaborating called the “Principles of Collaboration” (PoC).

The degree of collaboration agreed upon in the PoC can be summarized as “one for all and all for one” – and that is why the four co-financiers were dubbed the “Three Musketeers” – which were actually four in Alexandre Dumas’ original novel.

This collaboration, for example, required that the World Bank Board of Directors agreed for the first time to use another MDBs’ Procurement Guidelines, in this case the ones from the Inter-American Development Bank (IADB). The IADB’s Board of Directors, in turn, waived the provision that only firms from member countries could bid for a project, agreeing to the World Bank’s principle that firms from any country could bid for a contract.  

 

The Lima Urban Transport Project is another example of collaboration on a mega-project, involving the World Bank and the IADB. In this case, each MDB financed a share of several construction contracts required to implement the project, which has become a successful 27-kilometer Bus Rapid Transit line that today facilitates more than 700,000 trips per day.
 
The Lima Metro Line 2 project is yet another example of multilateral collaboration. Because of its cost of US$5.8 billion dollars, several MDBs were needed for the co-financing. The Fiji Transport Infrastructure Investment Project is also co-financed by the World Bank and the Asian Development Bank, and uses the latter’s procurement guidelines.

Clearly, strong collaboration is required to help a client (and project) succeed. The Sao Paulo Metro Line 4 and Line 5 offer yet more examples of successful MDB co-financing and collaboration.

Infrastructure needs are huge in developing countries. Infrastructure projects in general and transport projects in particular are mega-projects with huge costs that rarely can a single MDB finance on its own. The sheer size of mega-projects, therefore, calls for several MDBs to find ways to collaborate and achieve the project’s goals for the benefit of the client country and respective populations.

This is why we welcome the creation of the AIIB. In the Asian context, the AIIB, the Asian Development Bank and the World Bank can co-finance much needed infrastructure that no single MDB can finance on its own. In addition, each MDB will bring value-added experience and best practices to the table beyond the funds it can provide.

By working together like Dumas’s musketeers, we all will benefit from the collaboration and learning experience that will also greatly benefit, above all, our clients and the people these projects aim to serve. To the cry of “one for all and all for one,” it is certainly our hope that the new AIIB will quickly join the family of “musketeers”.