Liberia acceded to membership of the Asian Infrastructure Investment Bank (AIIB) on 28 July 2020, as a non-regional member joining a host of 102 other countries comprising 44 regional members, 36 non-regional members and 22 prospective members. Other African countries that have already joined the club include Egypt, Ethiopia, Madagascar, Sudan, Benin, Djibouti, Guinea, Ivory Coast, Algeria, Ghana, Kenya, Libya, Morocco, Senegal, South Africa and Togo. The establishment of AIIB, championed by the People’s Republic of China which has ownership of over 26.6 percent of shares—followed in distance by India and Russia with respective shares of 7.6 and 6 percent, was a response to the financing difficulties experienced by its regional members. But it has also become a beckon of hope for other non-regional members, including those of Africa, because of its low-cost financing opportunities for infrastructure development. However, how African members, including the newest Liberia, would benefit from the promised infrastructural development of member countries remains a critical question of interest.
The progenitor of the Bank, President Xi Jinping, in a 2015 speech envisioned the Bank as a driving force for economy development of Asia, and the world at large, in the face of China’s growing investment opportunities. The Bank is viewed by some as an international extension of the infrastructure-driven economic development model that has sustained China’s rapid economic growth since reformist President Deng Xiaoping introduced the reform and opening-up policy in China. The Chinese economic development model stems from the ideological thought that “long-term economic growth can only be achieved through systematic and broad-based investments in infrastructure assets”—a notion that stands in contrast with the more short-term “export-driven” and “domestic consumption-driven” development models of neoclassical economists which have been pursued by many developed and developing countries. Some also see the Bank as the financial conduit for spurring China’s “Belt and Roads Initiative” which promotes people and economic connectivity, and “common development of all countries”.
One can say that the Bank started on a good footing. In about four years of its operation, the Bank remains a triple-A rated institution by the world’s three most prestigious rating institutions—Standard and Poor Global Ratings, Moody’s Investors Service and Fitch Ratings—with Fitch Ratings according the bank AAA/F1+ rating as of 2 July 2020, which is a good sign that shows the level of stability and confidence in the management of the Bank. Also, in just about four years following its establishment, AIIB has shown great prospect for infrastructural development, approving financing for 87 projects valued at about US$19.60 billion, committing US$11.25 billion financing for 44 proposed projects, and spending about US$21.3 billion on 12 projects financed through special fund financing arrangements in 24 economies. These projects focus on critical infrastructure in the energy, information and communication and technology (ICT), transport and water sectors as well as development of urban and financial institution. The Bank has also responded aggressively to the COVID-19 pandemic—spending over $5 billion in ten of its region member countries. This is a commendable response, especially during a period when national economies are struggling to cope with the devasting effects of the pandemic.
But while the Bank has provided substantial financing for infrastructure development, a disaggregation of the funded projects by membership categories shows that about 95 percent of all approved and proposed projects are implemented in regional member countries with only four of the 36 non-regional member countries benefiting 6 of the 115 approved and proposed projects. Also, of the 16 African countries that have gained membership to the Bank, only Egypt has benefited from projects valued at $660 million in three sectors—energy, water and financial institution. Egypt’s location in the “Belt and Road” corridor may be an advantage since the country may be seen as the main trading route linking Africa to the rest of the world. Though the continent still has huge infrastructure deficit, other African countries currently members of AIIB have not been so fortunate to achieve what Egypt has succeeded in doing.
Liberia’s move to become Africa’s newest member of AIIB is laudable. Membership to such multilateral financial institution comes with benefits for the country and its people. It does not only create an additional source of low-cost financing for critical projects, but also creates employment opportunities for qualify citizens of the country who aspire for international employment. But if Liberia, like other smaller African members of AIIB, is to leverage its membership to the Bank for development of its infrastructure, it must develop projects that are not just attractive but also bankable. While AIIB may be a multilateral institution, China’s large shareholding means that projects that are suitable for the Belt and Roads Initiative could be viewed favorably for funding under AIIB financing arrangement. But given the size of the Liberian economy and market potential—as it is the case with most of the smaller African countries that are already AIIB members, such infrastructural projects may not be easily developed from a single-country perspective. Liberia could work with other countries within the West Africa sub-region to develop regional projects that could be funded under the Bank’s “multicountry” initiative. For example, the Mano River Union countries which are already members (Guinea and Cote D’ivoire) could work with local experts to develop projects that could be financed under AIIB multi-country facilities to enhance economic activities within the Union. The size of investment for such project would not only be attractive but also have greater market potential when considered in the context of the population of the Union. Other smaller economies on the continent could also adopt multi-country approach to project development to enable the continent reap the benefits of membership to this multilateral institution.
In order to live to President Xi’s dream of the AIIB being the “driving force for economy development of Asia, and the world at large”, the Bank’s management should make efforts to create flexibility for smaller non-regional members with huge needs for infrastructural development to access the necessary financing for such purpose. Special programs targeted at smaller non-regional member countries could help strengthen these countries access to financing to enable them solve some of the critical infrastructure problem hindering improvement of the quality of lives of their people, and create a global community of shared prosperity.
J. Alexander Nuetah is Associate Professor of Applied Economics and Lives in Monrovia, Liberia.
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