The president of the Asian Development Bank said that the bank will focus more on cleaner technology and quality infrastructure to meet steeply increasing infrastructure needs in Asia, a move that could potentially help Japanese companies invest more in Asian infrastructure, while working in tandem with multilateral banks such as the Chinese-led Asian Infrastructure Investment Bank (AIIB).
“The ADB and other multilateral banks, including the World Bank and the newly established AIIB, should strengthen its support,” said ADB President Takehiko Nakao in an interview with The Japan Times. “But of course, very important parts should come from the private sector.”
Nakao’s comments come amid an increasing need for sophisticated infrastructure in Asia that accounts for 60 percent of global economic growth.
According to the ADB’s estimate in February, Asia requires about $26 trillion in infrastructure investment from 2016 to 2030, or $1.7 trillion a year, if the region wants to continue to grow, eradicate poverty and respond to climate change. The estimate is more than double the $750 billion that the ADB estimated in 2009.
Nakao said the increase in the estimate is attributed to the issue of climate change, which requires cleaner technology for mitigation, and renewable energy. The climate change initiative gained landmark momentum when then-U.S. President Barack Obama and Chinese President Xi Jinping last September agreed on carbon cuts in accordance with the Paris Agreement, which was struck at the 2015 U.N. Climate Change Conference, or COP 21. However, U.S. President Donald Trump has threatened to ax it.
The sharp hike in infrastructure needs is also due to the fact that people want better infrastructure as per capita gross domestic product of the people in Asia increases. Power and transport are the two areas that requires the bulk of the investment, with the ADB estimating that out of the $26 trillion required, $14.7 trillion will be for power and $8.4 trillion for transport.
To address those target areas, Nakao said the ADB is trying to promote more advanced and cleaner technologies in its projects, things that could prove to be a big boost for Japanese companies.
Despite the quality, Japanese companies faced setbacks in successfully bidding on projects within the ADB sphere, where Japan and the U.S. have the two highest voting rights, and former Bank of Japan and Finance Ministry officials such as Nakao have served as presidents since the bank’s inception in 1966. In 2013, Japanese companies bid on only 0.5 percent of the ADB’s infrastructure projects.
While Nakao said that one of the reasons for low bidding rates by Japanese companies is that the Japanese technologies are more expensive and its equipment and machines are too state-of-the-art for civil engineering in some countries, while other countries such as China and South Korea are becoming more competitive in price and technology. The former Finance Ministry top official said Japan should strengthen its consultancy business to sell as a package to compete against its Western rivals such as European countries, Canada and the U.S.
“There is a very strong faith (in Japanese technologies), but it is sometimes pricy and we should also admit that in these emerging countries, companies are becoming more competitive and more high quality,” said Nakao.”By putting consideration into more quality elements when countries have competitive bidding, there are more chances for Japan or more advanced economies to engage in those procurements.”
Yet Nakao, who replaced the bank’s former governor Haruhiko Kuroda in 2013 and was re-elected for a second term last August, said that the Asian countries are paying more attention to maintenance costs and sustainability of the projects. Nakao, who has been consistently traveling to Asian countries, also said there is an increasing interest in using Japanese projects as model cases in some Asian countries.
“The countries are the borrowers and they implement the projects, so they decide who gets the procurements,” said Nakao. “But we want to raise the standards in our procedures, by paying more attention to quality in addition to prices.”
The ADB’s new focus could also provide a powerful tailwind to Prime Minister Shinzo Abe, who has been upping his efforts to sell Japan’s high-quality infrastructure as part of his Abenomics economic policy to buoy the teetering Japanese economy, especially after China established the AIIB to invest more in infrastructure not only in Asia, but in the Middle East as part of its “One Belt, One Way” project.
In 2015, Abe made a $110 billion pledge to finance infrastructure projects in Asia over the next five years, a sum slightly exceeding that of the AIIB, in an apparent move to challenge the bank launched by the world’s second-largest economy.
Established just two years ago, the number of the AIIB member countries has already surpassed the Japan-led Asian Development Bank’s 67 members. The AIIB took Japan and the U.S. by surprise when Canada announced it would join the Chinese-led initiative, leaving the world’s largest and third-largest economies as the only non-AIIB members among their Group of Seven peers.
While many view the AIIB as a competitor of the ADB, Nakao said that it is a partner and not a rival as there is a huge need for financing in infrastructure.
“It’s nice to have additional resources from the AIIB,” said Nakao.
The fact is that the ADB cannot alone fulfill Asia’s infrastructure needs, and the AIIB is relatively short staffed as compared with the ADB, which has several decades of expertise as a multilateral bank.
That is part of the reason why the ADB and the AIIB co-financed a road project in Pakistan and a natural gas infrastructure project in Bangladesh last year, with Nakao noting that both banks are trying to seek more co-financing projects in coming years.
“We discussed many issues such as what we can do together and how to manage issues like social and environmental impact,” said Nakano, referring to AIIB President Jin Liqun, who used to be the ADB vice minister, adding that he has met him nine times in the last two years. “So I regard him as a good partner as he is also interested in development and finance.”
Still, Nakao admits there is much more to be done for the ADB to be a more efficient multilateral bank when there are increasing needs for infrastructure and development needs.
One is to make its operation faster and more efficient as there are some complaints that ADB procedures are not as quick as developing nations would like. Nakao also said that the ADB has to delegate more power to its 28 regional missions so that the bank can better respond to local needs.