b. Forming partnerships; links with the private sector

Collaboration is already a theme word for many multilateral development banks but the hopes are high that the Southern-led banks will enhance this. Internal evaluation documents by the older multilateral banks such as the ADB, for example, raised concern about the lack of co-financing arrangements and urged the bank to do more to mobilize funds from other sources (ADB, 2011). As early as ten years ago, the ADB signed a formal MOU with the IsDB to promote co-financing between the two institutions. By last year the IsDB was their third-largest partner, and pipeline facility was prepared for $6 billion co-financing that included transport, energy, health and PPPs (with $2.5 billion from ADB and $3.5 billion from IsDB)? The IsDB target for co-financing is already at 100% and the ADB announced a co-financing target of 100% by 2020, compared to its currently levels of 80%, which are already up sharply from just 4% in 1976.

Among the new development banks, NDB has sought to engage in partnerships with other financial institutions right from the beginning of its operations, as seen earlier. To this end, the bank has signed cooperation agreements with global and regional multilateral banks as well as with sub-regional institutions. As for the AIIB, in 2016 six of its nine loans were for projects co-financed with ADB, the European Bank for Reconstruction and Development and the World

Bank (AIIB, 2018), thus showing strong willingness to form partnerships with other international banks.

Will these new and enhanced Southern-led institutions interact differently with the private sector compared to the more Northern-led development or commercial banks? Attracting private sector support for infrastructure and other long-term investment has long been a goal for many governments, despite evidence that the lion’s share of long-term investment always comes from the public and not the private sector. Typically governments seek to involve private finance or expertise through the Public Private Partnership model, despite the chequered experience with this in many other countries and persistent claims that the public sector too often carries an unfair share of the costs whilst receiving too few of any benefits (e.g., Eurodad, 2017). Will South-South PPPs be any different from the North-North or North—South ones of the past? The major MFIs seem to think so, according to the 2015 World Bank/IMF publication “From billions to trillions”, and PPPs are a major plank of the infrastructure masterplans that currently exist for each region of the world, such as the Programme for Infrastructure Development in Africa (PIDA) or China’s Belt and Road Initiative.

However, so far, the rise of Southern-led financial institutions has not led to a concomitant increase in PPPs in developing countries, judging by the World Bank Private Participation in Infrastructure database (Barrowclough, 2018).

Nor is there any inherent reason to believe South—South PPPs would be any different from North-South ones. Governments still need to give equal consideration to the use of more conventional methods of providing infrastructure, such as public provision or procurement, as opposed to assuming that more complex arrangements will always be better. Evidence shows these are often more costly and do not provide such broad or universal coverage (see Barrowclough, 2018; UNCTAD TDK. 2015).

c. Loan portfolios: are Southern-led institutions more willing to support productive economic activities and green investments?

Alongside the benefits of scaled-up finance, it is also hoped that Southern-led institutions will have more appetite for supporting infrastructure and other activities that the private sector and commercial lenders have been unwilling to support (e.g., Bhattacharya and Romani (2013), Gallagher and Koleski (2012), Ocampo (2016), among others. The traditional lenders such as the World Bank lent annually only between S50 and $70 billion to infrastructure over the 2008—2015 period, which is far too low for what is needed, reflecting the disengagement from these areas by the traditional multilateral institutions over the years. Hopes are high that Southern-led institutions will be different.'’ It does appear so - among the Chinese banks, CDB is a primary provider of long-term finance for infrastructure projects, such as railways, roads and telecommunications, and for large-scale investments in basic and heavy industries, such as petrochemicals. In 2014, mining, energy, transport, telecommunications and other activities described as infrastructure accounted for 56% of total loans (UNCTAD, 2016:28). China Exim Bank’s mandate is to support China’s exports and imports of mechanical and electronic products, equipment and high-tech products, as well as overseas investments of Chinese companies (China Exim Bank, 2014; Poon, 2014).

These banks are also looking outwards. CDB has contributed finance to countries along the Belt and Road route, which in 2016 amounted to US$12.6 billion in such areas as energy, telecommunications and industrial capacity. Together with CDB, China’s Exim Bank has strongly supported China’s strategic partnership with other developing countries. In Africa, it gave finance to “the development of high-speed railway, expressway and regional aviation networks (the ‘Three Networks’)” through loans (part of these concessional) and other assistance mechanisms (China Exim Bank, 2013:33, 2014:9). Although its priority since 2016 is the Belt and Road initiative, it continued to support African countries via loans to promote China—Africa infrastructure and industrial cooperation/

Similarly, the Brazilian BNDES has expanded its international operations, supporting regional economic integration and therefore investment promotion in neighboring countries, as well as strengthening Brazil’s economic links with fast-growing developing regions, particularly Africa. In South America, for instance, the bank has played a very important development-supporting role by lending to small countries such as Ecuador as well as larger ones such as Argentina, to finance economic infrastructure. In Africa, it has extended loans to large national construction companies investing in infrastructure and other projects.

Another distinctive contribution from the Southern national development banks is their willingness to experiment with new types of loans. For more than a decade, China has offered commodity-backed or resource-secured loans, which are a significant source of finance for many emerging and developing countries. These can be huge — estimated to account for as much as $132 billion already in the years between 2003 and 2014 (Brautigam and Gallagher, 2014), and included oil-backed loans to Angola, Congo-Brazzaville, Ghana, Sudan, Brazil, Ecuador and Venezuela, among others. CDB has been a key provider of these forms of loans. Through a triangle operation, it makes a loan to the host government, on the basis of either direct repayment in the usual way or payment via commodity sales pledged to Chinese State-Owned-Enterprises, such as the CNPC or NODC or Sinodec (Gallagher and Koleski, 2012).8

Another distinction is their orientation towards green finance. In its first year of operations, of the seven loans approved by NDB worth SI.6 billion, as many as six were for renewable energy. Declarations from the banks’ senior managers indicate that this initial emphasis on green projects has not been accidental, but part of a strategy to build an image that identifies the bank as intimately connected with future trends and concerns. In a similar vein, it has sometimes been suggested that Southern-based MDBs can capitalize on their strengths and partially compensate for their weaknesses by focusing on green and sustainable infrastructure projects.

Thus, palpable gains as a result of the growing international operations of national development banks, initial operations of the new banks and refocusing of existing ones include a greater focus on industrial infrastructure projects (including green ones), in addition to the scaling up of financing to developing countries.

d. Macroeconomic coherence

The benefits of having alternative sources of credit creation and intermediation became clear during the latest economic crisis as Development Banks increased their lending counter-cyclically at just the time many private banks were scaling back. According to a World Bank survey of 90 development banks across developed and developing countries, in the post-crisis difficult years 2007—2009, these banks increased their loan portfolios more than three times as much as private banks operating in the same countries (by 36% compared to an increase of just 10% - de Luna-Martinez and Vicente, 2012). Some Sovereign Wealth Funds can also, as discussed above, play this role. Whilst it is too soon to say what will be the record of the new South-South and Southern-led banks, the expectations are that, by their nature, they will follow similar behavior, even if counter-cyclical lending is not an objective explicitly mentioned in their mandates, as is the case, for instance, of the EIB. More generally, to the extent that the new sources of finance will support investment in infrastructure, industrialization and diversification in developing countries it should help governments achieve a more coherent fit between all the different aspects of their developmental aims and policies.

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