17 June 2017

Address to the Asian Infrastructure Investment Bank

Note

Infrastructure Roundtable
Jeju, South Korea

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  • Chairman (Dimitry Kumsishvili, Georgia), President Jin (Liqun, China), Deputy Prime Minister Kim (Dr Dong-yeon, Republic of Korea), Sir Danny (Alexander, United Kingdom), fellow Governors.
  • Those of us gathered today in beautiful Jeju, Korea, understand the importance of infrastructure investment. That’s why we’re all here.
  • Investment in infrastructure is vital to securing the productivity gains needed to power Asia’s transition to high income for its citizens.
  • It also reinforces our commitment to the 2030 Agenda for Sustainable Development and the Sustainable Development Goals.
  • Better infrastructure is needed. More infrastructure is needed.
  • We are all familiar with the Asian Development Bank’s assessment that the Asian region alone requires $26 trillion worth of infrastructure development by 2030.
  • Working with partner governments is key, but public funding alone will not be enough to bring about the step-change needed.
  • Private capital will be essential and public-private partnerships will be key to maximising outcomes.
  • This is why our nations, our Governments, joined together to help create the Asian Infrastructure Investment Bank (AIIB).
  • Australia has always said that the AIIB has the capacity to be a ‘‘game changer’’ for the region, by catalysing private sector investment.
  • The AIIB’s commitment to being ‘‘lean’’ is one of its key assets, as it requires the Bank to partner with others and be flexible and responsive – to be nimble, as President Jin emphasised yesterday.
  • Private sector participation in infrastructure development can bring innovation – it’s a word Australia’s Prime Minister, Malcolm Turnbull, has reiterated – new technologies, experience, improved efficiency and management and greater access to both start-up and patient capital.
  • The challenge is to make infrastructure projects in the region attractive to investors, because the lack of stable returns or project risks can be difficult to quantify and mitigate.
  • In this context, the Bank must engage the private sector early, select sound advisors and be more ambitious and innovative than the other multilateral development banks (MDBs).
  • This means the Bank must be willing to supplement financing gaps and share project risks.
  • Having an operational culture that encourages private sector participation and an integrated approach to project preparation is essential.
  • Each AIIB investment should incorporate a robust analysis of private investment opportunities and constraints.
  • Australia's experience with infrastructure delivery and finance has evolved to adapt to modern infrastructure needs and innovative financing models.
  • In 2014, the Australian Government established an Asset Recycling Initiative to encourage state/territory – provincial – governments to privatise assets that have an established risk return profile and reinvest the sales proceeds into new infrastructure.
  • This initiative sought to take advantage of the private sector’s willingness to take on established brownfield assets, while freeing up public sector resources to take on greenfield risk.
  • There is scope for the AIIB to consider how it can encourage a similar reallocation of risks in its member countries.
  • As Bank members, we must ensure that we also support the policy and regulatory reforms in client countries that enhance enabling environments and encourage innovative financing partnerships to emerge.
  • Beyond addressing shallow capital markets, the AIIB should consider co-financing projects by acting as an anchor strategic investor.
  • Doing so would directly address the constraint of limited investor experience and uncertainty while ensuring the viability of new projects rather than competing with private investors for the same limited bucket of bankable investments.
  • Finally, the objective of fostering private sector involvement in infrastructure is not new. MDBs have been wrestling with how best to do this for some time, but with mixed results. Many of the impediments – domestic policy settings, regulatory approach, etc – are really in the hands of national governments. But the AIIB has a unique opportunity, starting with a clean sheet of paper, to bring a fresh perspective, learning from the lessons of others while not constrained by their mistakes.
  • Thank you