It is a well-known fact that for any country to achieve sustainable economic growth a strong infrastructure is a key foundation, both in terms of quantity and quality. Asia, the giant who has led the tremendous economic growth since last decade (6.7% annually from 2000-2012) and increasingly assuming central role in world economy, is under severe pressure to improve its infrastructure needs and scale up to meet the global standards if it were to sustain its remarkable economic growth rates.
The changing demographics, the distinct shift of population from rural to urban areas, the rising economic power status and the growing inter-connectivity and dependence with the developed regions has led to immense pressure on creating a world class infrastructure in Asia. Currently, the inadequacies in infrastructure is proving to be a bottleneck in Asia's rapid economic growth, a threat to competitiveness and an impediment to reduction in poverty. And, the major challenge in bridging the infrastructure gap (normally defined as the difference between country's development goals and its actual capability to achieve those goals), is the lack of investment financing. The lack of public investment in infrastructure due to fear of adding to fiscal burden, the dearth of private-sector participation and deficiency of long-term capital market financing has enlarged the existing infrastructure gap.
According to the 2014 WB report, Reducing Poverty by Closing South Asia's Infrastructure Gap South Asian countries will have to invest as much as $2.5 trillion over the next ten years: one-third to be spent on transport, one-third on electricity, and the remainder on water supply and sanitation, solid waste management, telecommunications, and irrigation. And according to the Asian Development Bank (ADB), infrastructure investment needs in Asia could reach $750 billion annually during the period 2010-2020; while ADB's estimated lending approval each year is just around $13 billion!
Thus, realizing the importance of fulfilling Asia's infrastructure financing needs, China, in October 2014, announced the launching of Asian Infrastructure Investment Bank (AIIB) backed by an initial paid- up capital of $50 billion and with authorized capital of $100 billion. The AIIB has approved 57 countries as founding members as on March 2015. The 57 founding members cover five continents, including Asia, Oceania, Europe, Latin America and Africa.
The AIIB's main focus is to provide funding exclusively for infrastructure projects such as roads, ports, dams, bridges, railways in underdeveloped Asian countries, which differentiates it from the ADB's broader mission of reducing poverty. Besides, with the rise of trade in value-added and production networks in the Asian region, contributing to industrial upgrading and competitiveness for many countries, it becomes essential to move beyond the national projects and create a steadfast network of cross-border infrastructure. And AIIB intends to also move in this direction by developing and financing the cross-border regional connectivity infrastructure projects like road systems, ports and telecommunications network.
Though AIIB has been able to garner initial attention, it remains to be seen how far the bank will be able to deliver in terms of good governance, flexibility, transparency, predictability, which will, in the long-run determine its eventual success!
Source: www.guizzetti.org
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