I. Welcome
Excellency, Minister of Economy of the Federated Republic of Brazil, Mr. Paulo Guedes
Excellency, Deputy Minister of Finance of the Russian Federation, Mr. Timur Maksimov
Excellency, Minister of Finance of the Republic of India, Mrs. Nirmala Sitharaman
Excellency, Minister of Finance of the People’s Republic of China, Mr. Liu Kun
Excellency, Minister of Finance of the Republic of South Africa, Mr. Tito Mboweni
Distinguished Alternate Governors and Members of the Board of Directors
Ladies and Gentlemen.
On behalf of the New Development Bank, I am pleased to welcome you to the Fifth Annual Meeting of the Board of Governors.
II. The Context
The very fact that we are having this meeting by video conference illustrates the difficulties facing the entire world today as it struggles with the coronavirus and its unprecedented effects on all our economies and societies. All of you are deeply involved in managing the continuing adverse impacts being caused by the virus and it is a demonstration of your deep commitment to the Bank that you have taken the time from your extremely busy schedules to attend this meeting. I sincerely thank you for your presence here today.
On behalf of the Bank, I would like to convey that we deeply regret the loss of life and economic and social distress being caused by COVID-19. The Bank stands in solidarity with you and the global community in the fight against this pandemic and is devoting a significant portion of its human and financial resources to assist its members. Three days ago, the Bank fully disbursed a USD 1 billion emergency loan to China. This week, we will present to the Board of Directors, an emergency loan of USD 1 billion to India. The Bank is in discussions with Brazil and South Africa for loans of USD 1 billion each. All three loans are along similar lines to the China loan. And we stand ready to do more, if our members request it. The Bank has the financial capacity to provide a total of USD 10 billion in crisis-related assistance. We will spare no efforts to do whatever we can to assist you at this time of need. I believe that together, we can overcome this enormous, but hopefully short-term challenge and continue to move forward on the path of progress.
Like every other country and institution in the world, the Bank has had its share of challenges at this difficult time. Thanks to the support of our member countries, the enormous commitment of our staff, and a strong cloud-based Information Technology infrastructure, we have been able to manage the situation well thus far. In addition to your support, I am also extremely grateful for the support extended by our Alternate Governors, Directors, and Alternate Directors. I also place on record my deep appreciation of the commitment and dedication of my fellow members of the management team, the Vice Presidents, and all NDB staff who have contributed enormously to the evolution of the Bank. Since January this year, in particular, Management and staff have been operating under extremely difficult circumstances and I express my sincere gratitude to them.
III. Status Update
Excellencies, in July 2015 in Ufa, Russia, the Management was given a mandate to set up a development bank for the 21st century. The founders envisaged a Bank that exhibits the core values as enshrined in its Articles of Agreement, sets new practices, and demonstrates the ability of developing countries to stand on their own feet.
Over the past five years, I believe that in many ways, we have succeeded in meeting the aspirations of our founders. We have established a development bank for the future. On this exciting journey, we have crossed several milestones in a much shorter time frame than many of our peer institutions. I will take this opportunity to briefly recount the progress we have made since our establishment and focus more particularly, on the Bank’s accomplishments in the one year since I last reported to you.
In 2019, the Bank approved 22 loans for about USD 7.2 billion, making significant progress towards the target of achieving a broad equilibrium across members. We are now working on projects across a broader spectrum of infrastructure sectors, indicating our ability to appraise more complex projects in areas like urban transportation, natural gas transmission, water, sanitation, and flood protection. We also approved our first equity investment in Brazil.
In 2019 alone the Bank approved as much assistance as it did in the three preceding years combined, thereby doubling the Bank’s book of total approved financial assistance to nearly USD 15 billion. Of this total amount, a quarter is in local currency financing, currently in Rand and RMB. In addition to the US dollar, during 2019 we have added Euro and Swiss Franc loans to our menu of hard-currency products. This robust growth is a testament of our ability to do things at speed without compromising on quality. This also demonstrates our ability to stand on our own feet as we have focused on developing in-house skills in all areas of multilateral development banking. Our approach has been one of being extremely receptive to client needs, offering local and hard currency products, managing risks prudently, avoiding the traditional donor-donee mindset, and focusing on contributing to our members’ sustainable development goals.
In 2019, S&P and Fitch reaffirmed the Bank’s AA+ international credit rating. The Bank has also obtained a AAA international credit rating from the Japan Credit Rating Agency. These high international ratings give us the advantage of being able to access a world-wide investor base across all major global capital markets on favorable terms. So far, the AA+ rating has not been a disadvantage. The actual cost of borrowings for the Bank is barely 10bps higher than AAA rated MDBs at the long end, and at the short end, there is not much difference in fund raising cost. The Bank, through its lean architecture and low operating costs, can therefore provide financing at costs that are competitive as compared to AAA rated MDBs.
Another key differentiator for the Bank is its fit-for-purpose information technology infrastructure which has been implemented at a fraction of the IT cost of our peers. All our operations run fully on the cloud, giving us the ability to access all systems remotely. The COVID-19 outbreak has tested our systems and they have met and exceeded expectations. Even with many of our staff members working either from home in Shanghai or from different geographies, the Bank has successfully and seamlessly conducted its normal day-to-day business.
Excellencies, by now a strong institutional foundation has been laid for the Bank and rapid growth has already begun. The Bank is now fully equipped to address even difficult global challenges and has the policies, procedures, processes, and systems in place to sustain a robust growth of approvals of roughly USD10 billion annually in future years. Of course, human resources and capital will need to be scaled up appropriately over time as the Bank’s portfolio grows.
With the current pace of growth and capital infusion from the founding members as set out in the Articles, the Bank can achieve a total asset book of about USD 50 billion. If the Bank admits new members, with the additional capital they would bring in, its total asset book can grow to about USD 90 billion by CY2027. Beyond this, there are innovative financial equity-like instruments available in the capital markets that, if well utilized, can further increase the Bank’s asset book to about USD 120 billion. I would like to emphasize that the Bank can achieve this size with just the initial USD 10 billion of paid-in capital provided by the founding members. These numbers should be an aspiration for the Bank.
IV. Impact of Technology on Development Processes
I would now like to share my thoughts about the future and role of technology as an enabler. Technology-led changes will fundamentally alter the current development paradigms and enable our member countries to leapfrog traditional development processes. Technology also helps integrate newer systems with existing structures thereby altering the scope, size, and complexity involved in financing the infrastructure of the future.
The rapid ongoing growth in digital technologies will also present us with a great opportunity to address the deficits in many traditional areas of infrastructure. Technology has the potential to reduce the urban-rural divide, improve economic conditions in remote areas, and offers the ability to start new businesses at low cost. By investing in digital infrastructure, countries can bring financial services to unbanked rural areas, improve health care to underprivileged communities, increase agriculture income, create platforms for quality education beyond cities, and be much more effective in disaster response and management. A good example is the use of digital platforms in the fight against COVID-19.
Earlier this year, I visited the Alibaba Campus in Hangzhou where technology-driven solutions in disaster management were presented, both at the prevention and mitigation stages. For example, the solution to prevent large forest fires included effective use of drones and thousands of low cost heat sensors air-dropped in a grid pattern in sensitive areas that would enable quick and coordinated responses and mitigate potential human and economic losses.
These systems are low cost and can be easily replicated in our other member countries. The Bank can and is willing to act as a catalyst in bridging this knowledge flow and bring these solutions to all our other member countries.
V. Conclusion
Excellencies, I am aware that this is the last Annual Meeting of the Board of Governors that I will be participating in as President of the Bank. As I prepare to hand over to a new President, I am personally happy and satisfied that I leave NDB as a full-fledged financial institution that can proudly stand shoulder-to-shoulder with its peers. I am confident that it is an institution with its own unique identity and culture that will be your dependable development partner in the decades to come. It has indeed been a privilege to serve as the first President of the Bank. It has been a learning experience to set up a global institution from scratch, working with all of you and your predecessors, the current and past members of the Board of Directors, my fellow members of management, and an extremely talented group of staff. Thank you for giving me this opportunity. I wish the institution all success.
Thank you.