Opening address of Mr. K. V. Kamath, President, New Development Bank at the Fourth Annual Meeting on April 1, 2019
Her Excellency Minister of Higher Education and Training, Ms Naledi Pandor,
His Excellency Minister of Finance, Republic of South Africa, Mr. Tito Mboweni,
His Excellency Minister of Finance, People’s Republic of China, Mr. Liu Kun,
Alternate Governors of the Board of the NDB,
Mr. Marcos Troyjo,
Mr. Sergei Storchak,
Mr. Subhash Chandra Garg,
Cabinet Ministers of the Republic of South Africa,
His Excellency Minister of Economic Development, Mr Ebrahim Patel,
His Excellency Minister of Finance of the Kingdom of Lesotho, Dr Moeketsi Majoro,
Other honorable Ministers of the Republic of South Africa,
H.E. the Mayor of Cape Town, Mr Dan Plato,
Members of the Board of Governors of the NDB,
Members of the Diplomatic corps,
Distinguished guests, ladies and gentlemen:
On behalf of the New Development Bank, it is my privilege to welcome you to our Fourth Annual Meeting in Cape Town.
I would like to extend our sincere gratitude and appreciation to the National Treasury, Republic of South Africa and the City of Cape Town for their generous support and excellent arrangements for this Annual Meeting.
Our thanks also go to our governors, alternate governors, directors, alternate directors, and representatives from other institutions for their support, which has been indispensable in ensuring a productive and fruitful 2018.
The Bank supports our members’ commitment to sustainable development. This commitment is built on simple facts. The share of the BRICS countries in world GDP in PPP terms has grown from 30% to 36% since 2010. This growth has put increased pressures on natural resources and the environment. Fortunately, however, our members have explicitly recognized these pressures and are increasingly investing in undoing some of the past damage. Our members are also focusing on implementing development strategies aimed at minimizing adverse impacts in the future. In both these endeavours, the Bank is being called upon to assist.
We are responding. Since inception, the Bank has based its lending on a long-term, broad assessment of economic, environmental, social, and climate change impacts. The Bank now looks to go beyond the “do-no-harm” approach to incorporate a more transformative approach to development. We are focusing on the development impact of our lending through more robust monitoring frameworks and measurement of projects’ contributions to our members’ SDG commitments. Sustainability therefore remains at the core of everything we do.
I would like to share with you our achievements of the past year.
Building on a base of 13 loans for USD 3.4 billion at the end of 2017, the Bank approved 17 loans totalling about USD 4.6 billion in 2018, bringing the total loan book of the Bank to 30 projects, aggregating about USD 8 billion. Of this, in response to the need for non-sovereign lending in our member countries, the Bank approved four non-sovereign loans aggregating about USD 1 billion in three countries in 2018, taking its total non-sovereign portfolio to about USD 1.4 billion. Nearly 80% of our lending is now in the transport, clean energy, and water and sanitation sectors, with urban development and environmental protection also forming a major part. We have also invested in building a strong and more diversified pipeline of projects for 2019.
During 2018, the Bank obtained AA+ international rating, that provides it full access to global capital markets on favourable terms. We remain lean, efficient, and fit-for-purpose in our staffing in all areas.
Now let me take you through the Bank’s evolving role that we envisage this year and beyond.
In 2019, the Bank will build on the strong momentum in our operations and double its loan approval book to about USD 16 billion. The Bank will ramp up its hard currency financing from the international capital markets. The Bank has made a second bond issue of RMB 3 billion from the Chinese interbank bond market and plans to do local currency bond issuances in South Africa, India, and Russia during the year. The Bank will also start making equity investments and operationalize the Project Preparation Fund.
We are well aware that our member countries have very different systems and processes for project origination. Some of them are centralized while others are decentralized. Since inception, we have invested in learning to work with these different systems, with country-specific approaches aimed at helping us improve our efficiency and effectiveness. This learning process continues. The regional office in Johannesburg that is fully operational has helped us make progress in South Africa. The regional offices in Brazil and Russia that we intend to open this year and the regional office in India that we aim to open in due course will help us in these three countries. Our staff will strive to further understand our client systems and work seamlessly in all our member countries.
Going forward, we would like to embrace the concept of impact investing in our project portfolio. Impact investing aims to generate positive social and environmental benefits alongside financial and economic returns. It takes a more holistic approach to investments, incorporating positive and negative externalities in addition to a project’s economic and financial returns. We believe this offers a hopeful alternative path to the traditional approach. The industry, currently estimated at over USD 230 billion of assets under management, has grown more than fivefold since 2013. The Bank’s current approach to its portfolio is largely in line with the practices of the impact investing community and we look forward to building on this.
Looking ahead, I am excited about developments in several areas that will influence our future work.
Last year, I had touched upon the possibilities of the Fourth Industrial Revolution and likely transformations that could be brought about by technology-led disruption. Some of these changes are already visible. Artificial Intelligence (AI) and machine learning are now a growing reality in our everyday lives and their spheres of influence are expanding exponentially. 5G rollouts have already begun and consequently, a ubiquitous internet of things is now a matter of when, not if. These technological developments are revolutionizing finance, tele-medicine, education, and public services. Innovations to further green the global economy such as highly energy efficient and driverless automobiles are now beginning to reach the mass-market.
In the near future, is it conceivable that the auto-insurance industry as we know it today will cease to exist? Or that a significant fraction of healthcare is delivered remotely? Or that children will have near-universal access to high-quality internet-based education? Or that our infrastructure will become so smart that there is near zero-failure? Or that urban transport will be completely revolutionized? I believe it is.
These changes have far-reaching consequences, and require a new way of thinking about the underlying infrastructure and our role in financing it. We need to take the opportunities presented by technological advances and make our infrastructure smarter, more sustainable, and climate resilient. We will actively explore avenues through which we can support our members in these areas and contribute to thought-leadership on this issue.
As we increase focus on development impact as the cornerstone and key metric of our success, we will need to look differently at the projects that we finance. We will need a whole new set of skills in areas ranging from due diligence to project design to impact reporting. We will further strengthen these skills in our own staff and contribute to helping achieve scale through our investments.
We are well aware that even working together, MDBs can directly offer only a small part of the total resources required to achieve the SDGs that our members have signed on to. Crowding-in other investors, particularly in the private sector, is critical if we are to make a significant contribution. To achieve this, designing new products that are appropriate for a broad spectrum of investors is essential. The creation of robust secondary markets in our member countries is imperative; they will help meet the current demand for projects that suit investors’ needs. MDBs could act as originators of projects, play their important role in de-risking such projects, and offer these projects to private investors, thereby enabling better use of their capital. Going forward, the Bank will work with partners to contribute to this process.
As I briefly mentioned earlier, we launched our Africa Regional Centre in Johannesburg in August 2017. We are pleased to see that it is already bearing fruit. While the Bank only approved three projects from South Africa aggregating USD 680 million, in the past three years, the ARC has enabled us to quickly identify six projects for 2019. Of these, three projects, aggregating USD 790 million, were approved by the Board of Directors yesterday. We plan to end the year with total loan approvals of about $2.3 billion in South Africa.
Your Excellencies, Ladies and Gentlemen, we believe that the Bank should aim at making a significant contribution to societal well-being. This is a matter of existential importance. Our shareholders have given us a very clear mandate, which resonates with their own aspirations. We are committed to deliver on our mandate. We are on an exciting journey to contribute to making the world a better place for future generations and we look forward to partnering with other stakeholders in this journey.