President’s Desk

Speech of President K. V. Kamath at the Opening Ceremony of the Africa Regional Centre of the New Development Bank, Johannesburg, South Africa

17-Aug-2017

I. Welcome

Your Excellency President Zuma, honorable ministers, distinguished guests, friends, and colleagues.

I am delighted to here in South Africa and extend to you a very warm welcome from the New Development Bank. It is an honor for us to have you all present here at the opening ceremony of the Africa Regional Centre. The NDB looks forward to working closely with you as we grow our operations in South Africa, and, over time, in the African continent.

The establishment of the ARC, which is the first regional office of the NDB, is an important milestone for the Bank. It marks the fulfilment of a commitment made by the founders of the Bank in its Articles of Agreement. We sincerely appreciate the strong support that we have received from the relevant ministries in the South African Government that have allowed us to reach this milestone. The presence of President Zuma and the honorable ministers here demonstrates the importance of the ARC and the NDB to the Republic of South Africa. Thank you for your presence and support. The NDB will strive to meet the expectations you have from it. The ARC will be the face of the NDB in Africa. It will progressively undertake a growing range of the Bank’s work, beginning with project identification and preparation.

II. NDB’s progress thus far

I would like to begin by sharing some thoughts with you on the progress of NDB thus far.

The Bank started its operations in July 2015. In the two years since, the Bank has laid a foundation in all functional areas and we have started building on this foundation. With the support of all our members, including South Africa, we have put in place policies, procedures, and processes that guide our work.


(i) Lending

In 2016, the NDB approved 7 projects, all broadly in the area of sustainable infrastructure, totaling just over US$ 1.5 billion, to all five of our members. This included a renewable energy project in South Africa.

In 2017, we expect to approve loans aggregating about US$ 2.5 – 3 billion for about ten projects.

In 2018, we expect to present 15-20 projects involving total lending of about US$ 4 billion to our Board for its consideration.

Our target is to end 2018 with a total loan book of about US$ 8 billion for approximately 35 projects.

In 2018, we also plan to begin our private sector operations and explore investments in PPP projects. We are working closely with the authorities in South Africa to identify a strong pipeline of projects that we can support. As I have mentioned earlier, from now on, we expect that the ARC will play a major role in project identification and preparation.

(ii) Capital

NDB has thus far received total capital contributions of US$ 2.6 billion including advance payments of the third installment by China and Russia. We expect to receive a further US$ 900 million by January 2018. Timely, and even advance, receipt of capital contributions from all of our members is a strong vote of confidence in the institution and sends a positive signal to the global community about the commitment of our founders. I would like to thank the South African authorities for their timely capital contributions.

(iii) Funding and rating

Till date, the Bank has raised about US$450 million equivalent from the Chinese financial markets through an RMB green bond issue. We plan to raise additional funding of US$2 to 2.5 billion between now and the end of 2018, through local currency bond issuances in our member countries as well as through hard currency bond issues. We believe the South African market offers attractive opportunities for fund raising, and at the appropriate time, we will work with the authorities here in South Africa and explore the opportunities for raising Rand funds. In line with this fund raising objective, the Bank will formally begin the process of obtaining its international credit rating in the next few months.

(iv) Strategy

The Bank’s General Strategy, which lays down a framework within which the Bank will operate over the next 5 years, was approved in July 2017. The strategy targets a total lending volume of about US$ 32 billion by 2021 including local currency financing. This is a living document, and will evolve both as the Bank itself evolves and as the external landscape within which the Bank operates evolves.

(v) Staffing

The Bank has thus far hired 100 staff from all of its member countries through a rigorous and transparent selection process on the principles of meritocracy and gender equality. We propose to have about 150 staff on board by this year end and 220 staff by the end of 2018.

(vi) Partnerships

One element of the NDB’s mandate is to complement the work being done by existing institutions. Towards this end, the Bank has entered into formal cooperation agreements with many global, regional, and national institutions. These partnerships enable the Bank’s learning in critical areas and promote South–South cooperation supporting knowledge and expertise transfer among our members. These partnerships also help us achieve our objective of being a lean institution in terms of staffing. We aim to have critical core skills within the institution, while leveraging the resources and knowledge of other institutions through partnerships and collaborations. We will minimize duplication of efforts.

(vii) Membership

Another element of the Bank’s mandate is to operate largely within the geographical boundaries of its member countries. Therefore, expanding operations of the Bank to countries other than its members will mean expanding the membership of the Bank. In April 2017, the Board of Governors took the first step towards this objective and approved the terms, conditions, and procedures for admission of new members to the Bank. Next steps in this process will be taken as per the guidance of the Board of Governors.

(viii) Support to national development strategies

The NDB’s mandate is to finance infrastructure and sustainable development. NDB’s activities have thus far been and will continue to be focused in these areas. NDB’s activities are geared to strongly supporting its members’ commitments and objectives under the COP 21 agreement and the UN’s Sustainable Development Goals.

(ix) Local currency lending

The multilateral development banking industry is now more than 70 years old. In this industry, the NDB is the youngest institution, established in the 21st century. This gives us the advantage of learning from past experiences, coming up with innovations, and incorporating them into our operations. Innovation will be a key area of emphasis for the NDB.

One area that NDB will innovate in and focus on is lending in local currency to its member countries, something that is happening to a rather limited extent currently. Having been a banker all my life, I am a firm believer that reducing the exchange rate risk inherent in foreign currency financing can enable infrastructure projects to be financed more sustainably. More projects are likely to become sustainable and bankable, if they face lesser exchange rate risk. The effective cost of such borrowings to member countries will also be significantly lower.

The NDB has begun the process of local currency lending in its operations in China. Subject to local market conditions supporting such activities, we would like examine the feasibility of similar local currency lending in our other members, including South Africa.

Overall, the NDB has made a strong start as a new entrant to the community of multilateral development banks. Of course, we have a lot to learn, and we are actively doing so. We believe we also have new ideas to contribute. We will continue to expand the scale and scope of our operations as we grow. And we are confident that South Africa will be a significant country of operations for the Bank, especially with our on-the-ground footprint of the ARC.

III. The role of the ARC

I would now like to share with you my thoughts on the role of the ARC. As I mentioned earlier, the ARC will be the face of the NDB in Africa. Organizationally, the ARC forms part of the Operations Vice-Presidency of the Bank. It will be headed by a person at the level of Director General – the highest level of staff in the NDB. This demonstrates the importance that NDB gives to the ARC.

The ARC’s initial emphasis will be on identification and preparation of projects in South Africa. This it will do in line with South Africa’s National Development Plan, which the Government has adopted as a blueprint for future economic and socio-economic development strategy for the country. The strategic perspectives of the plan offer a long-term vision for the country until 2030, and aim to ensure that all South Africans attain a decent standard of living through the elimination of poverty and the reduction of inequality. The NDB and the ARC will aim to partner with the Government in achievement of these goals.

Of particular relevance to NDB is the National Infrastructure Development Plan, which is a part of the National Development Plan, and which sets out a series of ambitious and far-reaching initiatives envisaged to transform South Africa’s economic landscape. We expect that the initiatives that NDB supports will form part of the Strategic Investment Projects identified by the Government.

The ARC will work closely with the Government, public and private sector agencies, and other relevant stakeholders in South Africa to identify projects that have strong development impact to be supported by the NDB. It will play an important role in preparing these projects so that they can be financed. Subsequently, the ARC will also support the effective and efficient implementation of these projects.

Over time, it would be reasonable to expect that the ARC’s activities will expand both in scale and in scope. It could, for example, play a role in sharing knowledge and development experience across countries. It could also play a role in coordinating NDB’s partnerships and collaborations with institutions on the continent. As and when the Board of Governors approves expansion of NDB’s operations in other countries in Africa, the ARC could also play a leading role in initiating and scaling up the NDB’s work in those countries.

I believe that through the ARC, today we are planting a seed. As the NDB’s own operations grow, so will this seed sprout and grow, as the ARC takes on an increasingly larger role for its own work within NDB.

IV. Conclusion

Excellencies, honorable ministers, ladies and gentlemen. I am delighted that you could grace this important occasion. The ARC is critical to the Bank’s future activities in Africa. It is an important element of the Bank’s strategy. On behalf of the Bank’s staff and Management, I give you my assurance that we will work hard to ensure it succeeds.

Another crucial element in the success of the ARC will be support from all of you who are here today. I invite you to help us establish the ARC and the NDB as important contributors to the development of South Africa and as useful participants in the development agenda of the continent. Going forward, we will be able to bring in experiences that would be useful to Africa. In all this work, the ARC will be the face of the Bank in Africa.

Thank you again for your support and attention.