ADB chief talks China, climate finance, internal matters

MANILA — The process to devise the Asian Development Bank’s Strategy 2030 officially started three years ago in 2015, when the bank kicked off a series of consultations with member state representatives, experts, civil society organizations, and staff.

But for ADB President Takehiko Nakao, some of the original ideas behind the strategy can be traced back even further to experiences, such as a 2013 trip to Mongolia.

“When I visited… I had a lot of requests for support for women’s health, including hospitals,” he shared with Devex in an exclusive interview.

The Mongolia visit and other experiences in various development member countries, as well as ADB performance reviews throughout the years, emphasized the importance of the bank’s support to social sectors and ensured their prominent place in the new strategy.

The inclusion of the social sectors in the new strategy hints more broadly at the bank’s new direction: ADB will tailor more of its support to country needs and contexts, even if it means supporting sectors outside of the bank’s traditional priorities.

In Uzbekistan, for example, apart from the usual road projects, the bank is responding to the government’s request for support in agriculture, education, and health.

“Each country has a different priority. In Uzbekistan, we are supporting agribusiness through finance.” The country is keen to diversify farming from cotton and rice productions to high value products, such as juice for export, Nakao said.

Agriculture was once a priority for ADB as governments looked for ways to feed their growing populations, until the 1980s when Nakao said, “it became less of a priority.”

“But I think now the agricultural sector is important [because] of needs of countries to raise income based on higher value products,” he said.

In places such as Indonesia and the Philippines, the bank will continue to support governments in their infrastructure drives. But the bank will also be evaluating how to best support rural development and continuing education.

In small island developing states, ADB will work to confront challenges in supply chains, finance, education, and climate change. The bank is also looking at the possibility of increasing its concessional lending volume to these smaller countries, while taking into consideration each country’s capacity to absorb increased support.

In faster emerging and more stable economies, such as China, ADB will focus on addressing environmental issues, climate change, income inequality, and a growing elderly population, but through a combination of finance, knowledge, and sharing of experiences.

“Even for countries like China, although our financial support is limited compared to the vast financial needs of such a country... it is still useful to combine our experiences, knowledge, with the finance. And they appreciate it,” the president said.

China, in particular, evokes strong interest within the bank, both as a recipient and as a financial provider.

“My basic thinking about China is [it’s] very important to engage China in many different ways, and ADB is a very good institution to do that,” said the ADB chief. He visits China frequently and meets regularly with senior leaders. “Keeping a close relationship between ADB and China is one of the very important ways to engage China in a positive way.”

He says China has been helping inject finance for the region’s development, but some of its practices still live outside the principles shared by the Organisation for Economic Co-operation and Development’s Development Assistance Committee donor community. For example, most of its finance to countries is still tied to products and services provided by Chinese firms, or resource extraction.

“Their practices are still different from international practices, but we should continue to cooperate with them,” he said.

The president believes the multilateral bank is uniquely positioned to address these cross-regional issues. And, as an example, Nakao cited the bank’s expertise in improving domestic financial administration, including strengthening tax systems as well as anti-money laundering and anti-corruption policies and practices.

“Those are in a sense not the traditional areas for ADB; we cannot spend too much of our resources for these purposes. But if we can do these things using our existing staff and using our experiences, it will help the region,” he said, adding “there is no alternative.”

New contexts, more partners

Perhaps one of the biggest differences from the bank’s old strategy, launched in 2008, to the new is the context in which they operate.

For decades, ADB was the only multilateral bank in the Asia-Pacific region. But in 2014, Brazil, Russia, India, China, and South Africa — the BRICS economies — established the New Development Bank in Shanghai. The following year, China announced the creation of the Asian Infrastructure Investment Bank headquartered in Beijing. Both share ADB’s focus on infrastructure development.

Many analysts believe the NDB and AIIB can help fill the huge infrastructure financing gap in the region, which ADB has estimated to amount to $500 billion a year. But their arrival has also raised questions regarding ADB’s clout and relevance in the region.

ADB and AIIB have since pursued four co-financing projects and Nakao said he engages regularly with AIIB head Jin Liqun to expand that cooperation. ADB has yet to enter in a co-financing agreement with the NDB, but Nakao also said he meets regularly with NDB President K.V. Kamath.

ADB Strategy 2030 acknowledges the importance of partnerships and, according to Nakao, the bank plans to expand partnerships with critical institutions, such as the International Monetary Fund, charitable organizations such as the Bill & Melinda Gates Foundation, and developing and developed member countries, including Korea.

The president also indicated plans to boost cooperation with civil society, both in helping to build capacity, and utilizing their advocacy role in the implementation of the bank’s environmental and social safeguards policies.

More money, more climate finance

In 2016, ADB merged its two financing windows to have a bigger lending capital, a game-changing move that is likely to shape Nakao’s legacy at the multilateral institution.

The merger of the Asian Development Fund and the Ordinary Capital Resources has provided the bank over $100 billion in outstanding loans, 70 percent of which are loans at regular market rate, or essentially the bank’s lending rate for more developed member countries. The rest are concessional in nature.

The funds’ merger has pushed ADB to increase its climate financing target to $80 billion from 2019 to 2030. The Asia-Pacific counts for 48 percent of global carbon dioxide emissions in the energy sector in 2016, according to bank data. But it is also extremely vulnerable to its impacts — something the bank is highly focused on.

Asked if funding will rise higher yet, given problems hounding other climate financing platforms such as the Green Climate Fund, Nakao said it was a possibility.

But the president explained they are not planning a capital increase any time soon. Some of the bank’s shareholders also didn’t want to “rush” into one. But they could increase their lending given the resources they have at their disposal from the ADF and OCR merger, as well as potential income from their investments in the private sector, for example.

The $80 billion “is kind of baseline, and we can go beyond it,” he said.

Continuing internal reforms

For the bank to meet the new strategic objectives defined in Strategy 2030, Nakao acknowledged the need to constantly reform and improve, including through staff and process efficiencies.

“I’m not thinking of dramatically increasing our human resources — hiring more people — because it would become a permanent cost to ADB,” the chief said.

But Nakao indicated that the bank will plan for a gradual staff increase that will help build diversity within the bank and add to the skills set needed to execute the strategy. For instance, the bank aims to promote the use of advanced technologies across its operations, and help build the capacity of its developing member countries in their deployment.

The bank has already made some headway. In March, the bank established the digital technology for development unit, under its sustainable development and climate change department. The unit is meant to “provide strategic operational support, enhance knowledge, facilitate talent management for ICT, and carry out specific ICT-related tasks,” according to a document brief the president provided Devex.

The unit is currently short staffed, and the bank is in the process of recruiting more specialists to “strengthen the unit.” It recently advertised positions under its Experts Pool initiative, including a senior urban specialist for smart cities, senior digital technologies specialist for financial technology services, and senior education specialist for education technology.

But apart from having a diversified staff with the right skills set, Nakao aims to further explore “how to make our staff resources efficient and much effective?” and “how to make the workplace more respectful?”

The bank is already looking to modernize its IT system, and has initiated a set of reforms over the past few years to help speed up project preparation and implementation, including the launch of its new procurement framework and, just last month, a number of new financing facilities.

It has also established a respectful workplace unit, which in 2017 assessed 20 complaints concerning bullying and harassment, misconduct, and sexual harassment, and conducted 51 training sessions, according to the latest annual report by the office of anticorruption and integrity.

“We need to keep our workplace reasonable [and] respectful. We must have more objective rigorous evaluation of people, based on clear measures. We should promote leadership; [teach] how the bosses should manage their subordinates to share information to other sections instead of monopolizing information, for instance,” said the ADB chief.

That last bit perhaps speaks to a wider problem of integration at the bank that Nakao hopes to change, especially as the institution plans to increase their nonsovereign operations, or private sector work.

“Some countries face fiscal constraints, and they don’t want to borrow too much. They want to use private sector more seriously … so it wouldn’t increase the sovereign debt of countries,” he said, adding that private sector can be tapped for its often innovative approaches.

Under Strategy 2030, the bank targets private sector operations to cover one-third of its operations by 2024.

During his country visits, Nakao said he is “fairly impressed” by local support for ADB’s resident missions. Yet he acknowledges a division between the bank’s sovereign and nonsovereign operations that is not compatible with Strategy 2030.

Today, ADB resident missions are staffed, incentivized and evaluated primarily for sovereign operations, but Nakao will seek some restructuring to create a “single window” for all ADB products and services in countries, including private sector lending, knowledge, and advisory services.

“One of the things that I have been trying to do is strengthen the sector groups and thematic groups to cover the sectors and themes spread over the operational departments — sovereign and nonsovereign,” Nakao said.

“They should share the best practices and knowledge,” he said. “I believe the advantage or strength of ADB is to be close to the customers.”