The New Development Bank — a financial institution founded by the so-called BRICS emerging economies, Brazil, Russia, India, China and South Africa — will open its membership to other countries in the next few years, the bank’s vice president and chief financial officer told Devex in an exclusive interview.
Leslie Maasdorp said that while the bank has focused on its five founding members since its operational launch exactly a year ago, the future is open to all member countries of the United Nations.
“The articles of agreement of the bank — a lot of people don't know this so it's important to highlight — says the bank is open. It is only the starting point that we are five countries,” Maasdorp, a former investment banker and government official in South Africa, told Devex on the sidelines of the inaugural annual meeting of the Asian Infrastructure Investment Bank in Beijing, China last week.
“We're now operationalizing, getting staff, putting our project pipeline, getting ourselves organized, but the bank will, over time, open up for membership. So that's going to happen in the future,” he added.
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The opening of membership, likely to happen in the next three years or earlier, will also see the shareholding of the five member countries of the $100 billion institution significantly reduced. That could help placate some critics, who have argued that the Shanghai-based bank is a dedicated political and economic tool of the five countries currently involved. The bank has so far approved around $811 million in loans.
Shareholdings of the BRICS countries cannot go down below 55 percent, according to its operational documents, to maintain a controlling stake in the financial institution. Maasdorp told Devex that of the remaining 45 percent, 20 percent will be open to nonborrowing countries, while another 25 percent will be allocated for other emerging markets.
“So 80 percent will be for emerging markets,” including the BRICS themselves, he said. “This bank, in terms of its vision, will become the bank for emerging markets.”
Read the excerpt of our exclusive interview with NDB Vice President and Chief Financial Officer Leslie Maasdorp below to learn more about the bank’s progress a year after its operational launch, its unique characteristics as a multilateral institution, as well as its procurement and recruitment opportunities moving forward.
It's been a year since NDB started its own operations. How has it been so far in relation to where the bank wants to go? What were the birthing pains you experienced, if any?
I want to start off by saying it was a very exciting process to start a new institution, in the sense that you have a clean canvass — literally. When you look at the history of multilateral development banks — I mean the World Bank started 71 years ago, [while the] Asian Development Bank was 50 years ago — all these institutions are quite old. The most recent one is the European Bank for Reconstruction and Development which was started 25 years ago in 1991. So we have, firstly, the benefit of rich experience that we can draw from, learn what they've done well and copy the successes of the existing MDBs. [Throughout our operations,] it’s been a great experience to engage in a collaborative fashion with these institutions.
I think [another] key point to make is that the model of MDBs has essentially not changed much. The DNA, the way the model works essentially is that you [have] got your paid-in capital, you [have] got callable capital, you [have] got a good credit rating and you raise money or private capital in the capital markets and then you lend the money that you raised. That model is not going to change, because it's the successful one. It has served the industry well, and billions and billions of dollars have been invested over the last number of decades. What we are sort of looking at then and now is to identify where are the incremental changes we can make to the model. We don't break or make [the existing system] to [have a] fundamentally new design structure but incrementally, there are so many different things you can do today.
For example, technology is enabling us now [to have] virtual agreements of your loan, let’s say, via video. You don't physically need to fly from Brazil and take 24 hours to get here door to door. We try to make use of various technology. We [have] got [a] simple governance structures that can meet quickly. For example, the current investment committee [is composed of] only five people — the president and four vice presidents. The board of governors [is composed of] five people. You can convene these people quickly, you can streamline the organization. So the first aspect of the bank is we try to be more nimble, enhance the speed of execution, be more agile, and use those organizational features to deliver a more effective infrastructure business.
What are the NDB’s unique characteristics and competitive advantages?
There is a lot of overlap in what the AIIB does [and other MDBs] relative to our business model. I would identify our core characteristics in three areas. The first one is green. Our articles of agreement talk about sustainable development — that's in our legal mandate. The next aspect is speed or speed of execution. It also refers to [being] lean — which means if you have lean structures, you are able to move quickly.
[Another] aspect of what we set out to do was to focus on sustainable infrastructure, meaning we’ll [have] a big focus on the green aspect. Many of our economies are energy intensive—carbon intensive — energy systems; China, in particular, India [and] South Africa. So we want to play a leading role in helping and aiding the transition toward a green economy. One of the big achievements since we started was the announcement of our first projects.
We were able to do that in less than six months giving the speed of execution that I talked about early on.
There is also innovation. We will try to look at new practices — what could define how MDBs will operate in the future. It's the 21st century now and technology is advanced, lots of breakthroughs and financial innovation. We want to be a hub for innovation and to experiment with new ways of doing things.
We are [also] trying to focus more on the development of local capital markets, and [we are] exploring the possibility to raise local currency funding. In the past, all MDBs (and still today) mainly operate in U.S. dollars ... but there's no reason why you should raise that only in U.S. dollars. It doesn't make any sense. You should look at what is the most optimal way from a pricing perspective. ... Why not remove currency and foreign exchange risk by raising currency in Renminbi and then lending in Renminbi, so the borrower is not taking foreign exchange risk? In the past, [the risk] is all passed down to the borrowing country. We’re saying that that model has to change. We're able to do it now because [in our case] the lenders and the borrowers are the same countries — five countries putting capital in and also the ones borrowing. In all the other banks, you have nonborrowing members and there are contestations. Another key aspect is the development and raising of local capital markets focusing on green infrastructure, green finance, or a green bond [which will let the bank] occupy a niche location in the market and in the MDB world.
One of the most contentious issues that the bank is facing (so far), at least according to civil society organizations and NGOs, is its environmental and social safeguards policy and transparency on information and general operations. What can you say about these critiques? And how can we ensure that these policies are implemented well, and not just gold letters written on paper?
I think that firstly, all of the MDBs are public institutions with a public mandate — our money comes from taxpayers. So we cannot be nontransparent as an MDB. I think it fundamentally goes against the essence of what this body is about. The banks are set up with a public mandate. In that sense, we're a transparent organization and we are a transparent entity. We are in the process now of finalizing the necessary policy framework around disclosure of information which will mean that over time, once the approvals are all in place, our website like other MDBs will reflect our policies and projects. All of that will be in line with global best practices.
I think the bank has a strong position in this regard. We want to ensure compliance with these standards. We're not just going to have world-class standards and not implement them. In fact we're going one step further. We're saying that we will give greater prominence to local country systems, meaning [that we will] ensure that the local frameworks are enforced. Many countries, for example, have strong environmental laws [but] they're just not enforced. China has very strong environmental laws contrary to popular perception. Experts would tell you that it's just enforceability and compliance, so we want to ensure that there's strong compliance with local country systems.
Can we expect every project that will be approved and financed by the bank will be green and sustainable from start to finish, no compromises?
Fundamentally, will it all be green? It won't be 100 percent green because it's very difficult to sustain. Sometimes you have elements in the main project [with those concepts] but that would be the thrust. I can't see us building a coal-fired power station, for example. We will not be able to do things like that. But it will be substantially green in everything we do.
In terms of our projects, our mandate is infrastructure and sustainable development. Four of our projects, the $811 million worth of projects, are all in renewable energy — energy efficiency [and] clean energy is a big focus and a core drive of the bank. However, our focus is in infrastructure more broadly. As I mentioned earlier, we're also focusing on sovereign-backed loans but we can also lend to the private sector. But we're starting out with a sovereign focus.
The business community often asks what business opportunities could arise from AIIB operations. Can you tell us more about the procurement opportunities from the bank moving forward? And will they be open to non-Chinese entities and businesses?
The NDB, because we are a five-member country institution and our capital base is from the five member countries, will procure mainly from the five member countries. That is very different to the AIIB model [of universal procurement]. In exceptional circumstances, if for example, there's a major cost differential, we would look at procuring globally. But we are driven by the policy that says we must prioritize our own countries. [The procurement policy may] likely change as we look at new members.
Lastly, in terms of recruitment, is NDB looking to hire a significant number of staff either this year or in the following years? What do you look for in your staff?
We're going to be very lean. We will only have about 100 people by the end of this year and probably 250 by the end of next year, and then grow very modestly. The aim is not to reproduce the old model of thousands and thousands of people. We're not going to do that.
[For prospective NDB employees], we want people who literally can think out of the box. [People] who have the necessary training — ideally in the technical know-how, and experienced in the MDB world or in the financial services more broadly. But we want younger people — we have a strong emphasis on youth [and] those people who can experiment with new ideas. We want to build a more youthful culture that allows people [to be] more open to innovation. [Recruitment is limited to the five member countries, but only] for now.
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