Why did the Asian Infrastructure Investment Bank grant Rwanda a loan? – The diplomat

Formally created at the end of 2015, the Asian Infrastructure Investment Bank (AIIB), an original idea from China, is the youngest of the so-called regional development banks, which include the African Development Bank (ADB), the Inter-American Bank Development Bank (IDB) and the Asian Development Bank (ADB). Usually these banks “stick to their lane”, so to speak, in terms of regions. So, it might have been surprising to learn that Rwanda – an African country – recently secured a $ 100 million loan from AIIB. How? ‘Or’ What?

Anyone who follows the AIIB path knows that lending to African countries didn’t start with Rwanda – it started with Egypt.

As the first African country to officially join the bank known for its ‘clean, lean and green’ currency, Egypt was able to secure its first round of AIIB funding in 2017 for a feed-in tariff program. solar panel worth $ 210 million. . Since then, Egypt has had two more projects approved – one for rural sanitation ($ 300 million) and the other for several smaller domestic infrastructure projects such as smart cities ($ 150 million). ). Egypt has another $ 300 million post-COVID19 recovery project, co-funded with the World Bank, on hold.

Yet Rwanda, ranked by the United Nations among the least developed countries (LDCs), only joined the AIIB in 2020, making it the ninth African member, with a paid-in capital of $ 5 million. .

Not only that, two other LDCs – Ethiopia and Sudan – joined the AIIB before Rwanda and contributed more capital, $ 49 million and $ 59 million respectively. Other African countries that have made the same AIIB investment as Rwanda have very diverse income levels – Algeria, Ghana, and Cote d’Ivoire are all middle-income countries, while Guinea and Madagascar are LDCs.

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There are two main reasons why Rwanda has managed to place itself at the head of the line compared to these other African nations.

First, the Rwanda project – like Egypt’s pending post-COVID19 project – is not just an AIIB-funded project. The initial $ 101 million in funds for the project came from the Rwandan government, and an additional $ 150 million in loans and $ 32.5 million in grants will come from the World Bank. This cofinancing mechanism allows the AIIB – which itself does not have country offices due to its “lean” structure – to take advantage of the World Bank’s presence in countries for aspects such as environmental and social risk analysis and monitoring of implementation. It allows the money to flow out more quickly.

The second reason why Rwanda may be ahead of others on the continent is that its institutions appear to be at the forefront of implementation. For example, the Rwandan Development Bank (RDB) is heavily involved in providing loans to small and medium enterprises for the new project, drawing on its experience in providing the Economic Recovery Fund (ERF), which was created in June 2020 to help businesses manage the negative economic impacts of COVID-19. Along with the ERF and other measures, Rwanda was estimated to be the third biggest spender on COVID-19 economic response measures for citizens relative to GDP across the continent as a whole, spending around 3.3% of GDP (in PPP terms), behind South Africa and Aller.

So what comes next? Are more loans to African AIIB countries on the cards, and will this really help close Africa’s infrastructure gaps, estimated at $ 68-108 billion per year?

More loans are very likely. Since Rwanda joined the AIIB, two other African LDCs, Benin and Liberia, have joined with a capital of $ 5 million each, bringing the total African membership to 11 out of 55. In addition, eight more. African countries are still awaiting membership approval, including Kenya. , Senegal and Togo. South Africa is also still “forward-looking” – while it was one of the 57 founding members of the AIIB, it has yet to make a capital contribution.

Clearly, African countries are looking to the AIIB for more funding for infrastructure.

But that’s the challenge. While the AIIB appears to be partnering with others in Africa, its particular focus on infrastructure – particularly clean and green infrastructure – could be diluted. For example, the World Bank has not funded a new rail project in an African country for almost 20 years, suggesting that its expertise on infrastructure needs on the continent is very limited. Another example is another Rwandan project in the AIIB pipeline, $ 200 million for improving digital access, half funded by the World Bank. There is no doubt that investing in digital infrastructure, for example, is now essential for education, in a way that it was not before COVID-19. However, for this project, at most 21% of the $ 200 million will be spent on building new infrastructure. The rest will be spent on increasing efficiency and incentives – from subsidizing smartphone purchases to coding academies. This is useful, but Rwanda has just over 1,000 secure Internet servers per million inhabitants. China has more than 1.3 million such Internet servers. Africa’s digital infrastructure gap is huge and needs more attention.

Therefore, if the AIIB is to stay on the African path, expanding beyond Egypt and Rwanda, partnerships with the AfDB and continent-wide institutions such as the Africa Finance Corporation (AFC) and the African Import-Export Bank (Afreximbank) could be worth prosecuting. actively in the future. There is a clear need, and the African members are impatient.

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