Analysis by Jaya Ramachandran
FRANKFURT (IDN) – Creating quality jobs, developing the private sector, and combating climate change to ensure a vibrant and sustainable Asia top the agenda of the Asian Development Bank (ADB) as it marks its fiftieth anniversary this year.
According to Bank President Takehiko Nakao, over the last decade, Asia has grown about 7% annually, even after the global financial crisis. This has supported global growth, he said in the opening address at the 49th Annual Meeting of ADB’s Board of Governors – for the first time held in Germany – from May 2 to 5.
China is expected to grow 6.5% this year, down from 6.9% last year, reflecting its transformation to a new growth model. The region as a whole is projected to grow by a robust 5.7% in 2016, said Nakao.
India, with projected growth of 7.4%, is now the fastest growing large economy. Indonesia is expected to grow 5.2% in 2016, higher than last year despite the negative impact from lower commodity prices. Bangladesh, Cambodia, Myanmar, the Philippines, and Viet Nam are gaining growth momentum backed by reform efforts.
Some countries in Central Asia and the Pacific are affected by external factors, but they are making serious efforts to adjust.
Based in Manila, ADB is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region.
“Jobs empower people and reduce poverty in the most fundamental way,” said Nakao. “Employment opportunities, especially for our youth, are essential to make the economy vibrant and to promote social stability. We should also ensure a safe and decent work environment.”
ADB is playing an important role in creating jobs and improving workplace conditions.
First, ADB supports education and skills development to increase the employability of youth, particularly women. For example, good progress has been made in India in an ADB-financed skills development program, which offers vocational training and career counselling in partnership with industrial associations.
Second, ADB promotes core labour standards and safe working conditions in cooperation with Germany and other partners. In Bangladesh, ADB extended a loan to a private sector bank to finance the improvement of health and safety conditions in textile factories. This is also expected to enhance the competitiveness of these factories as consumers around the world are now paying greater attention to the welfare of workers in value chains.
Third, the most important role ADB sees for itself in promoting growth and employment is to support infrastructure investment. ADB finances infrastructure such as energy, roads, railways, ports, and water.
“Especially, we are strengthening our support for infrastructure in fragile and conflict affected countries. In Afghanistan, for example, we have approved a $1.2 billion grant program to strengthen energy infrastructure,” Nakao said, emphasizing that the private sector is Asia’s “engine of growth”. By driving innovation and creating opportunities, he said, the private sector has become “the basis for Asia’s vibrant future.”
ADB’s direct financing of private sector companies and projects amounted to $2.6 billion last year, 37% higher than 2014. It ranged from supporting financial sector development, to delivering infrastructure, to providing critical social services through the private sector – all with a strong focus on poorer countries. In addition to direct financing of the private sector, ADB is also promoting the use of public-private partnerships (PPP) and improving the investment climate.
Nakao explained: ADB supports financial sector development. In 2015, the Bank approved loans and equity investments to private financial institutions in seven countries totalling over $750 million. In doing so, it paid special attention to underserved customers, such as farmers, women entrepreneurs, and micro, small and medium sized enterprises.
ADB provides loans, equity investments, and guarantees to private companies that build and operate important infrastructure. For every dollar ADB provides, it mobilizes at least $4 more in commercial co-financing.
ADB helps strengthen social service provision through the private sector. In Myanmar, ADB is financing the expansion of a private sector, third-generation telecommunications network. This includes the skills development of women in ICT, and mobile applications for health, banking, and agriculture.
More than 40% of the private sector transactions ADB approved in 2015 were to companies, banks, and projects in poorer countries. To undertake small but innovative transactions in these countries, ADB introduced a faster and streamlined approval process in 2015. Using this process, it quickly approved the first private sector equity investment for an agribusiness venture in Bhutan.
ADB is strengthening support for PPPs (public-private-partnerships). “Our newly established PPP Office is acting as transaction advisor to the government of the Philippines on the North-South Railway Project. This $3.8 billion project will build or upgrade 650 kilometers of railways. Our PPP Office is also advising on a container terminal project at Colombo Port in Sri Lanka. We are advisor for a $10 billion PPP gas pipeline project across Turkmenistan, Afghanistan, Pakistan, and India,” said ADB President.
The most challenging part of PPP transactions is finding and preparing bankable projects that can attract private sector money. To support the preparation of PPPs, in ADB launched the Asia Pacific Project Preparation Facility (AP3F) with support from the governments of Australia, Canada, and Japan.
ADB also helps to improve the overall investment climate through technical assistance and policy-based loans. In Indonesia, ADB’s $400 million Growth Acceleration Program Loan supported improvements in regulations, licensing, and the PPP framework.
Asia and the Pacific face multiple and increasing climate challenges, such as extreme cyclones, droughts, coastal erosion, floods, and melting glaciers. Climate action is fundamental to the region’s sustainable development.
ADB is strengthening its climate actions, President Nakao said.
First, ADB is doubling its annual climate financing to $6 billion by 2020. Of this, $4 billion will support mitigation through investments in sustainable transport, clean energy, and energy efficiency. The other $2 billion will be for adaptation through more resilient urban infrastructure, climate-smart agriculture, and better preparation for climate-related disasters.
Second, ADB is seeking more co-financing from bilateral and multilateral partners for climate actions.
In 2014, ADB signed a $2 billion co-financing partnership with the German KfW with a focus on clean energy and urban infrastructure.
“In our new partnership with the Asian Infrastructure Investment Bank, we will make climate change a priority,” said Nakao.
In Fiji, a grant from the Green Climate Fund (GCF) financed the incremental costs to make an ADB-financed water project resilient to sea level rise.
Third, partnerships with the private sector are crucial to introducing innovative finance to address climate change. We are working with leading re-insurance companies, including some in Europe, to develop disaster risk insurance in Asia and the Pacific. And we recently helped guarantee the first climate bond in Asia for a private sector geothermal project in the Philippines.
Fourth, without the use of frontier technologies, COP21 targets will not be achieved. We are adjusting our project design and procurement procedures to promote the use of cleaner and more advanced technologies.
Finally, ADB is enhancing its support to governments’ policy frameworks for implementing their Intended Nationally Determined Contributions based on the COP21 agreement in Paris in December 2015. For this purpose, ADB is using a mix of technical assistance, loans and grants, and high-level policy dialogue.
An example of ADB support the policy-based loan of $300 million to China, approved in 2015 for air quality improvement in the Beijing-Tianjin-Hebei greater capital area. This loan supports policy actions such as enhanced monitoring of polluting industries and guidelines for converting coal to gas. [IDN-InDepthNews – 4 May 2016]
IDN is flagship agency of the International Press Syndicate.
Photo credit: ADB