For nearly a century the two most powerful nations on earth, Victorian Britain and Tsarist Russia, fought a secret war in the lonely passes and deserts of Central Asia. Those engaged in this shadowy struggle called it “The Great Game”, a phrase immortalised by Rudyard Kipling.
Now a new version of the Great Game is kicking off as a growing army of development banks turn their attention to the Eurasian continent where great powers are competing for influence.
Asian Development Bank president Takehiko Nakao does not speak of a Great Game as such but he acknowledges that “geopolitical” as well as economic forces are helping shape developments in Central Asia and beyond where the ADB operates alongside numerous other development institutions.
Despite the number of players involved now — the ADB, Asian Infrastructure Investment Bank (AIIB), Eurasian Development Bank (EDB), New Development (BRICS) Bank, European Bank for Reconstruction and Development and the World Bank, to name just some — Nakao does not think in terms of development bank “wars”.
“We are co-operating with the EDB and also with the AIIB in a coordinated way, including cofinancing," he tells Emerging Markets, adding that he is “not worried” about possible issues arising of overlap or waste of effort.
“There is a shortage of money and so the more the better,” he says, pointing to the fact that an ADB study several years ago identified the need for $8tr of infrastructure spending in Asia between 2010 and 2020, of which around one half is needed for projects in China.
“People like to depict the AIIB and the ADB as rivals and as competing and uncoordinated organisations but it’s not true,” says Nakao. “We have been co-ordinating closely. Challenges and issues are common, there are so many common shareholders and both the AIIB and the ADB banks are mostly for infrastructure.”
The Manila-based ADB also extended recently a cofinancing agreement with the Russia-backed and Almaty-headquartered EDB to invest in Central Asian projects. The original agreement was signed in 2013 and the new one in March 2016 by Nakao and EDB chairman Dmitry Pankin.
Meanwhile, the ADB has “begun discussions about our first cofinancing project with the AIIB,” Nakao tells EM, while declining to identify the project. “We are working to make our cofinancing project one of the first batch of approvals by the AIIB together with some other banks.”
The World Bank and the AIIB also agreed earlier this year to cofinance a dozen water, transport, and energy development projects in East, Southeast and Central Asia. These will be among the $1.2bn of projects that the AIIB expects to finance in 2016, its first year of operation.
ECONOMIC REBALANCING
Some see rivalry for geopolitical and economic influence in and beyond Central Asia among the ADB (whose main shareholders are Japan and the US), the China-backed AIIB, the Russia-backed EDB, the Shanghai-based BRICS bank (headed by Indian KV Kamath), the London-based EBRD and the World Bank.
“There is a proliferation of new lending agencies with the start of the AIIB and New Development Bank operations coupled with expansion of ADB operations oriented towards infrastructure,” says William Thomson, a former senior US Treasury official and ADB vice president and now chairman of Private Capital, an advisory company in Hong Kong. “One can argue about the desirability for new institutions versus an expansion of existing ones and the arguments are finely balanced but it comes down to geopolitics and the golden rule is: he who has the gold makes the rules.
“The establishment of new institutions is a result of a sustained economic rebalancing as the East grows in importance. More focused institutions like the AIIB can perhaps serve some of these interests better than bigger, older and more sclerotic institutions such as the World Bank.”
Nakao does not deny the impact of competition. “It is true that because of the advent or new players like the AIIB and the New Development Bank we are given an incentive to make our bank even more efficient and better,” he says, adding that the ADB had already begun reforms before the idea of the AIIB was floated in late 2013.
The ADB has also engineered a big increase in its own lending ability through combining ordinary capital and other funds. The bank began exploring this idea in August 2013 just after Nakao became president. The ADB’s latest annual report showed that total approvals of loans and grants rose to $16.3bn or $27.2bn including cofinancing and technical assistance in 2015 — the highest levels in the bank’s 50 year history.
The launch of the AIIB has, meanwhile, brought the infrastructure agenda back into focus internationally, as was clear at the spring meeting of the G20 group of advanced and emerging economies in Washington DC, where the need for increased infrastructure investment was stressed.
“We encourage MDBs (multilateral development banks) to carry out the action plan [to] take joint actions to formulate quantitative ambitions for high quality projects and support infrastructure investment, including catalysing private sector funding," the G20 said.
The resurgence of interest in infrastructure investment among policymakers, MDBs and among private sector contractors and service providers reflects partly a new official emphasis on the need for fiscal stimulus as monetary policy approaches its limits in boosting growth.
The upcoming G7 summit in Japan’s Mie prefecture in June is expected to endorse the need for boosting infrastructure investment and this is likely to increase the need for improved co-operation and co-ordination among players involved in the new Great Game in Asia and elsewhere.
The G20 has drawn attention to this need. It is working on the launch the Global Infrastructure Connectivity Alliance [GICA] “to enhance the synergy and co-operation of infrastructure programmes, including those at regional level”.
The G20 has also created the Global Infrastructure Hub to build a “cohesive governance structure to international efforts to lift infrastructure investment. This is not to be confused with the World Bank's Global Infrastructure Facility (GIF), which identifies particular projects.
COMMON CHALLENGES
Despite the proliferation of development banks and other entities, Nakao does not worry about overlap of effort by players in the infrastructure game. “Co-ordination is done more between bank and bank, and also it is done through dialogues and through cofinancing,” he says. “The MDB heads gather at the time of the IMF and World Bank annual meetings and we sometimes meet in Davos [at the World Economic Forum winter gathering]. So, there are many opportunities to discuss issues [of common interest]. The challenges banks face are sometimes common.”
With so much international emphasis now on infrastructure provision, and so many players involved, the question of how to avoid building the bridges to nowhere in pursuit of Keynesian ends — or simply of grandiose dreams — is being raised in some quarters.
"I find the Chinese vision of linking up the land mass of Asia with high speed trains and even extending operations further to the Middle East and Europe exciting, even visionary,” says Thomson about China’s One Belt, One Road plan for the AIIB and its sister institution the Silk Road Fund.
“How practical and affordable that vision is may be a different matter but it does seem that more funding is going to become available for infrastructure generally to keep the global economy rolling,” he adds.
Aside from the push by regional development banks, Japan is stepping up its bilateral infrastructure initiatives in Asia quite sharply. A year ago Japan’s prime minister Shinzo Abe announced Japan would inject additional resources to help develop high quality Asian infrastructure.
Then, last November he announced a “partnership” agreement with the ADB to provide $16bn over five years to support construction of “sustainable” infrastructure development in Asia and the Pacific while relaxing conditions on providing yen loans for infrastructure in emerging nations of Asia.
Japan also plans to boost the resources of the Japan Bank for International Cooperation (JBIC) and the Japan International Cooperation Agency (JICA) as well as to inject more money into the ADB as an alternative to joining the AIIB.
Nakao bridles however, the suggestion that the ADB has a special relationship with Japan. "We don’t regard just Japan as our partner," he says. "Any partnership or support to the ADB from other countries is welcome and we will seek similar arrangements with other development partners.”
“I don't like the idea that the ADB is regarded as a heavily Japanese-influenced organisation," adds Nakao, a former minister of finance of Japan. “We have been a truly multilateral Asian institution since the bank was established in 1966. That is our basic spirit.”