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Sponsorship Speech: Asian Infrastructure Investment Bank

November 29, 2016

Sponsorship Speech of Senator Loren Legarda
Asian Infrastructure Investment Bank
29 November 2016 | Senate Session Hall

 

Mr. President, distinguished colleagues:

 

I have the honor to seek approval of proposed Senate Resolution No. 241, titled “Resolution Concurring in the Ratification of the Articles of Agreement of the Asian Infrastructure Investment Bank” prepared and submitted by the Committee on Foreign Relations on November 22, 2016 per its Committee Report No. 11.

 

Asia’s Massive Infrastructure Needs

 

Asia faces a massive infrastructure deficit.

 

The daily traffic crawl in Metro Manila and scenes of passengers walking along MRT tracks are reflective of the very tragic state of infrastructure development in our country.  We are not alone.

 

In Southeast Asia, more than a third of the population lives in substandard housing.  In many countries of Asia, the biggest cost is their supply chain.  The movement of goods inside many Asian countries is so unreliable that there is no way of saying when the supply will actually arrive. In times of disasters, the infrastructure challenges translate to losses in human lives.

 

We are in this situation for a range of reasons – from bureaucratic inefficiencies, changing geographic distribution of people, weak regulatory environments, growth dynamics, just to name a few.

 

Financing is another issue. Infrastructure programs compete for finite funds with other national priorities.

 

The Asian Development Bank estimates that Asia will need at least US$8.29 trillion to finance infrastructure development between 2010 to 2020 in order to maintain current levels of economic growth.  These estimates do not even include social infrastructure requirements and infrastructure spending for disaster reconstruction efforts, which has become an annual requirement for us.

 

Infrastructure funding requirements of Asia are expected to grow by 7% to 8% every year, reaching $5.36 trillion annually by 2025 and representing nearly 60% of the world’s total.[1]

 

Globally, there is a gap of US$500 Billion annually between investment needs and available public funds.[2]

 

Asia, where 1.75 billion people live in extreme poverty[3], requires substantial amount of funding for infrastructure development to make inclusive growth possible across economies.

 

The Philippines ranked 95th out of 138 economies in the 2016-2017 World Economic Forum’s global competitiveness index on infrastructure, highlighting how much we have lagged behind other economies.  The absence of good infrastructure – from road networks, transportation systems, airports and seaports, electrification, water supply, to telecommunications – has had dire consequences on our nation’s growth; above all, on our people’s well-being.

 

The World Bank estimates that a 10 percent increase in capital investment into infrastructure projects contributes to a 1 percent growth in GDP.

 

Development of infrastructure is also crucial for enhancing our trade competitiveness. Resilient and adequate infrastructure will reduce the costs of trade and strengthen our competitiveness.

 

These would impact on our future growth.

 

 

The Benefits from AIIB

 

The AIIB, like the Asian Development Bank (ADB) and the World Bank, is a multilateral lending institution, owned by sovereign-member countries, which aims to promote economic development in Asia.  It aims to foster economic development and promote regional cooperation.

 

The Philippines is the 57th prospective founding member of the AIIB, the last to have signed on in December last year.  Forty-eight have already attained full membership, including Australia, France, Germany, India, South Korea, and Russia.  All ASEAN countries have signed on, with the Philippines and Malaysia as the only ASEAN countries that have yet to deposit its instruments of Ratification.  We have only until December 31 of this year to make this submission and to pay our initial capital contribution.

 

An AIIB membership brings in a host of benefits, including:

  • Additional source of financing to implement better and resilient infrastructure, both by the Government and the private sector;
  • Accelerate the Philippines’ annual infrastructure spending to account for 5% of GDP, or even higher, and improving competitiveness through better infrastructure facilities that will attract investments into the country;
  • Provide additional funding source to support rural and value chain development to increase agricultural and rural enterprise productivity and rural tourism of the country.

 

AIIB offers concessional rates that are:

  • comparable to the rates of World Bank and the ADB;
  • better than many of the Philippines’ bilateral partners’ lending rate; and
  • lower than the Philippines’ commercial borrowing rates.

 

The AIIB can provide an annual financing window to the Philippines of about US$200 million to US$500 million.  In the end, we can see a 400% to 1,150% return on investment of our required paid-in capital of US$196 million in 5 years.

 

Under AIIB’s lending policy, the private sector can likewise avail of services or products from AIIB such as guarantees, private equity investments, and co-financing with private banks.

 

AIIB aims to supplement and not crowd out private sector financing since it will focus on vital financing projects that are unable to avail of reasonable financing terms and conditions.

 

The Philippines is expected to also realize other benefits from its membership in the AIIB, such as:

  • Increased opportunities for Filipino contractors / professionals for infrastructure projects in the Philippines and abroad;
  • More employment opportunities for Filipino workers due to heightened infrastructure spending;
  • Reduced trade costs of about 15.6% of trade value and real income gain of about US$220 billion[4]
  • Increased competitiveness and productivity, improved market connectivity and enhanced economic opportunities for both urban and rural areas of the country.

 

All these, Mr. President will contribute to the achievement of President Duterte’s 10 Point Socio-economic Development Agenda.

 

Conclusion

 

The AIIB adheres to sound banking principles in its operations, consistent with principles of transparency, openness, independence, and accountability.

 

It is also guided by environmental and social sustainability safeguards similar to what the World Bank and the ADB have established.

 

Mr. President, Colleagues,

 

Infrastructure bottlenecks have stifled our growth potential for many years. More investment is required not only to build new projects but also to maintain existing infrastructure. The AIIB can broaden our infrastructure funding sources.

 

Let me underscore, however, that financing alone will not solve all our problems.  Still, the fundamental issues have to be set right. We need to simultaneously create an environment with a predictable legal and regulatory framework, buttressed by transparent governance and decision-making processes.

 

Let us take, however, this crucial step to help address one of the most pressing issues facing our infrastructure sector.

 

 

I therefore urge you to approve proposed Senate Resolution No. 241, titled “Resolution Concurring in the Ratification of the Articles of Agreement on the Asian Infrastructure Investment Bank.

 

Thank you, Mr. President.

[1] PwC, ‘Capital Project and Infrastructure Spending: Outlook to 2025’, 2014.

[2] B20. Infrastructure and Investment Task Force. December 2014. Based on estimates from McKinsey Global Institute. How to save $1 trillion a year. January 2013.

[3] Asian Development Bank, Key Indicators for Asia and the Pacific. 2014. Based on $1.51 per person per day.

[4] Estimated accumulated gains of the Philippines from 2010-2020 based on the Asian Development Bank (ADB) and Asian Development Bank Institute (ADBI) study – Infrastructure for a Seamless Asia (2009)