Why did the Asian Infrastructure Investment Bank provide a loan to Rwanda? – Diplomat

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The Asian Infrastructure Investment Bank (AIIB), created by China, formally established at the end of 2015, is the youngest of the so-called regional development banks, which include the African Development Bank (AfDB), the Inter-American Development Bank (IDB) and the Asian Development Bank (ADB) ). Usually, these banks seem to “keep their band” in terms of regions. It would therefore be surprising to hear that Rwanda, an African country, recently received a $ 100 million loan from the AIIB. How?

Anyone who follows the AIIB path knows that lending to African countries began not from Rwanda, but from Egypt.

As the second African country to formally join a bank renowned for its ‘clean, economical and green’ motto, Egypt was able to receive its first round of funding from AIIB back in 2017 for a $ 210 million green tariff program for solar energy. … Since then, Egypt has approved two other projects, one on rural sanitation ($ 300 million) and the other on several smaller domestic infrastructure projects such as smart cities ($ 150 million). Egypt has another $ 300 million COVID19 recovery project co-financed by the World Bank.

However, Rwanda, classified by the United Nations as a Least Developed Country (LDC), only joined the AIIB in 2020, becoming the ninth African member with a paid-in capital of $ 5 million.

Moreover, two other LDCs – Ethiopia and Sudan – joined the AIIB ahead of Rwanda and contributed additional capital of $ 49 million and $ 59 million, respectively. Other African countries that have made the same investments in AIIB as Rwanda have very different income levels: Algeria, Ghana and Côte d’Ivoire are middle-income countries, while Guinea and Madagascar are among the least developed countries.

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Two key reasons explain how Rwanda has managed to get ahead of the line compared to other African countries.

First, the Rwandan project – like Egypt’s anticipated post-COVID19 project – is not just an AIIB-funded project. The initial funding of $ 101 million for the project came from the Rwandan government, with an additional $ 150 million in loans and $ 32.5 million in grants to be provided by the World Bank. This co-financing facility 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 the country for aspects such as environmental and social risk analysis and implementation oversight. Thus, money leaves home faster.

The second reason Rwanda may be ahead of other countries on the continent is because its institutions appear to be at the forefront of implementation. For example, the Rwanda Development Bank (RDB) is actively involved in providing loans to small and medium-sized enterprises for a new project, building on its experience with the Economic Recovery Fund (ERF), which was created in June 2020 to help businesses cope with the negative economic impact of COVID. nineteen. With the ERF and other measures, Rwanda was rated as 3rd largest sponsor for COVID-19 economic response for citizens in relation to GDP across the continent, spending approximately 3.3 percent of GDP (in PPP terms), after South Africa and Togo.

So what’s next? Is an increase in lending to African countries from the AIIB envisaged, and will this really help solve the problem of infrastructure deficits in Africa? estimated at $ 68-108 billion per year?

More lending is highly likely. Since Rwanda joined the AIIB, two other African LDCs, Benin and Liberia, have joined them, each with $ 5 million in capital. The United States, bringing the total number of African countries to 11 out of 55. In addition, eight African countries, including Kenya, are still awaiting membership approval. , Senegal and Togo. South Africa also remains “promising” – although it was one of the 57 founding members of the AIIB, it has not yet contributed to the capital.

It is clear that African countries expect more infrastructure funding from the AIIB.

But this is a problem. While the AIIB appears to be collaborating with other countries in Africa, its focus on infrastructure – in particular, clean, green infrastructure – could be weakened. For example, the World Bank has not funded a new rail project in an African country for nearly 20 years, suggesting that its experience with infrastructure needs on the continent is very limited. Another example is another Rwandan project in the AIIB pipeline, $ 200 million for improved digital access, half of which is financed by the World Bank. There is no doubt that investment in digital infrastructure, for example, is now critical to education, which was not the case before COVID-19. However, for this project no more than 21 percent of $ 200 million will be dedicated to the construction of new infrastructure. The rest will be spent on efficiency gains and incentives – from subsidizing smartphone purchases to coding academies. This is helpful, but Rwanda has just over 1,000 secure Internet servers per million people.… There are over 1.3 million such internet servers in China. The digital divide in Africa is huge and needs more attention.

Therefore, if the AIIB is to remain on the African path, expanding beyond Egypt and Rwanda, partnerships with the AfDB and continental organizations such as the African Finance Corporation (AFC) and the African Export-Import Bank (Afreximbank) may be worth further development. active in the future. There is a clear need for this, and African members want it.

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