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The Asian Infrastructure Investment Bank (AIIB) came out with a draft Water Sector Strategy in September 2019. The water sector analysis was developed based on the information in the water sector analysis brought out by the bank in October 2019. Following are some quick observations based on the strategy –

The strategy contextualises and elaborates about the issues and problems facing water sector in developing countries appears to have been brought out to a considerable extent. Though a lot of information and analysis that AIIB has depended upon comes from secondary sources like ADB and the World Bank. It’s own understanding and perspective seems to be missing in the background and largely echoes the views shared by the other MDBs earlier.

It talks about water being a basic necessity of life that confers value and can also be treated as an economic good. This dichotomy often leads to conflict and a large majority of people facing water shortages as well as lack of access to water supply and sanitation.

It observes that 98% of investments in water sector in Asia have come from public sector in 2015. It says that using the Sustainable Development Goals (SDG) as a base for assessing investment needs, an average of USD 120-330 billion per annum to 2030 is required, representing 2.5 – 7.5% of regional GDP. Water supply and sanitation represent the greatest investment need with USD 93-153 billion / pa followed by flood protection (USD 93-153 billion/pa) and irrigation (USD 30-64 billion / pa).

With the public and private investments in water infrastructures have been in the order of USD 30-50 billion per year, an annual financing gap of approximately USD 55-290 billion exists.

AIIB’s mandate strongly aligns with the needs and opportunities in the water sector. The Bank has undertaken a sector analysis, working with key experts, practitioners and stakeholders, to develop a strategy to guide AIIB’s investment in the water sector.

To meet the diversity of needs, the Bank’s investments will be client driven. Additionally, the Bank believes it has a unique and catalytic role in improving the efficiency of the water sector through the application of innovative technologies.

It has divided the sector into three broad investment categories – water services, resource management and resilience. The investments by the bank would be based on the principles of – promoting sustainable infrastructure, integrated resources management, mobilising private capital and efficiencies and adopting innovative technologies.

AIIB looks to evolve its investment approach over a period of time, in the short term from – standalone financing and co-financing to developing strategic partnerships with key development and knowledge players and further allowing it to gradually play a more active role in supporting the policy dialogue and investment process. It looks to grow into similar kind of roles and develop similar approaches to what the other MDBs are already undertaking.

For AIIB private capital mobilisation is a cross-cutting principle of the strategy and an important source to bridge the financing gap. Even though it recognises that private sector has had limited impact so far in the water sector, AIIB will be at the forefront of both increasing the general availability of private funds to the sector and increasing the direct participation and investment of the private sector at the asset level. It will seek to – increase investment attractiveness, address the objectives of large institutional investors and promote the adoption of new technologies through equity investment into technology funds.

The bank looks to keep considering and invested in PPPs despite the poor experiences with PPPs over the past couple of decades in water and sanitation sector. Not only in developing countries but also in the developed countries PPPs in water and sanitation have faced problems and have not been able to deliver on the claimed promises made.

AIIB water sector strategy would have linkages and interactions with its energy strategy, sustainable cities strategy and transport strategy.

The Bank’s corporate results framework and Environmental and Social Framework provide a robust structure to ensure the environmental and social soundness and outcomes of Bank operations. In particular the bank would consider – social, environmental and climate change impacts of its water sector projects.

AIIB will build strategic relationships with knowledge partners allowing it to move upstream and facilitate early project identification by engaging in policy and institutional reform dialogue.

AIIB will leverage this research, advocacy and these professional organisations working on diverse aspects of the water sector. Finally, building partnerships with the private sector, commercial banks, and institutional investors will help it better to help the industry to overcome barriers to its increased involvement in the water sector.

The draft water sector strategy and water sector analysis is available on – https://www.aiib.org/en/policies-strategies/operational-policies/public-consultation-draft-water-sector-strategy/index.html

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