AIIB to accelerate investment trends in Africa

NAIROBI -- The ongoing preparations to launch the China-backed Asian Infrastructure Investment Bank (AIIB) will further transform the investment climate in Africa, and lead to lower cost of finance while boosting competition in the international financial markets, analysts have said.

Gerishon Ikiara, Associate Director at the Nairobi University's Institute of Diplomacy and International Studies, said the creation of the AIIB will raise the profile of China as a leading force in global lending and investment trends in the 21st century.

"It will also improve the available global investment resources and increase the level of competition in the global financial markets," Ikiara told Xinhua.

China is leading efforts to have the proposed bank launched, with 21 countries having signed up to a Memorandum of Understanding (MoU) in support of the AIIB.

African countries have limited opportunities accessing long-term finance for infrastructure projects because of their under-developed capital and financial markets. There are limited infrastructure bonds issued by African states due to what experts at the World Bank attribute to lack of investment banking skills.

Studies by the World Bank cite the unwillingness by investors to buy long-term financial instruments not supported by cash refunds like easy access to bank loans based on an agreed maturity period.

"These resources will increase the level of competition in the global financial markets and reduce the monopoly that the West has enjoyed in the past," Ikiara said.

The proposed AIIB is expected to be formally established by the end of 2015, with an initial subscribed capital of $50 billion. At least 27 countries, including Britain, Germany, France and Italy, have expressed an interest in joining its board as founding members.

Ikiara said the proposed bank will accelerate infrastructure development and investment in Africa and other developing countries.

"The readiness and willingness of the key European countries (to support the proposed bank) is an indication that European countries recognize China's growing role in many sectors of the global economy can no longer be ignored or underrated," he said. "It makes sense to cooperate with China in these types of ventures. "

For Africa, the proposed investment bank is considered a potential solution to a financial environment dominated by aid and export-driven economic booms and breakdowns in the past.

"The AIIB is a major and welcome development in terms of widening choices of sources of financial resources," said Ikiara. "Already many African countries have utilized funds from the Chinese Exim Bank and will see the new bank as further good news."

The countries in the Eastern African region are currently engaged in projects aiming to expand electricity generation and distribution across borders and are also investing in renewable energy sources.

"The AIIB is expected to accelerate this process in terms of expansion and modernization of various general investments, general infrastructure and business opportunities," he said.

Professor Macharia Munene, an international affairs with Nairobi-based United States International University, also said the AIIB's bias towards infrastructure development is of particular appeal to Africa, which is currently trying to open up their countries to facilitate movement of goods and services, and to lower the cost of doing business.

"The opening of AIIB can only be as positive as a stimulant to global economic growth. It can and should venture into global investment zones that few think about. It can pioneer new activities and it should," Munene said.

He added that with growing international interest on the proposed bank, countries around the world would benefit from large sources of infrastructure financing as a result of lower cost of borrowing for infrastructure projects brought by the bank.