Infrastructure Finance Needs of IsDB Member Countries to achieve - - PowerPoint PPT Presentation
Infrastructure Finance Needs of IsDB Member Countries to achieve SDGs and to Conform to Paris Agreement BI-ADFIMI-KNKS Joint CEO Seminar on "Islamic Structured Finance: Cases of Infrastructure Project Finance in IsDB Member
BI-ADFIMI-KNKS Joint CEO Seminar on "Islamic Structured Finance: Cases of Infrastructure Project Finance in IsDB Member Countries" 12 November 2019, Jakarta, Indonesia
Professor Habib Ahmed
Sharjah Chair in Islamic Law & Finance Durham University Business School United Kingdom
2
3
MDGs (2000-2015) SDGs (2016-2030)
Goals/ Targets/Indicators
8/21/60 17/169/232
Priority Areas
Human Development Holistic: Economic, Social, Environmental
Scope
Developing Countries Universal Source: Moheildin (2019)
Pillars of SDGs: Economic, environmental and social sustainability
threat of climate change
– Keep global temperature rise this century well below 20C above pre-industrial levels and to pursue efgorts to limit the temperature increase even further to 1.50C
– Appropriate fjnancial fmows – A new technology framework – An enhanced capacity building framework
with the goals of Paris Agreement—use ‘green’ alternatives to achieve the SDGs
4
public goods & services essential for functioning and growth of economies
– provides basic and essential services to household sector (power, water, health, transportation, etc.) – is an input in production, lowers the cost and enhances productivity
growth and reduces income inequality
– Overall infrastructure: SDG 9 – Economic infrastructure: SDG 6, SDG 7 & SDG 11 – Social infrastructure: SDG 3, SDG 4
5
– T raditional (grey) infrastructure – Natural infrastructure (forest landscapes, wetlands, watershed etc.)
6 Source: NCE (2016), Sustainable Infrastructure Imperative, p. 4.
7
0.0 1.0 2.0 3.0 4.0 5.0 6.0 4.9 4.4 3.8 5.1 2.9 3.4 3.6 4.6 4.0 3.4 4.5 2.9 3.4 3.5 5.1 4.8 4.2 5.6 2.9 3.3 3.8 Overall Infrastructure Transport Infrastructure Electricity & T elephony Infrastructure Index Value (0-7 best)
7 Source: WEF (2018), The Global Competitive Index Historical Dataset
8
9
– US$ 5-7 trillion annual investment – Developing countries investment gap—US$ 2.5 trillion/per year
– Not doing anything will cost much more is terms of damage to humans, natural infrastructure & economies – Costs of health savings from reduced air pollution— 1.4 to 2.5 times greater than costs of climate
https://www.thejournal.ie/paris-climate-agreement-costs-health-benefjts-3879180-Mar201 8/
10 10
Extraction of oil, gas and coal Buildings, energy and transportation Renewable energy, nuclear, CCS, low-carbon transport, climate-proofed water and sanitation, etc. Standard water/sanitation, high-carbon transport (e.g. roads), energy production, and telecommunications
10 Source: NCE (2016), Sustainable Infrastructure Imperative
20 40 60 80 100 78.8 93.7 14.9 USD trillion
Source: GIH and Oxford Economics (2018) 11
12
10.0 15.0 20.0 25.0 30.0 4.3 5.2 19.7 12.8 1.7 8.5 26.5 5.6 6.0 7.8 22.4 14.8 1.9 12.4 28.4 7.2 1.7 2.6 2.7 2.0 0.2 3.9 1.9 1.6
Cummulative at current trends 2016-2040 Cummulative at investment needs 2016-2040 Infrastructure spending gap 2016-2040
USD trillion
Total Investment Needs per OIC MC per year USD 22.1 billion Investment Gap per OIC MC per year USD 4.9 billion
Source: GIH and Oxford Economics (2018)
Source: Adapted from Ahmed (2017) 13
Government Budgets ($500-550 bil) Private Finance ($150-250bil) NDBs ($70-100bil) ODA/MDB Finance ($40-60bil) Other Developing Country Finance (<$20bil)
14 Source: Bhattacharya A., Romani M. (2013)
(60%) provided by government
to funds are sought due to
− Increasing demands
budget defjcits, and increasing public debt − Huge investments needs for infrastructure fjnance to meet the SDGs
15
15 Source: https://infracompass.gihub.org/compare_countries
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% 20.7% 14.8% 14.7% 26.4% 21.0% 46.0% 17.8% 23.8% 19.3% 37.1% 9.8% 13.9% 16.9% 0.37% 3.01% 0.30% 0.46% 1.04% 8.26% 3.13% 1.33% 1.09% 1.91% 14.04% 3.21% 6.71% 2.79% 2.73% T
T
Institution Investment Horizon Risk Appetite
Commercial Banks Short term Low to medium Nonlife insurance Short term Medium Investment Company Short to medium term Depends on funds mandates Life insurance and private pension Long term Medium Public pension Long term Medium Sovereign wealth funds Long term Medium to high Endowments and foundations Long term High
16
Nonbank fjnancial institutions are more suitable for investments in Infrastructure fjnancing
Source: PWC & GIIA (2017) 0% 10% 20% 30% 40% 50% 60% 70% 80% 52% 64% 32% 44% 76% 60% 46% 50% 24% 18% 45% 38% 11% 15% 39% 32% 5% 1% 14% 4% 2% 4% 7% 5% 6% 5% 3% 6% 2% 9% 1% 5% 13% 12% 6% 8% 9% 12% 7% 8%
Corporate Infrastructure fund/investment fjrm Pension fund Sovereign wealth fund/government agency Other
% of total 17
18
Sectors (2017- 2018) Total assets (USD billions) Percentage going to Infrastructure Infrastructure Investments by Islamic Finance (USD Billion) Islamic Banking 1,598.9 4.74% 75.8 Takaful 42.5 2.0% 0.9 Sukuk 344.8 11.57% 39.9 IDB Project Financing 3.12 Total 119.7 Average per member country 2.1
Source: COMCEC (2019)
19
High income Upper middle income Lower middle income Low income All countries OIC Countries
100.0 150.0 200.0 250.0 68.1 62.5 34.7 60.6 44.2 42.7 23.8 1.8 31.9 16.5 2.3 1.8 0.9 2.0 1.1 76.3 14.4 2.9 53.1 6.8 42.2 14.7 11.4 9.2 27.9 11.0
Stock market capitalization to GDP (%) Outstanding domestic private debt securities to GDP (%) Corporate bond issuance volume to GDP (%) Mutual fund assets to GDP (%) Pension fund assets to GDP (%)
urce: World Bank Financial Development Database 2018
20 20
Stakeholder s
Government
Social Finance
21 21 21
Sustainable Developmen t Environment Climate change mitigation Climate change adaption Other environment al Social Economic Governance
Low carbon Climate Sustainable Green
Source: UN (2018), Greening the Rule of the Ga
Financing requirements to deal with climate mitigation and adaption activities
(CICERO reviewed)—identifjes sectors/projects where funds can be invested
– Dark Green: Renewable energy, resilience to climate change – Medium Green: Sustainable transport, waste to energy & waste management, sustainable agriculture
Sukuk issued
– Value: US$ 1.25bn – T enor: 5 years – Financing mode: Wakala – Profjt rate: 3.75%
22
Estimated costs (2015-2020, $16.2bn/year) 10 20 30 40 50 60 70 80 90 81 55.1 US$ (bn.)
23
35% 29% 20% 16%
Allocation based on type of investors
Asset manager/Fund manager Banks/Private Banks Pension fund/Insurance SWF/Central Bank
0% 5% 10% 15% 20% 25% 30% 35% 32% 25% 18% 15% 10%
Allocation based on geography
24
1,408 acres land in Sindh to MWEL on a 20 year concession period to establish a wind farm
– Project consisted of 33 wind turbines to generate 50 MW of electricity
– USD 32 million was sourced internally – USD 100 raised from external sources: Split between the US- based Overseas Private Investment Corporation (OPIC) and a syndicate of Islamic banks (Meezan Bank Limited, Habib Metropolitan Bank Ltd. and Bank of Punjab)
partnership
a quarterly basis
24
Islamic Financiers AEDB Investment Pool Project Company (MWEL) Project Company (MWEL) Musharakah Project Assets Project Assets USD 100 million GoP Guarantee Concession OPIC OPIC USD 32 million
[Chart 3.11] Source: Adapted from Ahmed (2017)
25
schools under non-profjt foundation Yayasan AMIR (YA) T rust Schools Programme
under PPP arrangement with the Ministry of Education
– SPV: Ihsan Sukuk Berhad (Ihsan) (plans to raise a total of RM1 billion through sukuk programme) – Lead Manager: CIMB Investment Bank Berhad (CIMB) – Structure: Wakalah bil Istithmar – T enor: 7 years – Sukuk was priced with an expected return 4.30% p.a. – Key Performance Indicators (KPIs) to assess social impact assessed over a fjve-year timeframe – If KPIs fully met at maturity, efgective yield reduced to 3.5% (as ‘Pay-for-Success’ for social impact) – Sukuk also had option of converting the investment into a donation
states providing services to over 65,000 Malaysians students.
26
27
28
and UNDP initiated cost-sharing partnership with UNDP-Global Environment Facility
funds for providing power to people living in remote rural villages in Jambi, Sumatra
total of 180kw of electricity
– Provides power to 803 households, 7 schools, 4 mosques, 19 mushala (prayer rooms), one Islamic boarding school and other village infrastructure
28
29