When it comes to international institutions, we live in a world of acronyms. AIIB is just the newest one among many, but it is one that Canada should be paying attention to. Why? Because it will be a key that unlocks the door to a world of opportunity for Canadian businesses in Asia.
AIIB stands for China's proposed Asian Infrastructure Investment Bank, a multilateral development bank that will provide infrastructure investment loans to its Asian partners. China's pivotal role in creating the AIIB and providing a bulk of the initial funding demonstrates a shift in emerging and developing countries playing a more prominent position in the decision-making processes of multilateral institutions, which they currently lack.
In the past decade, development in Asia has been shepherded by the Japan-led Asian Development Bank. The ADB provides about $13-billion (U.S.) in new loans a year, but it estimates that the continent will require $776-billion of annual infrastructure investments alone between 2010 and 2020 to meet growing needs.
Enter China's AIIB, which seeks to address this monumental gap in infrastructure funding. China has already allocated $50-billion in capital for its operations, with the goal to reach $100-billion of contributions from all members in the near future. The bank is being setup as a dynamic engine for economic development across the Asia-Pacific region.
Forward-looking countries are now choosing whether they are ready to contribute to a new century in global governance, in which China will play a crucial role. Australia has already made the leap by indicating that it will join AIIB, while Canada seems like it is taking a wait-and-see approach. Now is the time for Canada to choose.
AIIB's goal of developing infrastructure in the Asia-Pacific region benefits Canada significantly. With the proliferation of global supply chains throughout Asia, better roads, railways, ports, and telecommunication networks allow for greater interconnectivity and more efficient delivery of Canada's exports to our regional trading partners.
Canadian construction, technology and services-based companies serve to benefit as well, as they could be key players in providing the skills and know-how for AIIB's future infrastructure projects. For example, our extensive experience in building successful public-private partnerships could be leveraged to deliver projects on time and within budget.
While the makeup of AIIB is still being conceived, its critics are quick to cite issues regarding inadequate transparency and unbalanced governance, mainly emanating from concerns about China's heavy influence on creating the development bank.
It is true that China's recent track record regarding its own infrastructure investments in communities across Asia and Africa have been executed with mixed results. Many argue that while these projects do spur economic development, they also lack high-standard social and environmental impact assessments or are primarily conducted to serve China's own economic interests.
However, instead of dismissing the relevancy of AIIB before its inception because of China's involvement, naysayers could play a more constructive role by addressing these concerns multilaterally from within the organization as members.
If Canada were to join the AIIB, it could help ensure that the development bank adheres to international standards of similar more established multilateral development banks, including environmental and social safeguard best practices, respect for labour rights, and transparency in procurement processes.
When it comes to governance, although members still have not determined how voting rights will be allocated, it appears voting shares will be proportionate to GDP at purchasing power parity. Canada's participation, along with other developed economies, such as the U.S., Japan, and South Korea, could guarantee that China would not hold a single vote majority. This will make the governance of the AIIB more equitable and in line with similar organizations and it will play to our global reputation of providing the gold standard for fiscal responsibility.
Although caution is prudent, at times it pays to be bold as it is easier to set an agenda at the outset as opposed to trying to insert oneself in the lineup after the score card is set. This was the case with the Trans-Pacific Partnership and it took strong and effective lobbying to get us in the game.
Canada has developed its greatest credibility with Asian partners when it has trail-blazed ahead of the pack, instead of following behind. Our decision to actively resolve the thirty-year log jam in Canadian-Indian relations resulting from disagreements around the arrangements surrounding nuclear policy coupled with our early overtures to Prime Minister Narendra Modi are paying dividends for us today as we seek to develop stronger bilateral ties with this increasingly important emergent economy. A similar approach should be employed regarding joining the AIIB and building our credibility in the region. Given that the AIIB's current members are looking to finalize the agreement for its formation by the end of 2015, a decision from Canada is needed soon. Through making its membership conditional on the commitment to high-level international standards, Canada can make sure its involvement is tied to the AIIB meeting international transparency and governance benchmarks. Ultimately, this commitment is in the best interest of AIIB, as it will bolster the development bank's legitimacy and set AIIB on the path to receive a triple-A credit rating.
If Canada truly wants to demonstrate a more involved presence in the region, it must determine if it is ready to follow Australia's lead and enter into the next century of global governance. A bad choice for Canada would be to wait and see.
Stewart Beck is the chief executive officer of the Asia Pacific Foundation of Canada.