President Kagame speaks at World Bank session on Maximizing Finance for Development.
Transcript
00:00 (music)
00:05 Welcome everybody. Thank you for joining us.
00:09 My name is Ali Velshi. I am a correspondent with NBC News and an anchor with MSNBC.
00:17 My area of interest is economics and it is my pleasure to be back here at the World Bank again today.
00:25 To those of you here in the room and to those of you who are watching us on our live stream,
00:30 thank you for being with us today for a remarkably important discussion on maximizing finance in development.
00:38 It's been an area that the World Bank has been particularly focused on in terms of fine-tuning
00:45 and optimizing the ways in which we can use the capital that exists in the world,
00:51 in many cases private capital, to fix many of the things we have to fix,
00:55 become more productive, become more efficient, narrow the gap between inequality and wealth in the world,
01:03 and in doing so, enhance prosperity.
01:06 So it is my pleasure to be joined by a panel of esteemed guests who all have different specialties in these particular areas.
01:15 I want to introduce my guests to you very briefly. You, of course, know who they are.
01:21 But next to me is President Paul Kagame of Rwanda.
01:24 We've had the opportunity, Mr. President, to speak over the years about the work that you are doing in Rwanda
01:31 to attract the necessary capital.
01:34 We want to get into some discussions with you about how you have succeeded and what needs to be done.
01:39 Renu Sudkarnad is the Managing Director of the Housing Development Finance Corporation of India.
01:45 Adrian Orr is the CEO of the New Zealand Superfund and the Chairman of the International Forum of Sovereign Wealth Funds.
01:51 And Bill Winters is the Group CEO of Standard Chartered.
01:55 They all bring unique expertise to the area, and we're going to engage in a great conversation with them,
02:01 including some of your questions.
02:04 Dr. Kim, President Jim Kim of the World Bank, has really been spearheading an effort to make the World Bank central to the work that is done on this front.
02:17 So I want to, before we engage in our panel discussion, thank you for the work that you've done and ask you to kick this off.
02:24 Well, Ali, thanks so much for coming, and I'm just really grateful for this wonderful panel.
02:29 And let me just try to put it in as simple terms as possible.
02:33 You know, all over the world, you see aspirations rising.
02:37 And, you know, as a person born in one of the poorest countries in the world, Korea in 1959, it's a great thing.
02:44 Aspirations should be rising.
02:46 But as broadband expands, we know that just about everyone in the world will know how just about everyone else in the world lives.
02:54 And as these aspirations rise, what it will take to meet those aspirations, to build the infrastructure, to provide the health, the education,
03:02 is not billions of dollars but many trillions.
03:05 So the Sustainable Development Goals is $4 trillion a year.
03:09 And no matter how many multilateral development banks or how much ODA goes up, we will never be able to meet that demand.
03:16 And so what we've been trying to do is to look at every single one of our tools, of course, sovereign guaranteed loans to governments,
03:24 but also very specifically the loans we give to governments for policy change which will bring about -- which will improve the investment environment.
03:33 On the private sector side, we have equity investments, we have loans, we have mezzanine debt.
03:38 We have all kinds of different tools, first loss guarantees, partial risk guarantees, political risk insurance, credit enhancement, Amiga, all those things together.
03:47 If we were to say with all these tools what would be the best way to maximize for every single country the resources they have to achieve their goals,
03:56 it would look different than what we're doing right now.
04:00 We wouldn't be competing with each other for low-hanging fruit that maybe could be done on entirely commercial basis, an infrastructure project, for example.
04:09 We would instead be looking at every single way that we could bring in the private sector.
04:14 So one of the things we did that we would love to talk about is that with a $60 million guarantee from Swedish Sida,
04:21 we were able to securitize a bunch of our own emerging market infrastructure loans.
04:25 And then in taking 10% first loss, the senior tranche became triple B investment grade.
04:30 And for the first time, we were able to bring in insurance companies who are very conservative, insurance companies into the emerging market infrastructure space.
04:39 Now that's just one example, but we have to do this on a much larger scale.
04:44 And we love the interest in blue bonds and green bonds and impact investing,
04:50 but our assumption has to be that that will never reach the trillions that we need.
04:56 We have to bring in investors because of the return and because it makes sense for them in terms of their own risk appetite.
05:05 So that's what we're trying to do.
05:07 It's a very straightforward process.
05:08 We want to maximize financing for development.
05:10 The more private sector capital we can bring in, the more governments will have to invest in things like health education and social protection.
05:18 It's difficult. It's a fundamental culture change, but I think we have no choice.
05:23 Dr. Kim, thank you for that.
05:25 And thank you for convening this group.
05:29 Let's start the discussion off with President Kagame.
05:33 On a very basic level, President, you've really had to start a new country in a lot of ways.
05:39 You've had to assume that the foreign direct investment that was going into Rwanda had gone away.
05:44 You needed to attract investors with the basic needs that investors have, stability of government, rule of law, protection of private property.
05:53 When you try and attract the money that you need for basic infrastructure development in Rwanda,
06:00 do you go in with a set of principles about what role the government plays versus the private sector,
06:08 or are you trying to get the best deal and tailor it around what the needs are of the market?
06:14 Thank you.
06:16 First of all, maximizing finance for development builds on the simple realization and logic that funds to invest for development,
06:31 public funds, are scarce and they are continuing to be scarce.
06:37 So we have, therefore, to look at it broadly. That is the first point.
06:46 The second is the prosperity that we are looking for, all countries, cannot come from public or private separately.
07:02 There has to be coming together where the public side might do what they are capable of doing
07:10 and the private sector coming in also doing the best they can.
07:15 And when we are together, that's when we are able to maximize on finance for development.
07:23 In our case, where we came from, in fact, both were at very low levels.
07:32 In fact, the private side much lower than the public.
07:38 So government had to find ways of, first of all, filling these gaps,
07:47 but at the same time looking at how do we bring in the private sector to play its part,
07:55 especially in partnership with the government, and then working with the multilateral institutions,
08:01 especially the banks and others.
08:03 And here, again, I would want to give my thanks to some of the partners,
08:11 I think the World Bank Group has been very helpful in supporting government to do what it can,
08:19 also to put in place what requires to be in place and tracked and bring in the private sector
08:28 and enable it to play their part as we come together with the government.
08:34 So our understanding is that neither government or the public sector nor the private sector
08:44 is going to do what needs to be done alone, but rather how do we come together
08:52 and create that quality partnership that is required to do what needs to be done.
08:58 And what have you learned in the time that you have been working on this,
09:04 15, 16 years now you've been working at it,
09:07 what have you learned that has worked for you and hasn't worked for you?
09:13 In fact, other lessons that we have grown from all this is that even markets on their own,
09:23 they won't solve our problems. So that is one lesson.
09:28 In fact, we can do things in partnership and government doing as much as we can
09:36 to actually create this market or deal with some of the failures that are present in the marketplace.
09:46 So the lessons we have, many things have worked, partnership has worked,
09:51 and with government doing what it needs to do in the area of governance
09:59 and to allow the private sector to play its part with predictability,
10:04 especially we have to put in a number of things.
10:08 One is the regulatory framework has had to be created so that there is predictability in the process.
10:17 And in doing business, for example, we have benefited from, again, the support of the World Bank,
10:25 where it has enabled us to create an environment where it is easier to do business in our country.
10:34 So there are a number of these regulatory issues that have to be tackled
10:40 so that government can do the best it has to do and the private sector will do what it can do.
10:48 And when we come together, in most cases, progress has been made.
10:53 Thank you, Mr. President.
10:55 Reino Karnad, I want to ask you, the Housing Development Finance Corporation in India has been around since 1970.
11:02 It is the largest private sector player in housing finance in India.
11:08 But there are about, I think there are more than 75 private institutions working alongside government
11:14 or with government institutions in order to meet capacity in India.
11:18 As the President said, regulatory framework and in India's case, legal framework,
11:22 have both been impediments in the past to attracting things as basic as housing investment.
11:29 Tell me how you've worked through this.
11:31 Oh, well, you know, Ali, and this is for you, Bill, when the British left India,
11:37 they left good governance for us, maybe, good, you know, how the government runs.
11:42 They left us the railroads, but for some reason, they didn't leave the building societies.
11:47 And so in 1977, we decided that we'd get our own.
11:50 And HDFC was set up with no government shareholding at all.
11:56 IFC were the ones who actually put their faith in us and gave us $4 million line
12:02 and invested 5% of our then tiny equity, which would be about half a million dollars today.
12:08 If you look at the market cap of HDFC today, we'd be close to $40 billion.
12:14 So that is where we have reached over time.
12:17 But to step back, it was a leap of faith, Ali, literally a leap of faith by us
12:23 that the middle class is not going to default if they've taken a home, if they've taken a loan for a home.
12:29 We had no foreclosure laws. We had no credit rating.
12:33 We had literally, we had no access to long-term funding, but we started.
12:38 And we started with a firm belief that if we lent sensibly, if we did not do stupid things to grow,
12:46 if we made sure that the basic principles of lending were adhered to, we can't go wrong.
12:52 And I think we've proved that.
12:54 So for the first 15 years since 1977, we had no competition. We had zero competition.
13:01 But over that time, we were able to set up a reputation of being an entity which dealt fairly,
13:07 with integrity, with, you know, honesty.
13:10 And that really led to these 70 odd companies that you're talking about to come in.
13:15 Another interesting fact, Ali, is we actually wrote the mandate for our own regulator.
13:20 We had no regulator. We helped set up our own regulator.
13:25 So over that, since then, times, things have completely changed.
13:29 Housing in Mr. Modi's government right now is the buzzword.
13:34 Affordable housing and the amount that the government is now doing for affordable housing
13:38 for the last one and a half years is incredible.
13:41 But before that, for the last, we complete 40 years actually on 17th of October.
13:46 And so the 38 years that we spent were literally trying to fund Indians,
13:53 middle income Indians, low income Indians to own homes.
13:57 Till now, we funded about 6 million homes we've funded.
14:01 And it's still a long, you know, way to go.
14:04 India's housing shortage is something like 18 to 20 million.
14:08 And in 40 years, we've just done 6 million.
14:10 So I think regulations over time.
14:13 So we helped bring in the foreclosure laws also in terms of getting long-term funding.
14:19 Pension funds were not allowed to invest in entities like us.
14:22 So after working on the government for nearly 25 years, pension funds can now give us money
14:27 because housing needs long-term money.
14:30 And short-term money doesn't really help.
14:32 So I think we were the pioneers, and I think we played a very sensible role.
14:37 And in a few--thank you for that.
14:38 In a few minutes, we're going to talk to Bill about short-term money and long-term money
14:42 and the roles that banks have.
14:43 But I want to ask Adrian, first of all, because he's the CEO of New Zealand's Superfund
14:48 and the chairman of the International Forum on Sovereign Wealth Funds,
14:52 one of the issues that the World Bank and all of these groups and clients struggle with
14:59 is how to get the type of money that your sovereign wealth funds have
15:03 and what are the risks about which you are most concerned.
15:08 Are there particular risks?
15:09 Is it the underlying economic situation in a country?
15:12 Is it the governance infrastructure?
15:15 Is it as simple as not having enough information about a country or a project?
15:22 Yes, yes, yes, and yes.
15:24 I agree. All of the above.
15:26 And seriously, there is a wall of capital, a supply of capital,
15:33 wanting to get invested into long-term infrastructure investments.
15:37 Frontier markets, emerging markets, are a fantastic source or opportunity for large long-term investors
15:46 because of the underlying economics, the demographics.
15:50 It's a very youthful population.
15:52 You're seeing urbanisation, you're seeing rising middle income,
15:55 and you're seeing climate change challenges.
15:57 So, you know, it is a very opportunistic place for long-term capital to come.
16:03 Likewise, on the demand side, there is a real need for that infrastructure investment,
16:08 but the two can't meet at the moment.
16:10 The two can't meet in scale, which is a terrible situation.
16:14 And I applaud the World Bank and the leadership they're taking
16:18 for acting more as a clearinghouse for these types of opportunities.
16:23 Invest for Climate is a good example,
16:26 as well as the work IFC are doing to create more of a list of scalable opportunities
16:32 and also to act and be involved globally around trying to stabilise regulatory situations,
16:41 improve property right certainty,
16:44 and to really standardise the investment procurement framework.
16:51 Because at the moment, we cannot move global capital, large capital,
16:56 into small, very heterogeneous projects.
16:59 It's just too hard.
17:01 Fund managers are lazy. We like to plug and play.
17:04 We don't like to have to actually be on the ground and do hard work.
17:08 So that's why we need people like the World Bank, like the IFC, the IMF,
17:12 to act as clearinghouses for us for it to happen.
17:16 And what I want to ask you a little later on is whether you're getting the information you need,
17:21 what more you need from that clearinghouse in order to combine this wall of money
17:27 with the $4 trillion a year that Dr. Kim says we need.
17:32 Bill, banks often struggle with this, right?
17:36 The length of time the capital is needed, the various issues that Adrian just outlined.
17:42 Standard Chartered has probably done more in the developing world than most commercial banks.
17:48 So what is it you know that other commercial banks don't,
17:51 or what is it you're doing that other commercial banks don't,
17:53 to allow you to be part of this wall of money that needs to find an investment home?
17:58 I think a lot of the issues that relate back to your question have been hit on by each of the previous speakers,
18:03 so I'll try not to repeat, but I don't think we know anything more than anyone else knows, any other bank.
18:08 I think we made some choices along the way, and we continue to make those choices.
18:12 We were born in Africa and the Middle East and Asia.
18:17 That's where we operate today, substantially,
18:19 and the needs are fundamentally around infrastructure and long-term development.
18:24 That's the best thing for our markets, is to create the facility for underlying businesses to grow.
18:30 And we decided, repeatedly through 150 years, that this is what we will focus on.
18:34 In terms of the challenges, there are many.
18:38 I think we understand what we can do, and we understand what we're allowed to do.
18:43 And those are actually two different things.
18:45 We have a risk capacity, which we've developed through the years.
18:48 It helps to be local, to be fundamentally local.
18:50 So we have retail and small business operations in most of the markets that we deal in, in the emerging markets,
18:56 as well as having a full-scale international offering.
19:01 But we also know that regulation, as it's evolved, and our own shareholder expectations, as they've evolved,
19:07 rating agency expectations, effectively preclude us from some of the things that banks did historically.
19:13 Banks are not natural holders of long-term, illiquid, unrated credit risk.
19:19 We are natural holders of short-dated facilitation capital.
19:22 So the partnership that we need to bring to the table for a particular project that we think is financeable,
19:29 relating to a partnership with the international agencies, with local banks, with private sector capital,
19:36 I think of sovereign wealth funds as private sector, because they have fundamentally a commercial orientation,
19:41 even if they're investing on behalf of citizens.
19:44 Each of us has our own niche. Each of us has our own capabilities.
19:47 And we need to marry those things together.
19:49 So the real expertise that I think a bank like Standard Chartered has developed is how to bring those things together
19:54 and provide, in many cases, that catalyzing bit of capital or that bridging bit of capital
20:00 that allows an otherwise unfinanceable project to be financed.
20:05 Is your fundamental view of risk at Standard Chartered different from your peers?
20:11 Or are you -- I know you say you're bound by the things you're bound by, but do you see it differently?
20:17 I would note empirically, just by observation, most international banks have evacuated on-the-ground projects in Africa,
20:25 and we've doubled down.
20:27 So that would suggest that we're seeing something different.
20:29 Honestly, though, Ali, I think it reflects more a choice that we've made than what we see --
20:34 Right, right.
20:35 We see that there's a need.
20:37 We see that it's consistent with the mandate that we've developed over a century and a half in Africa, in the Middle East, et cetera.
20:43 And we think we have something to add.
20:46 Dr. Kim, you are the president of the World Bank, with all the good and bad that that entails.
20:51 And to some people, that makes you the man.
20:54 But you come from the developing -- the development community.
20:58 You come from a place where your motivations have been that if you succeed on the human development front, everything else naturally follows.
21:09 I think it's useful to get back to first principles here, because there are some people who say, all right, we've got $4 trillion a year in needs.
21:16 We're going to work toward getting that.
21:17 But if we don't, it's okay.
21:19 We'll get some of it next year and the year after.
21:21 What's the imperative here?
21:23 Why does this actually have to succeed?
21:24 Great question, Ali.
21:25 You know, in fact, I don't think it will be okay to not meet that need.
21:30 Because, you know, if you look at the Arab Spring, what happened, it was things like in Tunisia, the highest rate of unemployment was among college-educated young people.
21:40 Talk about a nidus for unhappiness, a nidus for maybe even extremism over time.
21:46 And so this is happening everywhere.
21:48 You have children who may have been malnourished as kids, getting poor education, but my goodness, when they become 18, 19, 21, they're going to get a smartphone.
21:59 They're going to be able to tweet.
22:00 They're going to be able to see how everyone else lives, and they're going to be able to express their unhappiness.
22:05 And so, you know, we've always talked about, you know, human solidarity is important, health and education is important.
22:11 But now I think it's not just important, it's urgent.
22:14 So we're, you know, the focus on maximizing finance for development is because all the things that we've committed to for the SDGs, all of them are important.
22:23 We need to build infrastructure.
22:24 We need to provide energy.
22:26 We need to work on the effects of climate change, reduce our carbon footprint.
22:31 But, you know, just this week we've launched something called the Human Capital Initiative.
22:35 And again, you know, it's a matter of aligning incentives in the right way, right?
22:40 And so, you know, President Kagame, quite apart from the economic benefits of investing in people, has been committed to it at a level that just really, I think, unmatched in the developing world.
22:55 But for the most part, presidents and ministers of finance respond to incentives, respond to pressures.
23:01 And there has been a lot of pressure to invest in health and education.
23:05 But now what we're learning is that improving human capital, improving health outcomes, not expenditures, outcomes, educational outcomes, may be more highly correlated, strongly correlated to growth than just about anything else.
23:22 So, what we have to do is maximizing finance is literally the only chance we have to provide enough resources to invest in infrastructure, energy, transport, ICT.
23:37 And then at the same time, make sure that everyone in the developing world is ready to compete in the digital economy of the future.
23:45 We ignore this at our great peril.
23:49 So, I'm not doing this because it's cool.
23:51 It is cool, believe me.
23:53 I mean, you know, as a person who didn't grow up studying finance, this is some of the coolest stuff I've ever looked at.
23:59 And I talk, you know, refer to it very simply as using the tools that rich people use every day to make themselves richer on behalf of the poorest.
24:08 Guarantees, partial risk guarantees, you know, first loss, dead instruments.
24:13 This stuff is cool and very powerful if you use it on behalf of the poor.
24:17 But it can't be haphazard, right?
24:20 So, for example, there's so much interest in supporting climate change activities.
24:25 There are so many projects out there.
24:27 But there's no platform for the investors, for the multilateral development banks, for the countries to come together and spend the time they need to take the ingredients and bake a cake.
24:39 And so, that's what we're trying to do.
24:42 But it's just, I just want to say the urgency is just huge.
24:48 We are looking at so many countries that are pre-fragility, pre-conflict, pre-violence because of our inability to provide opportunity for the young people who are entering the job market.
25:02 I would want to reinforce that.
25:07 I am very optimistic, though.
25:09 This capital wants to invest.
25:12 And there are very, what's the saying?
25:14 I said it's simple, not easy.
25:18 The simple part is just that we need to communicate better.
25:21 I was asked, you asked what would we need to see as global investors?
25:25 A pipeline of large-scale opportunities.
25:29 One where we are invited to be part of those opportunities.
25:34 So, there's a risk sharing and an invitation, as the President talked about, to be involved.
25:39 Partnerships, both on the ground with other sovereign wealth funds or local investors and other global investors.
25:49 The partnerships are critical so that we can risk share as well.
25:52 And that's getting to know each other.
25:54 And then the standardisation.
25:55 I know it sounds dull, but the ability to plug and play.
25:58 The ability just to get that capital allocated.
26:02 I'd say the single biggest urgency, if you look for the imperative, is climate change at the moment.
26:08 And the fact that economics is not divorced from the environment.
26:12 It's not divorced from society.
26:14 It's not divorced from the governance issues.
26:16 This responsible investing wave is now real.
26:19 And if investors aren't thinking in that space, then they are not doing their fiduciary duty.
26:25 They are not investing appropriately.
26:27 They are not taking on the risks that they need to take on for the reward that's there.
26:31 But can I just say, here's the great risk.
26:33 So, people get very excited.
26:37 The green bond market has exploded.
26:39 But I have to tell you, frankly, we haven't seen a huge impact in either mitigation or adaptation in the poor countries.
26:46 Or even in the countries that are emitting the most, in low and middle income countries.
26:52 So, people get very excited about these new ideas.
26:56 Green bonds, blue bonds.
26:57 And I do too.
26:59 But I tell you, at the end of the day, what Adrian's been saying is, you've got to do the project preparation.
27:05 You've got to put the actual projects on the table.
27:07 You've got to find out ways of de-risking investments.
27:09 You've got to do the policy change.
27:11 Those things that may be dull as dishwater is exactly what's going to determine whether this progresses.
27:18 Because these fads will burn out, will go away.
27:21 And people, and if other parts of the economy start to grow, they'll move away from emerging market infrastructure like that.
27:28 So, our window is narrow.
27:30 And we, as a sort of multilateral development bank community especially, have to move quickly.
27:36 President Kagame, something that Dr. Kim said about dealing with pre-conflict societies.
27:45 Obviously, in Rwanda, you're dealing with a post-conflict society.
27:47 And there are expectations about how things will go and what the future will look like and prosperity on the part of Rwandans.
27:55 You spend a lot of time out in the world trying to sell people on the idea of Rwanda and why they should invest in projects there.
28:05 What's the major difficulty you feel?
28:07 Because you go out there with great enthusiasm about the fact that this is a country that you can help us build for the future.
28:14 What are the major impediments in attracting the deals that you think you'd like to have that are eluding you sometimes?
28:21 Well, especially for Rwanda, which came here from a very low base on everything, there are these difficulties.
28:33 For example, the investors out there who want to put their money wherever they want to put it.
28:43 We look at a situation like ours, Rwanda, first in mind, it's a small market.
28:51 And they would rather go to the markets they think they would invest in and get their returns.
29:00 And that's it.
29:01 On our side, we have therefore to prepare the ground and really convince people that beyond being a small market, this is a country.
29:17 These are people that are worth paying attention to.
29:21 And in any case, on our part, we work around the clock to make sure that even this perception doesn't become a reality,
29:32 but rather create something, for example, that becomes attractive.
29:37 And that's what we have done.
29:39 And that's how we have found investors coming in by way of putting to good use, to begin with, the money we get.
29:53 We mobilize internally all the first people who invested in our country.
29:59 And then there is a story written that if you invest in Rwanda because of stability that has been created,
30:07 of governance, good governance that has been created, and actually disprove the fact that this is not a viable market.
30:16 And this is how using some of the public funds has also helped.
30:24 I'll give you quick examples.
30:26 When we came in, there was no telecoms company in Rwanda.
30:32 And we did that by government investing, partnering with the private sector,
30:41 and actually created a telecom company that was growing and later on that in fact attracted competition.
30:50 We started with one company and now we have three in the market, playing and happy to be moving on.
30:57 Then in the area, for example, of tourism, we initiated and invested in, for example, hotels, conferences,
31:14 and we have seen, and of course created an airline, and we have seen all these grow, and not only grow but also attract competition.
31:24 And what started initially as not a viable market actually became a market in which many players have come to invest and played out.
31:36 So there are these difficulties to begin with. We have to start from there.
31:41 The other thing I should not forget to talk about, you know, we have to deal with humanitarian situations,
31:52 like for example in the case of Rwanda where we started from.
31:57 And globally you find these needs require a lot of resources.
32:07 But when people concentrate on investing in dealing with humanitarian situations,
32:14 I wanted to remind people that for me, for the humanitarian situations to be going on,
32:22 and for us to be paying attention to that and doing the right thing of actually putting a lot of money there,
32:30 also means the humanitarian situations are arising out of the fact that maybe some investments were not done in the first place to prevent that.
32:42 So I think the main thing is to understand where we are coming from or how one situation leads to another,
32:52 or how different groups can work together to actually, as the president of the World Bank said,
32:59 coming together is going to be the way forward.
33:03 Coming together of different players in the private sector, governments, different institutions that have capacities to deal with this,
33:11 so that we don't confuse where we are coming from, where we are going, and the underlying causes that we have to address.
33:19 So we have to address issues of investments in human capital, in infrastructure, in other areas,
33:28 so that in the end actually we are going to find we are having to deal with fewer humanitarian situations,
33:35 or even other situations like the climate change that people have to deal with.
33:40 We can minimize what is giving rise to these situations.
33:46 Thank you, Mr. President.
33:47 So, Mr. President, I would really say that housing is very important.
33:51 Once you have housing for, you know, when you are talking humanitarian, the whole social infrastructure changes.
33:57 The person who owns a house, he thinks twice about doing anything not good around it.
34:02 And I think that's why, you know, any of countries like ours, yours and mine, developing countries,
34:08 we really need to make sure that home ownership goes up.
34:11 And a lot of the lumpen elements in the society, the things, the other problems that we have because of poverty,
34:18 sort of to a great extent get alleviated.
34:21 And to that point, Renu, you have been, India has got its own development and infrastructure issues,
34:28 but you have been partnering with institutions in Bangladesh, in Egypt, in Sri Lanka,
34:34 and you have been having conversations with some African nations about the model you use to underscore,
34:41 and I think to Dr. Kim's point about human capacity and human development, housing is central to that.
34:47 You really see that as an opportunity for public institutions and private institutions to come together
34:54 to really solve one of the most basic problems out there.
34:57 Absolutely.
34:58 Our partnership with IFC works very well because IFC does all the study in terms of, you know,
35:05 where everything is kosher, the people we are dealing with are okay.
35:09 We don't have that expertise because IFC is in most of these locations, they have offices.
35:14 We bring in the expertise from a housing point of view, from how to structure the lending program.
35:21 And most of the times we like to work with a local partner because we are not going to be there forever,
35:26 neither is IFC going to be there forever.
35:28 So make sure that you have a local partner who believes in, you know,
35:33 the whole system of getting housing for the lower income and the middle income.
35:37 And once that anchor local investor is in place and we've hand-held them for maybe three to five years,
35:44 normally we exit.
35:46 I mean, that's the way we've been doing it.
35:48 Work with the government.
35:50 It's very important for the government to understand what are the requirements for a good mortgage,
35:55 healthy mortgage system.
35:57 So I think these are some of the things that we've been trying to do, most of them with the IFC,
36:01 but we've also been working with the ADB.
36:03 And honestly, Ali, it is really replicating what we went through in our own country.
36:08 So we've done it.
36:09 We've been there.
36:10 Well, Bill, Renu talks about how they didn't have a regulator and they wrote their own regulations.
36:14 I'm sure there are some people in this country who would like that to happen.
36:17 But that said, you have identified, and commercial banks often cite prudential regulations.
36:25 I was hoping not to have to say Basel III, but, you know,
36:29 as stifling them from being able to take the view that Standard Chartered has taken
36:35 and perhaps a view that you'd like to take more than you have because there are actual risks involved
36:41 with getting the type of return that is available.
36:45 So to Adrian's point, there's a lot of money out there.
36:47 There's a wall of money.
36:48 They want the returns that are associated with higher risk developing country projects,
36:56 but actually they want to mitigate that risk.
36:58 So we've got to figure out ways to do that.
37:00 Tell me what that looks like, the regulatory environment and the return environment.
37:05 What's the sweet spot for both of them?
37:08 Ali, I think you're right to highlight things like Basel III or Basel IV, as it's affectionately known,
37:14 as one of the mitigants to the distribution of bank capital to these markets,
37:19 but that's not the only form of regulation that's impactful.
37:21 In fact, I think in some ways more impactful is some of the regulation around the insurance and pension sector.
37:26 Banks at the end of the day tend to have short-term money available.
37:29 We borrow short-term. We tend to lend short-term.
37:32 Insurance companies, pension funds are structurally long-term.
37:35 Sovereign wealth funds by fiat are typically structurally long-term.
37:39 And to the extent that they're disincented from putting out long-term capital against long-term projects,
37:43 which is what we're talking about, whether it's in housing or in water sanitation, infrastructure, roads, bridges, etc.,
37:50 this requires long-term capital.
37:52 But as Adrian humbly said, the institutional investors are not always so keen to either go on the ground
37:59 and understand the local economy, understand the project dynamics,
38:03 and they'd like to place lots of small bets rather than a few very big bets in concentrated ways.
38:09 They're always managing somebody else's money.
38:12 So the key is to bring together the role that banks can play.
38:17 We are on the ground. We do understand local currency dynamics.
38:20 We understand how local governments operate.
38:22 And we have risk capital to go to work.
38:25 We don't have the lowest cost of capital.
38:27 The sovereign wealth funds probably have the lowest cost of capital.
38:30 In some ways, the multilateral agencies have a low cost of capital,
38:34 but it's very finite demand or very finite supply, as we know.
38:38 So the key is to take this short-term risk-oriented capital that banks can provide, together with some insight,
38:45 match that with the longer-term capital that can come from other sectors.
38:49 But to do that, we have to have a product, as it were, an asset, that's easily understood, easily digested.
38:56 That requires standardization.
38:58 Ideally, that requires an understanding from rating agencies so that they can validate these structures.
39:04 It almost always includes some risk-sharing with people that have a competitive advantage.
39:09 When the World Bank or MIGA or the IFC participate in a project, it immediately upgrades the quality of that project.
39:15 And you're a big user of that. Standard Chartered does a lot of business with the World Bank and with MIGA.
39:21 We're a very big user, and for very good reason.
39:24 When MIGA or the IFC or other World Bank bodies are involved in a project,
39:29 it validates, to a substantial degree, the underlying political motivation.
39:34 This is extremely important for both reassuring us, but also reassuring the investors that want a standardized product.
39:40 But that in and of itself isn't enough to, as President Kim says, bring the trillions of dollars in
39:44 that need to complement the hundreds of billions that might ever come from multilateral agencies or from banks, for that matter.
39:51 To get that real leveraging effect, we have to be able to standardize that product
39:56 and deliver it in pieces that are appropriate for the long-term investors that the world has today.
40:01 The sovereign wealth funds, the pension funds, the insurance companies, etc.
40:05 I mean, just again, in full agreement, there's two things that need to be carved up.
40:11 The first one is the risks of the projects to be sitting with the relevant investors.
40:16 So, all investors are different, but you can carve the risk up.
40:20 The second bit, and I think a really important part from the demand side for this capital,
40:26 is that investors need to be invited in in a safe manner.
40:32 And by being invited in, you are going to have to give up some of the returns that you think belong to your country
40:40 if you want third-party capital to come.
40:43 It is not free capital, it is being invested to maximize return over the long term,
40:50 and you need partnerships and you need mutually assured embarrassment if these projects go wrong.
40:56 And so that's why it is hard, you see, it's dull as dishwater, but it is necessary.
41:02 It is a necessary starting point, not sufficient, but a necessary starting point to be invited in.
41:07 Get your fiscal plans sorted, understand which bits you want filled from third-party capital,
41:12 then talk to those parties.
41:14 Don't just say, "Hey, here is a project." That just will not work on the way through.
41:19 With regard to the climate change challenge, which I keep coming back to,
41:23 that is the single biggest area that is so difficult to invest in anything new.
41:30 Alternative energies are venture capital.
41:33 They're not even expansion capital at this point.
41:37 And so, you know, long-term funds can't play venture capital.
41:41 They can play expansion capital, they can play leverage.
41:45 So you need to be able to aggregate these types of opportunities and work together.
41:50 Although you say that it will help you to have, obviously, more standardization
41:56 and the work that the World Bank and others do on this front,
41:59 there are sovereign wealth funds and even some monetary authorities
42:04 who are creating vehicles specifically to invest in developing country infrastructures.
42:10 So some sovereign wealth funds are trying to address this themselves.
42:14 That's exactly right.
42:16 You know, there's a few shades of grey of what sovereign wealth funds are.
42:20 Some are long-term oil revenue funds.
42:24 Some are specific purpose savings funds like the one that I am in charge of.
42:29 But the newest kids on the block are these sovereign development funds.
42:34 They're in Ireland, Turkey, Angola, Nigeria, Botswana.
42:41 There are a lot of funds that are set up to invest purely domestically
42:46 but to co-invest with other partners, whether they're sovereign wealth funds or the private sector.
42:51 And that is that mutually assured embarrassment that we're after.
42:55 You know, to say, "Look, for every dollar you put in, we'll match it
42:58 and we will be your boots on the ground, your eyes on the projects,
43:02 and we will assist on the way through."
43:04 It's early days, but they have proven very successful in some countries in a very short time.
43:10 The challenge is to be able to measure the outcomes properly.
43:13 They have to provide economic returns for all parties
43:17 as well as those wider positive externalities for the domestic country.
43:21 So Adrian, we have something going like that.
43:23 We have, along with Adia, the Abu Dhabi investment, you know, it's their sovereign fund.
43:30 They are investing in a big way in India for affordable housing.
43:34 So it's really true. I mean, if there is a good project, the money...
43:37 I don't think money is a problem, very honestly.
43:39 Right, sounds like it's there, right?
43:40 There is enough money there.
43:41 The connection of the money to the project and everything goes on in between.
43:45 It's the project and the government's ability to deliver the other things,
43:50 the requirements that are there to make the projects work.
43:53 How quickly that, you know, you can get your approvals, your environmental approvals,
43:58 your, you know, other things that are required.
44:01 And how much is that changing in India?
44:03 Because that has been historically the problem.
44:05 People say, "Love India, there's no question with the market."
44:08 There's an enthusiasm to get things done, but your project could, your road could come to a halt.
44:14 Not fast enough, still not fast enough. It could be much faster.
44:17 But yes, in the last 10 years, we have seen a change.
44:20 But I think things can be much faster.
44:22 And it is the same thing that whichever country you go into,
44:25 you don't really need the government for money.
44:28 You really need the government to be a facilitator,
44:30 the government to make sure that things happen quickly.
44:34 President Kagame, I want to ask you, I want to just take some questions.
44:38 We're streaming this live and we've got an online audience out there,
44:40 and I want to involve them a little bit.
44:41 I want to take some questions.
44:42 So I've got a few that have come in from our online audience, and this is a very good one.
44:46 How can governments, and I think they're talking about governments like yours,
44:49 tap into the African diaspora?
44:52 All the Africans who have gone out to the rest of the world and been very, very successful there.
44:57 That could be some source of work for you.
44:59 Do you think about that? Do you concentrate on that at all?
45:02 Absolutely. We've done actually a good job of that by,
45:09 we connect with the African diaspora directly,
45:13 specifically those who come from Rwanda, who are all over the world,
45:18 Europe, United States, and other places who have their different possibilities of being there
45:26 and being productive to themselves.
45:29 We want them to be contributing to their countries as well.
45:34 And several times I have actually met hundreds or thousands of them in different places
45:40 and had a conversation with them, and the response has been very, very good.
45:46 Some of them have not only been able to come back to their country
45:50 and they have formed the backbone of the actual human capital that is doing what is being done in Rwanda.
46:00 Others are still outside but contributing directly to the developments in their country.
46:07 So in the same way, I think it can apply to many other countries on our continent in Africa.
46:14 And this is a conversation that goes on regularly and we want to keep encouraging it.
46:21 And I think the bridge is there connecting our country or our countries in the continent with the people in diaspora.
46:30 And I have to ask you, because you and I have had this conversation over the years,
46:33 about the way in which you manage, one of the criticisms that a lot of people have
46:39 when investing in developing or post-conflict countries is how to deal with the corruption issue.
46:44 And this is something you've had to take very seriously from the beginning
46:47 because you knew you were not going to attract some of those investment dollars if that wasn't under control.
46:52 How is that going in Rwanda?
46:54 It's going very well.
46:57 There are two grounds.
46:59 One, that we are fully aware and experience it and see it.
47:05 And we have to believe, therefore, that corruption does a lot of damage
47:12 to almost everything we want to achieve in our countries for our people.
47:17 That is very clear and was clear for us from the beginning.
47:22 The second aspect of it that works on us very strongly and is something we can't ignore,
47:30 for example, in Rwanda, is that Rwanda's uniqueness or specificity, if you will,
47:39 a small economy, constrained in many ways.
47:45 There are certain things we cannot afford to do or not to deal with.
47:53 If we allowed corruption to be the order of the day in our country,
48:00 we know we don't become attractive and we are aware that even if things remain the same,
48:10 the investors or other people trying to attract to our country may go to a bigger economy
48:19 with bigger corruption and therefore we will always lose out.
48:24 So we have to create that uniqueness for ourselves to make us attractive
48:30 so that if an investor has to make a choice, then because they choose Rwanda, absolutely.
48:39 And there is no question about the harm corruption does.
48:42 And for us, it was weighing upon us more heavily than any other country.
48:49 Well, as you know, as a fellow African, I'm a Kenyan born of South African parents,
48:55 it becomes very hard to choose another African country to go to because you get in trouble from your family.
49:00 But as you know, I've chosen Rwanda to go to and I recommend it to everyone.
49:04 You're doing very well on the tourism front, that's for sure.
49:08 President Kim, here's a question online from Chris.
49:12 How do we scale up private finance for AIDS, TB and malaria?
49:17 I don't know if this is a cousin of yours who wrote this because this is your area of expertise.
49:21 Well, you know, one of the things, the reason we started the Human Capital Project is because I noticed
49:29 and it took me, you know, 30 years of doing this work to understand this.
49:35 It was such a great thing when President Bush and so many countries decided to scale up financing for AIDS, TB and malaria.
49:42 That was great.
49:43 But the reason that it required them to scale it up, to start these funds,
49:51 is because most developing countries were not spending money on treating those diseases.
49:56 Lots of other good things happened, we lowered the prices, good things happened.
49:59 But now we're in a situation where despite the fact that human capital,
50:07 that your health outcomes, your educational outcomes, social protection is so highly correlated economic growth,
50:15 we're in a situation where health and education are mostly supply driven.
50:20 Many, many countries, and again, President Kukami is a clear exception,
50:26 most countries say, "Well, if you give me grant money for AIDS, TB and malaria, I'll treat AIDS, TB and malaria.
50:33 If you give me grant money for teaching young children, I'll teach young children.
50:37 But if you stop giving it to me, I'm going to stop doing it."
50:40 That's really what we see.
50:41 And even countries that go from receiving IDA, our most concessional finance, you know, 40-year money at 0%,
50:49 when they go from IDA to IBRD, they stop borrowing for health and education.
50:54 And they don't stop borrowing for roads and energy.
50:57 And it's very possible that human capital is even more correlated, especially with the economy of the future.
51:04 So, the private sector, how the private sector is going to affect AIDS, TB and malaria, I think is this.
51:11 I think that the more we bring in private sector financing,
51:13 the more we're going to free up public resources to invest in the things that are important.
51:18 It's still critically important that donors continue to support AIDS, TB and malaria.
51:23 But if we can create more fiscal space, but more than anything else,
51:27 if we can create a much greater sense of urgency that they have to improve health and education outcomes,
51:32 if anybody wants to know, if a leader wants to know where they can find financing for AIDS, TB and malaria,
51:39 I would say, one, get rid of your fossil fuel subsidies.
51:42 Two, you know, put on a tobacco tax.
51:46 Tobacco taxes are very progressive.
51:48 They benefit the poor the most, and then the money that you raise from a tobacco tax,
51:53 you put right into your health care system.
51:55 So, there are ways of increasing resources, both domestically and by creating fiscal space.
52:03 So, that would be my overall plan for how to increase resources for AIDS, TB and malaria.
52:07 And in fact, when we talk about AIDS, TB and malaria,
52:10 fundamentally what you're saying is if there is a better public health infrastructure to start with,
52:14 because the other issues we're going to deal with, whether it's through refugees or it's through drought and climate change,
52:21 or it's infectious diseases, it's the same concept.
52:24 It's if you're not setting up...
52:25 Exactly. If people are healthier.
52:27 I mean, the malaria cases are relatively few in Rwanda because there's a community health worker system, bed nets are used.
52:34 You know, if you have a functioning health care system, these become less of a problem.
52:41 If people are well nourished, tuberculosis is less of a problem.
52:44 If there's tremendous intervention in terms of AIDS prevention, AIDS is less of a problem.
52:50 But it's just that I think the way to...
52:53 It's not...
52:55 The classic approach is to go to donors and say, "Give more, give more, give more."
52:59 Fine, do that.
53:00 But unless you turn health and education from supply-driven to demand-driven,
53:06 that heads of state, like President Kagame, has already done,
53:10 and ministers of finance say, "Oh my God, you're telling me that if I don't invest in health and education,
53:15 it might affect my bond spreads?"
53:18 That's when you'll get their attention.
53:20 And we'll have to have another session that just talks about how guys like Adrian and Bill
53:26 are going to see that standard, that sort of investment standardized,
53:29 because that's going to need all sorts of rules and ratings and clearing houses as well.
53:33 That is all the time we have today.
53:36 What a meaningful and enlightening discussion.
53:39 I want to thank all of you for doing this.
53:41 Bill, Renu, Adrian, Dr. Kim, and President Kagame,
53:45 we appreciate the expertise and passion that you have all brought to this.
53:50 We wish you continued success in what you do,
53:52 and I hope you, the audience, both here and online, have been able to glean something from this.
53:57 Thank you for your time today.
53:59 [Applause]
54:02 [Music]
54:11 [BLANK_AUDIO]