Will the World Bank fully embrace its catalyst potential?

Jim Yong Kim’s belief that he can do more by operating in the private sector again raises questions about the finance institution's role in the 21st century.

Global Infrastructure Partners just can’t keep out of the headlines these days.

First, with its killer deal for the sale of a majority stake in the UK’s Gatwick Airport. Now, with the major coup of hiring World Bank president Jim Yong Kim – to the best of our knowledge, a first for the industry – as partner and vice-chairman, following Kim’s shock resignation from the venerable institution on Monday.

And GIP hasn’t even closed its latest unlisted flagship fund, sure to set a new record if (rather, when) it hits its $20 billion hard-cap. Not a bad start to the year.

Let’s get the obvious out of the way first: hiring a former World Bank president would always be a good move for a global infrastructure manager. For a global manager like GIP, which spent most of last year laying the groundwork for expansion into parts of the developing world – including South-East Asia and India – it’s a great move indeed. As chairman Adebayo Ogunlesi succinctly stated, Kim’s track record speaks for itself.

That Kim concluded – as he pointed out in his resignation email to colleagues – “he will be able to make the largest impact on major global issues like climate change and the infrastructure deficit in emerging markets” working for the private sector packs a punch, though. After all, he’s not leaving any old multilateral – he’s leaving the World Bank. Rebukes don’t sting much more than this, particularly when you consider Kim still had three years to go in his second term.

It’s true his tenure at the Bank had been rocky, with significant opposition to many of his reforms. Considering a top priority included shifting the Bank’s role away from balance-sheet lending by “systematically de-risk[ing] both projects and countries to enable private sector financing”, as he told the London School of Economics in 2017, we can’t help but wonder how much frustration with a lack of progress on this front played a role in his decision.

While the World Bank Group operates on many fronts – with the International Finance Corporation and Multilateral Investment Guarantee Agency playing an important role in catalysing private-sector infrastructure financing – the Bank’s guarantees programme is arguably less impressive. According to its website, as of 2015, 48 guaranteed deals, using $7.4 billion of members’ money, managed to catalyse just over $30 billion of commercial financing, plus $20 billion of public funds.

Contrast that with the €335 billion mobilised by the EU’s ‘Juncker Plan’ in less than four years, two-thirds of which was raised from the private sector, and you get an idea of just how powerful a catalyst public money can be when effectively directed.

Granted, this comparison is not entirely fair considering that not all of that money was channelled to infrastructure (though a very large portion was). Also, the ‘Juncker Plan’ was an EU-level policy, backed by an EU-budget guarantee and engaging the bloc’s multilateral, the European Investment Bank. The World Bank counts 189 member countries and its playing field includes some of the world’s poorest countries, not an integrated trading bloc of mostly developed economies.

Still, that doesn’t negate how much more the Bank could do if it would fully embrace its catalyst potential.

As Kim correctly identified in his 2017 LSE address: “Given the low returns so many owners of capital are receiving from their investments, there should be potential for many win-win scenarios where capital earns a higher return and developing countries receive much-needed investment and expertise.”

That potential has never been closer to realisation. We’ve just had a record year for infrastructure fundraising, with 2019 threatening to be even bigger. At the same time, significant amounts of institutional capital are finally making their way to developing regions, particularly Asia, but also Africa. Much more could flow if the World Bank and other multilaterals help create the right conditions.

It would be a shame, now that Kim has gone, if the Bank turns away from that mission.

Write to the author at bruno.a@peimedia.com