The Next 25 Years of the North American Development Bank

News sources quoted from: the Center for Strategic and International Studies (CSIS)


Media – With more than 25 years of operations, the North American Development Bank (NADB) is considered by many analysts as one of the few exclusively bilateral entities. Despite its specialized environmental focus, the bank is modeled after other traditional multilateral development banks and remains the only development bank that funds projects within the United States. Moreover, given that the bank was created as part of the North American Free Trade Agreement (NAFTA) negotiations, the bank does feature in broader economic policy conversations such as trade and migration between the United States, Mexico, and Canada. The bank has been crucial in developing environmental infrastructure in the U.S.-Mexico border region, including much-needed wastewater treatment facilities, which typically do not receive funding from private investors. As the NADB begins its next 25 years of operations, it is essential to highlight its past achievements and future opportunities.

Q1: What is the NADB?

A1: The NADB is a binational financial institution established in 1994 as a side agreement between the United States and Mexico to secure the passage of NAFTA. The NADB came into existence to address the concern that the increased economic activity from NAFTA could lead to accelerated environmental degradation in the border region. The initial capital commitment from both the countries was $1.5 billion, with 15 percent ($225 million) committed as paid-in capital and the remaining 85 percent (or $1.275 billion) as callable capital spread over 15 years up to 2009. By statute, the bank is authorized to support projects located within 100 kilometers (62 miles) north of the U.S.-Mexico international boundary and within 300 kilometers (186 miles) south of the border in Mexico.

Q2: What has the NADB accomplished since its founding in 1994?

A2: The bank administers three grant financing programs and provides three essential functions: lending, grantmaking, and technical assistance. At its founding in 1994, the bank used its instruments to primarily support projects on water supply, wastewater treatment, and municipal solid waste disposal. By2000, the bank expanded its portfolio to cover air quality management by supporting clean energy and green public transportation projects. By 2019, the bank had issued $3 billion in loans that financed 244 projects with a net worth of $9.32 billion, benefiting 18.7 million residents along the U.S.-Mexico border. The bank has maintained a balanced investment distribution for projects, with 43 percent of projects in the United States and 57 percent in Mexico.

Since 2018, it has issued three green bonds worth $478 million, supporting 12 projects. The bank has helped expand border communities’ institutional capacities through its technical assistance programs and the Project Development Assistance Program (PDAP), investing $69 million in technical assistance to finance 548 initiatives for project development and institutional strengthening, impacting over 160 border communities.

NADB projects over the last 25 years have helped increase the quality of life for Mexico’s border region residents. From 1995 to 2015, wastewater treatment coverage in the region rose 70 percent, up to 91 percent from 21 percent. More than 25 new water treatment plants were established, creating 160 million gallons per day in new (or improved) installed capacity, leading to 291 miles of new water lines and 13,258 new user connections. Additionally, over 1,033 miles of irrigation canals have been rehabilitated while 61 new wastewater treatment plants were established, resulting in better water management to the tune of 370 million gallons per day of new (or improved) wastewater treatment capacity and 513 cubic feet per second of water preservation in irrigation districts. Several communities on both sides of the border have also obtained first-time access to sewer and reliable water distribution systems through the bank’s water sector projects. In the air quality management space, the bank’s investments created 2,999 megawatts of renewable generation capacity through 19 solar plants, 14 wind farms, and two biogas plants. Cumulatively, these projects saved 4.31 million metric tons per year in CO2 emissions, equivalent to removing 949,888 vehicles from roadways. Finally, the bank’s efforts also impacted solid waste management, with more than 39 communities benefiting from improved waste collection and disposal services.

Q3: What are some existing challenges facing the NADB?

A3: There are complex challenges at the border, yet the NADB is mandated to invest in a narrow range of sectors. One pressing challenge involves investing its resources to address the humanitarian issues playing out at the U.S.-Mexico border, with the border crisis serving as a source of tension undermining U.S.-Mexico bilateral relations. Migratory flows from Mexico to the United States come with both economic and environmental impacts, and managing those flows in a humane and just manner has emerged as a significant challenge for the bank as it strives to fulfill its mandate.

As the effects of climate change continue to become more acute, limited access to resources and infrastructure to deal with waste may prove formidable challenges for the NADB. One analysis found this challenge to be an opportunity for the bank to expand its focus and include Southern Mexico and the Northern Triangle of Central America. The analysis argued that with new authorization from the U.S. Congress and a sum of a few hundred million dollars spread across multiple years, the bank could serve as an instrument to combat the ongoing instability in the Northern Triangle that leads to insecurity and gang-related violence, which in turn result in mass migration.

Immigrants in the United States from Mexico and Central America are the source of large remittance flows back to their home countries. The NADB could help invest in the financial infrastructure of Mexico, Central America, and the United States to improve financial services for immigrant- and migrant-sending communities. This could help simplify the sending of remittances from the United States and aid in effectively channeling those flows to financial institutions in Mexico and Central America. The enhanced financial infrastructure could then provide a new source of remittance savings directed to sustainable, productive investments in these countries. A primary goal should be to direct investable resources to development projects in the poorest regions of Mexico and Central America, alleviating the poverty that is a significant impetus for immigration.

Lastly, a final challenge involves calls from the shareholders for greater transparency in funding, explicitly asking the bank to streamline its process to fund and approve projects. Some critics even argue that the bank’s environmental stewardship (as inferred from its funding decisions) is insufficient, with its structure prioritizing profit-oriented lending at the cost of achieving environmental goals as laid out in the mandate.

Q4: How can the institution be adapted to answer to these new challenges?

A4: A multi-faceted, intersectional approach will be necessary for the NADB to overcome this range of challenges. Given increasingly limited natural resources and a growing border population, some argue for a comprehensive sustainability plan for the border region that focuses on ecological conservation and efficient water management. Additionally, improving port-of-entry (POE) infrastructure (through financing POE projects) may prove essential to enhancing border security and speeding up project implementation time. Relatedly, addressing the issues around climate change would require the bank to implement ambitious clean energy standards in current and future projects. An example of such involvement is the bank’s primary role in a transborder renewable energy project in which wind energy produced in Mexico is then sold to the United States. Lastly, to address concerns around security, transparency, and environmental impacts, a bilateral oversight commission (composed of U.S. and Mexican authorities) could be developed to monitor the approval and implementation process of projects. Such a commission could aid in combating corruption and ensure that environmental and human rights concerns are taken into account in project planning and execution. Moreover, such a commission could help combat critiques that projects often place profit over the well-being of the environment and individuals.

Q5: What roles should the U.S. Congress play in accompanying institutional change?

A5: The U.S. Congress can play a crucial role in shaping the future of the NADB and the communities and environments that it serves. CSIS’s Daniel Runde has previously called upon Congress to pass legislation expanding the regional mandate of the bank to include projects outside of the 100-kilometer (62-mile) border limit. Additionally, should an oversight commission be formed, members of Congress could serve as officials or advisers. Another area in which Congress might play an important role is in passing legislation to increase bank funding. Additional funds could be used to help streamline processes, finance new projects, expand staff, and support oversight committees. Congress has already passed such acts before, seen in the North American Development Bank Improvement Act of 2019, which authorized the Department of the Treasury to increase the bank’s capital and subscribe to and purchase 150,000 shares of the bank’s capital stock. Furthermore, Congress can support legislation similar to that of the United States-Mexico-Canada Agreement (USMCA), which, among other things, greater links the economies of Mexico and the United States in a mutually beneficial manner. By expressing the same kind of support for future legislation that deepens these U.S.-Mexico economic ties, Congress could help facilitate new opportunities to improve and expand the NADB, as well as help to further the bank’s mission.

Daniel F. Runde is senior vice president, director of the Project on Prosperity and Development and Americas Program and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Veronica Rice is a research intern with the Project on Prosperity and Development at CSIS.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Veronica Rice

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