Ajay Banga, President of the World Bank

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Klaus Schwab, Founder and Executive Chairman, World Economic Forum: A great welcome to everybody who is looking at this discussion. I have the privilege to discuss the state of the world and some other issues with Ajay Banga, the President of the World Bank, and also a member of the Board of Trustees of the World Economic Forum.

Ajay, in a few days from now, we will open the Annual Meeting and as usually, since over 50 years, it's an opportunity for government, business and civil society leaders to come together and to look at the challenges ahead, particularly the challenges we are faced with this year.

Now, my first question to you would be what takes your sleep at night? What are the challenges which really are foremost in your mind at the beginning of 2024?

Ajay Banga, President, World Bank: Klaus, thank you for having me and I'm looking forward to seeing you in Davos in a few days.

I guess the answer to your question has two sides to it. There's the more immediate side, and I think that is if I was to worry about things that are the short term, aside from the conflict in Gaza and Israel, aside from Ukraine and the situation there, I think the third thing I would worry about is the situation on debt in a number of the emerging markets. A number of them are also coming up for rolling over that debt over the next 12 to 24 months and, given interest rates today, that rollover will come at a price. And so I think their ability to to service that debt is eating away from their ability to look after health and education. And, you know, there are statistics out there that they're spending more on debt repayment than on a number of those things.

So I think fragility and conflict, combined with the challenges of debt, are two of the most serious ones right now in the shorter term.

But I think if you look beyond that and if you look at the state of the world, then I try and look at the challenges we face as being on three sides of a triangle.

And one side of the triangle is the longer-term issue of 'one versus many', essentially the inequality, poverty aspect. You know, it could be you could feel it because of gender or ethnicity or or religion or being born on the wrong side of the tracks. And it might be exhibited in the form of, you know, access to education or health care or clean air or water or frankly, opportunities of all types. And the best way to solve for these, aside from creating better access, is a job, because jobs give you not just earning and breaking out of the cycle, but also dignity. And I think dignity is a part of human development, not just economic development, that we have to pay a great deal of attention to.

So that's one side of the triangle. The other side of the triangle to me is the challenge of humanity versus nature. And today we discuss that as climate and biodiversity and forest degradations and the challenges of all the aspects of climate and nature that society has begun to discuss now. But to me, that's the second real challenge in the world.

And the reason these two sides of the triangle don't fall down is because the third side is what keeps them up. And the third side is the tradeoff between long term and short term. And whether you're a politician, a CEO, a teacher, society incents you towards short-termism. Whereas the nature of these two sides of the triangle is that these are very deep rooted problems that require longer-term solutions.

And I think this combination of these three factors are kind of what really keep me up at night. I do believe that technology is a great enabler. I think if you go back in time, and when I was younger and you were younger, you wanted to learn about something different, you had to buy the Encyclopedia Britannica. That was expensive. And then comes Google and search and all of a sudden knowledge is democratized and available to everyone. In the same way, technology and now data and AI, are great enablers to break through the power of incumbency or the challenges that this triangle represents.

Of course, done the right way. We have to put guardrails around how these work, but done the right way, this could be very helpful. The headwind is geopolitics of the day, the chauvinistic nationalism of the day. And so I think in many ways, Klaus, the way you're designing Davos this coming year, you're focusing on many of these topics, on jobs, on geopolitics, on technology, on nature, on climate and the like. And I think you're constructing a really robust and interesting agenda for discussing this, triangle.

Klaus Schwab: Ajay, I think this metaphor of the triangle gives a very good insight, and it's a good device to capture the complexity of the world.

And what I like in what you just said is that the underlying fundament is short term versus long term. And I think what we see now in the world is there's so many crises going on at the same time, or it's actually more than a crisis, it's a deep transformation, which we see, ecologically, geopolitically, economically, socially and so on, there is a tendency in the world to put emphasis on short-term solutions, and those are usually simple answers to very complex issues.

So what we want to do in Davos is to show the complexities, the interconnectivity and to have a long-term view, because at the moment we are too much caught in crisis management.

So what we hope to contribute and where we are very much aligned is that Davos should be devoted to a more holistic, long-term approach and interconnected approach, going to the root causes of all those issues.

Now, as a theme, we have 'restoring trust'. And I know, Ajay, despite all the issues, you are always an optimist and you have created also this notion of 'prism of opportunity'. Could you define it, what you mean with it? And I'm underlining the word opportunity also.

Ajay Banga: So Klaus, I think at the end of the day, the opportunities are embedded in solving those problems. And so I think about those problems through the prism of opportunity, and focus on the fact that if we could make progress both with government and philanthropy and multilateral bank capital, but increasingly with private capital as well, coming in to focus on those challenges, we spoke of: emissions, climate, nature, biodiversity on the one hand, and on the other hand: health, education and, critically, jobs, and do so with a perspective that has more than the short term in mind, then I think that is where the prism of opportunity comes from. Patient capital applied to these very difficult challenges is quite important.

I think you made a very interesting point just now when you talked about these interlocking crises. And one of the things I learned when I was still a candidate for the World Bank job and I was traveling around the world seeking support from different countries, is that viewing a crisis only as poverty is probably inadequate because the nature of climate change, the nature of pandemics, the nature of fragility and conflict and violence, the nature of of food insecurity is such that the impact of that upon poverty is intertwined and interlocked.

And therefore, you could say we are in a perfect storm of these crises, or you could say that in that perfect storm is the opportunity for us to change the direction of where our world is going and do so with private capital as well as public capital being applied sensibly in the right places with a patient view. And I think that's the nature of the prism of opportunity.

Because to me, and I think you and I have discussed this in the past, young people, are what give me optimism. And the global South, which is our future lies, is full of young people. And that optimism that their growth, their opportunity provides is very much what we should focus on. Of course, we have to give them health care and education, clean air and water, kind of the basic rights when they are growing up. And then we must provide jobs for them when they are at a certain age, because with jobs comes, as I said, earning and dignity. And the way the world is currently headed, we would generate 350 million jobs instead of the billion that we will need to provide for what is coming through the pipe in terms of this demographic dividend. And so to get this demographic dividend to work as a dividend, this is what we need to focus on. Our prism of opportunity must be job creation with quality of life for these young people.

Klaus Schwab: You have already shown, doing the relatively short time of your presidency of the World Bank, how you are committed to inclusivity and to climate and poverty, those are the two key words. How do you drive impact?

Ajay Banga: One of the challenges in the in the World Bank is that we have been focused over the years, for good reason, on input, as in projects and lending and dollars applied. And those are important. But I think equally important, if not even more important, is measuring the outcome, the impact of those projects and dollars in terms of how many girls went to school, how many people got a better job because of a skilling institute that we invested in, how many tonnes of carbon emissions we avoided because of certain things we funded, how many private sector dollars we crowded in, along with our own capital, in a project to help drive impact?

And I think measuring impact is really important. We are changing the entire Corporate Scorecard of the World Bank to focus a great deal on these measurements of impact along the dimensions of that triangle in terms of both quality of life, in terms of inclusiveness and driving against inequality, but also in the case of climate and nature, and doing so with long-term thinking. That's where we are going in terms of our Corporate Scorecard as well, in terms of the projects we fund, in terms of how we align our stakeholders with where we are going. So it's a very important topic and it's something we're very focused on.

Klaus Schwab: You know, Ajay, our philosophy is the big issues in the world need collaborative efforts of all stakeholders of humanity. So governments, business, civil society, academia, the young generation. And what we are doing is we have a 100 initiatives where we bring those different stakeholders together, but not just to make a declaration, but to achieve well-defined objectives. And here we have the great pleasure to work together in some of those initiatives.

How do you see the role of the private sector, and particularly in your case, banking and the financial industry? Are you satisfied with their engagement or do you feel more could be done?

Ajay Banga: I think without the private sector, Klaus, these challenges that we were speaking about at the beginning of our discussion, we cannot solve these because if you look at the estimates just for renewable energy in the world, they run in the trillions of dollars every year that need to be invested to make the necessary change in the way in which our future growth can be less energy emissions heavy.

Now, there aren't trillions of dollars in government coffers. There aren't trillions of dollars in multilateral banking coffers. The only way this is going to work is by getting private sector capital, private sector innovation in generating technology, their people, their ambition to make return on their capital, but to come to the party where it's possible that there is a good business model.

So if you took renewable energy, it is now true that solar and wind, by unit, are cheaper than fossil fuel. I mean, a lot depends on interest rates and the like, but, basically, they are cheaper than fossil fuel because the developments of the last five, ten years, where technology and scale have come to the point where this economics works.

So then why is it that more private capital is not beating down the doors of many countries to invest in solar and wind energy there? There are many reasons. They start from regulatory certainty and policy certainty from that country. The Bank can help with that, because we have a good knowledge bank which is capable of imparting knowledge-building capacity to these countries to help create the regulatory and policy certainty that a private investor tries to get some idea of when they put money in. You know, it's tariffs and all that kind of thing. Reform of utilities. Reform of distribution. All that is included in that.

The second part is there are still political risks. You know, the World Bank, through one of our institutions called the Multilateral Investment Guarantee Agency, we do provide for insurance guarantees against political risk. Can we do more? Can we do three times the amount we do today, over the next few years? Can we make it simpler for the private sector to understand these guarantees and to access them? Can we make it simpler for the governments of these countries to make them work? Certainly. That's one of the things we're working on.

And then there is the whole issue of foreign exchange. If you're an investor investing dollars, euros or yen into a country, and your earnings are principally in local currency, that's an unhedged exposure. Not all these countries have deep and wide enough foreign exchange markets to absorb such a hedge. So the question is, how do you solve for that in the medium and long term is through the development of local capital markets. But in the shorter term, is there something we can do to help incentivize local currency-raising bonds and the like? And so there's work to be done there.

And then, of course, there's the real prize to me, which is the creation over time of securitization classes in these kinds of investment categories. Now, to do that well, we have to do a lot of things in terms of originating to distribute, something that multilateral banks don't do. So there's a lot of learning. There's a lot of structuring. There's a lot of work to be done on making the loans more standardized, so to say, less bespoke, which enables this to happen. And so this is probably a more longer term effort.

But I think about the private sector as being critical. But they need some certainty in policy and regulatory. They need some help with the guarantees. We have to figure out how to do things on FX and see if we can create over time a securitizable asset class. And those are the kinds of things that the Private Sector Lab we set up with Mark Carney and Shriti Vadera and 15 of the top asset managers and operators in the world and banks. And we're trying to get them to give us good ideas that we can learn from.

Klaus Schwab: But it shows how much you do not have only a financial function, but I would say a strategic conceptual function. We need a renewed new paradigms. One of those new paradigms is that investing, for example, into the energy transition is not a cost, as you just said, but it's an investment into our future and could pay back if we take a long-term view.

So this leads me maybe to the last question. You have shown a lot of leadership in your career before you joined the World Bank and now with the World Bank. How would you define the necessary leadership capabilities which we need in this turbulent, really complex world? What would be your definition of leadership?

Ajay Banga: Klaus, look, I'm not the last word on leadership. I appreciate the credit you are giving me, but there are plenty of people who've had careers like mine and done better. I just think that what I have learned over the years is that you have to start from listening to people, because curiosity and an open mind, combined with a sense of urgency, because you will never get full and perfect information. So curiosity and an open mind combined with that urgency and thoughtful risk-taking are, to me, the core of good leadership.

And, you know, you and I have spoken about this in the past, but I used to say that when I was young, was told that to be a good and successful person, you needed to be smart - IQ. And by the time I got to business school, they began to talk about your ability to get along and manage through ambiguous circumstances and difficult bosses and difficult situations. Your EQ, your emotional quotient. I feel that today, to be a good leader, in addition to IQ and EQ, you need your DQ, and your DQ is your decency quotient.

What I mean by that is: are you willing to come to work every day knowing that you can inspire people to follow you by leading by example, by always being there for them, by always having your hand on their back and not in their face. And decency does not mean only being kind and never giving them honest feedback. Decency does not mean agreeing with everything. Decency means fairness, transparency. That, to me, is the core of leadership.

Klaus Schwab: I would I would say when you look at the business world, usually you measure success by taking more in than giving out. I would say one essential element of leadership is just the reverse to give more out than to take in. Which means serving societies and those whom you lead.

We will have interesting discussions in Davos about all those issues. And I want to thank you for being so much engaged in making sure that we all work together to have a better world. Thank you again, Ajay, and see you soon.

Ajay Banga: Thank you. All the best.