Progress made regarding the New Development Bank and the Contingent Reserve Arrangement since the BRICS summit in Fortaleza, Brazil and the steps taken to enhance trade cooperation between BRICS countries, particularly in the context of the export credit agencies of BRICS

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NATIONAL ASSEMBLY

FOR ORAL REPLY

QUESTION 224 (NO3025E) AS PUBLISHED IN IQP NO.7-2015 OF 12 AUGUST 2015

Ms D D Raphuti (ANC) to ask the Minister of International Relations and Cooperation:

(1) What substantive progress has been made regarding (a) the New Development Bank and (b) the Contingent Reserve Arrangement since the BRICS summit in Fortaleza, Brazil;

(2) What steps have been taken to enhance trade cooperation between BRICS countries, particularly in the context of the export credit agencies of BRICS? NO3025E

Reply

(1) (a) The BRICS Leaders, in the context of the Ufa Declaration, welcomed “the substantive progress” that was made since the previous Summit, “especially the establishment of BRICS financial institutions: the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA)”. The Leaders also announced that the Ufa Summit marked their entry into force. South Africa deposited its Instrument of Ratification for the Agreement on the New Development Bank (NDB) with the Federative Republic of Brazil on 30 June 2015, as the depositary state for this Agreement.

The Leaders further welcomed the inaugural meeting of the Board of Governors of the NDB held on 7 July 2015 in Moscow under Russian Chairship, as well as the work done by the Interim Board of Directors and the Pre-Management Group aimed at the earliest launch of the Bank. The Leaders reiterated that the NDB shall serve as a powerful instrument for financing infrastructure investment and sustainable development projects in the BRICS and other developing countries and emerging market economies and for enhancing economic cooperation between BRICS countries. The Leaders directed that they expect the NDB to approve its inaugural investment projects in the beginning of 2016. The Leaders also welcomed the proposal for the NDB to cooperate closely with existing and new financing mechanisms, including the Asian Infrastructure Investment Bank.

The NDB was officially launched in Shanghai on 21 July 2015. South Africa was represented by Mr Leslie MAASDORP, Vice President of NDB, and Mr Tito MBOWENI, the Non-Executive Board Member of NDB; the South African Consul General was also in attendance. The President of the NDB, Mr Kamath from India, noted in his opening address the important milestone that has been achieved in moving towards operationalizing the new Development  Bank and further  outlining his expectations of the Bank as well as what is envisaged to be a roadmap for the next year and the duration of his tenure. As a Multilateral Development Bank established by emerging markets, in particular 5 countries with a common objective, it will be important to act in line with the developmental imperatives shared by the countries in the global south.

South Africa’s Vice President, Mr Maasdorp has remarked that BRICS and other developing countries face serious financing shortages for infrastructure projects such as new railroads and power stations. The NDB can assist to supplement funding that traditional Multilateral Development Banks such as the World Bank and IMF provide. The NDB will also gauge best practice from existing institutions with a view to providing new best practices. In this regard it could focus on investment in new technologies and sustainable development related investments. The Bank will also discuss if countries could apply for loans in own currency in order to prevent their debt increasing when the dollar strengthens. South Africa is an equal shareholder together with its BRICS partners. South Africa will hopefully be able to obtain favourable loans for infrastructure developments and the Bank’s foreign exchange reserves could assist to stabilize our currency. South Africa’s recognised excellence in financial matters will also enable it to contribute to the operationalisation of the New Development Bank African Regional Centre.

(b) Leaders welcomed the conclusion of the ratification process of the Treaty Establishing a Contingent Reserve Arrangement of the BRICS and its entry into force, as well as the signing of the BRICS Inter-Central Bank Agreement that sets technical parameters of operations within the BRICS CRA. The Leaders commented that the creation of the BRICS CRA, will allow its members to provide mutual financial support, which was deemed as an important step in the financial cooperation of BRICS countries. It bears no immediate or direct financial implication and will only be activated once a member makes a call for capital and according to the agreed share, but with the important condition of repayment. Countries invest their reserves in various global financial instruments of this nature. The CRA will of course also provide additional and supplementary support and insurance for global financial stability in cases such as pressure on the Balance of Payments.

(2) In terms of the enhancement of trade cooperation, an exciting outcome of the Ufa Summit was the adoption of the Strategy for BRICS Economic Partnership, which included trade and investment as one of its priority areas for cooperation. The purposes of the BRICS Strategy in respect of trade and investment cooperation, include the aims to enhance market access opportunities and facilitate market inter-linkages; promote mutual trade and investment and create a business-friendly environment for investors and entrepreneurs in all BRICS countries; and to enhance and diversify trade and investment cooperation that supports value addition among the BRICS countries.

The BRICS Export Credit Agencies already concluded a Memorandum of Understanding on Cooperation at the Sixth BRICS Summit that was held in Fortaleza in 2014.

The BRICS Business Council has also provided recommendations to Government in respect of streamlining the review and approval procedure for the establishment of such agencies and their branches from other BRICS countries and to provide related incentives. We will of course consider these recommendations. It is also envisaged that these Agencies could play a complementary role to provide financing, planning and scheme support for the infrastructure development of African countries.

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