BRICS banks places developmental agenda as priority for South Nations
By: Luwellyn L. Landers, September 6, 2017
Voices 360 - Business & Economics, Politics
As the BRICS Heads of State Government gather this week in Xiamen, China, one of the major discussion points will be to review progress achieved in respect of the operations of the New Development Bank (NDB) also known as the BRICS Bank.
The BRICS Bank was originally intended by the BRICS Leaders to “supplement the existing efforts of multilateral and regional financial institutions for global growth and development. “ However, the expectations for this Bank have clearly outweighed its modest origins and it has now evolved to become a symbol of a new generation financial institution that will serve the developmental needs of the Global South.
The President of the NDB KV Kamath has explained that to provide effect to the notion of “new”, its management would introduce a more streamlined approach to its operations by reducing the duration of the traditional project cycle approval. Secondly, loans will be issued without setting conditionality’s as is the case in the established Western Multilateral Development Banks.
The NDB comes at an opportune moment, as we transition from a unipolar world order with a declining power to a multi-polar world order, challenging the previous order’s hegemon(s). The BRICS Bank therefore provides emerging markets and developing countries with an alternative global financial and institutional architecture. It also provides the global south with an amplified voice to articulate our core needs and set new agendas according to shared rule-formulation practices.
To this end the NDB has indicated a number of innovative measures that will ultimately challenge the pre-eminence that the Washington Consensus has cultivated since the post-Second World War era. For example, the NDB is embarking on facilitating loans in the local currency of its members, which indirectly challenges the role of previous dominant currencies. As a result, countries requesting a loan no longer need to absorb the uncertainty inherent in fluctuations of currency in respect of their repayments. This in itself will provide new certainty for lenders as well as borrowers, indicative of the type of qualitative paradigm shift intended with these initiatives.
Like the Bretton Woods Institutions, established primarily to rebuild Europe after the Second World War, the NDB places much emphasis on infrastructure development and sustainable development for developing countries. Although the Bank underscores in its strategy that it intends to complement existing development financial institutions, it provides alternative options for developing countries thus creating more competition. This may also have the unintended consequence of forcing the traditional banks such as the World Bank to reform their lending and payment policies. BRICS partners also have various other complementary spatial development initiatives which will further interact with and support the Bank. Currently, the main loan beneficiaries are the NDB’s founding member countries. When the Bank was established in Fortaleza, Brazil, in 2014 it envisaged having an authorised initial capital base of 100 billion US Dollars. The initial subscribed capital was earmarked at 50 billion US Dollars, shared equally among founding members. The paid-in contributions of its members amounted to 2 billion US Dollars per member over 7 tranches (years) with the rest of the capital being callable as may be required.
The Bank indicates that it has already granted loans for development to member countries estimated at one and a half billion US Dollars. The NDB purposefully sent a strong message by prioritizing renewable energy for its first tranche of disbursements. South Africa received a first loan allocation of 180 million US Dollars. South Africa will continue to submit further project proposals through its dedicated project pipeline. The launch of the Bank’s Africa Regional Centre (ARC) on 17 August 2017 by President Jacob Zuma will also strengthen this project pipeline. The Leaders also noted in Xiamen further positive developments, such as the establishment of the Project Preparation Fund and loans being issued on a regular basis in respect of the countries’ project pipelines. The NDB will further interact and indeed collaborate with domestic and regional players in the development finance space such as the Development Bank of Southern Africa, with the objective of unlocking funds for infrastructure projects in South Africa. The ARC will also serve to cultivate a next generation of financiers through knowledge generation and sharing. It will mainly employ young South African professionals; thus facilitating capacity building and contributing to the development of specialised skills in project preparation and finance in the host country and region in the longer term.
Another significant shift in international finance will entail the consideration of establishing a market-oriented rating agency by member countries, which will be linked to the NDB. Currently the Bank works with the Chinese rating agencies of China Cheng Xin International Credit Rating Company and the Lianhe Credit Rating Company. This rating agency will be tailored for its members and their needs as well as provide a niche approach. , In addition it has the potential to challenge the traditional hegemony enjoyed by Standard and Poors, Fitch and Moody’s rating agencies in the global financial markets.
A paradigm shift in terms of the politics of financial institutions will also occur; a shift which should decisively benefit developing countries. China, the NDB’s largest stakeholder in terms of the size of its economy, has long held the approach and policy of non-interference. Criticized by the West for this policy, China has often maintained that, just as it views Chinese solutions for Chinese problems, so too there should be domestic solutions to domestic challenges. It will not impose its demands on the country needing assistance. This constitutes the fundamental difference between Chinese cooperation versus Official Development Assistance (ODA) from the West/OECD. The West has pursued, through its ODA programmes, a form of relationship which has been perceived as that of neo-colonialism. There is no doubt therefore that China will maintain this policy of non-interference in the way it interacts with other countries through the NDB. South Africa and the rest of the BRICS countries also have a similar approach. Instead the NDB will be guided strictly by the developmental and infrastructural goals that it has set for the Bank and for those who wish to gain cooperation from the Bank.
By hosting the first regional office of the NDB outside of Shanghai, South Africa has been able to strategically position Africa. This illustrates the leadership role that South Africa exercises in BRICS in ensuring that the concerns of Africa and the Global South are taken into account. It is also a well-established practice for BRICS Leaders to meet prior to the G20 Summit to exchange views and to forge common positions where possible on core developmental issues in particular.
What is of importance is that South Africa optimally utilizes its partnerships with these emerging global players to meet its own needs and those of Africa and the Global South. For example, South Africa’s in situ mineral wealth has been estimated at 2.5 trillion US Dollars by Citibank (2010). These partnerships will help to beneficiate this wealth and unlock the kind of inclusive development that is needed. South Africa can partner relevant and strategic partners to learn lessons from – not only of different economic models, but more importantly, how state assets can be utilised positively and strategically to promote development.
History has many valuable lessons and it is incumbent on this generation not to repeat the cycles of the past, but to bring innovative practices and paradigms to the table in service of its people.
Luwellyn L. Landers is an ANC Member of Parliament (MP) and the 2nd Deputy Minister for International Relations and Co-operation. He is also a member of the ANC NEC Sub-committee for International Relations.