Experts question Brics bank benefits for South Africa
Written by Yazeed Kamaldien
While the South African government plans to invest US$2-billion in the new Brics bank, industry players this week questioned whether it would benefit the local economy.
The political bloc comprising Brazil, India, Russia, China and South Africa (Brics) plans to launch its New Development Bank (NDB) within 18 to 24 months.
Each nation would be a founding member, investing an initial US$2-billion while holding in reserve US$8-billion if needed.
Banking and regulatory insiders this week gathered at the UCT Graduate School of Business in Cape Town for a panel discussion unpacking the NDB’s shortcomings and possibilities.
Peter Draper, director at Tutwa Consulting which researches trade and investment policy, said the NDB “will not be democratic”.
“The main reason for setting up this bank is because the (global lender) World Bank is not democratic. But the NDB has fewer members than the World Bank. Also it has two members that are not democratic, China and Russia,” said Draper.
“Foreign policy is driving the bank. It’s about South Africa getting closer to China. But this bank is not the way to get closer to China. We can do that with bilateral relations.”
Draper said the South African government could invest US$2-billion directly into the African-based bank if it was really interested in Africa’s growth.
“If we say we are in this bank to fund African infrastructure projects, why not invest in the African Development Bank?” he said.
“The money (we invest) might go to India. And taxpayers need to know where our money is going. That US$2-billion could go elsewhere. We need a lot of money for development at home. The Brics bank won’t give us those funds.”
Draper added: “It provides a new source of funding but we are not sure where that funding is going. It’s not clear what’s in it for South Africa.”
Michele (CORRECT SPELLING) Ruiters, a strategist at the Gauteng-based office of the Development Bank of Southern Africa, said the NDB signaled “extra capital coming into Africa”.
“We need to make sure the shortfall needed for Africa’s development projects comes our way,” said Ruiters.
She said the bank could fund development of the “basics: power, water and sanitation”.
“Water in Africa is going to become a political issue, if it isn’t already. We need to finance water. The private sector will not finance the provision of bulk water to communities,” said Ruiters.
“We need to find ways to fund infrastructure. The days of asking for development assistance are over. I’m hoping the bank would be a way of finding that assistance.”
Policy frameworks could be a stumbling block though, she said, as Africa for example “doesn’t even have a single public-private partnership framework”.
“Everything needs to get into place. We need to get the institutional arrangements sorted before we get excited,” said Ruiters.
“South Africa has always been punching above its weight. We are the most diverse economy on the continent and our finance institutions are very strong. We have a role to play. Our position in Brics is important but we need to bring our partners in, like Nigeria, Kenya and Ghana.”
Andile Kuzwayo, the national treasury’s Brics director, asserted South Africa “will benefit from this bank”.
“We will engage it as a shareholder and borrower. We will also derive benefits from a more developed Africa (as a result of the bank’s loans on the continent),” he said.
Kuzwayo said South Africa needed the bank’s loans because its “budget is inadequate to build our infrastructure”.
“We want to get money to build. We also want to enhance investment in Africa,” he said.
“The World Bank says US$96-billion is needed every year to build infrastructure in sub-Saharan Africa. We are raising only half of that. This bank can fill that gap.”
Kuzwayo said the NDB would only offer loans to “Brics countries, emerging economies and developing countries”.
He cautioned: “No country will dominate. There will be no privilege access (to loans). It will be a democratic bank with sound principles.”