There was a lot of scurrying and even more espressos, but finally the Brics countries – Brazil, Russia, India, China and South Africa – were able to ink a deal, although they left it quite literally to the last minute.
The final deal on what will be called the New Development Bank (NDB) was, inevitably, a compromise with everyone being given an equal slice of the pie.
China was, as expected, keen to get the lion’s share in terms of economic power and say regarding the bank, as it is putting in the most money, but Indian Prime Minister Narendra Modi, just months after his landslide victory, has proved that he is more than willing and able to face off with China’s President Xi Jinping. Modi would not be moved from his stance that all Brics members be equal partners.
Also as expected, the bank will have its headquarters in Shanghai. However, there will be a regional office in Johannesburg; the bank’s first president will be from India, Russia will serve as the first chair of its board of governors, and Brazil will chair its board of directors.
This egalitarian result seems almost too utopian to be true, but actually reflects the challenge of power versus diplomacy, and of political expediency versus domestic reality. Despite the relative rapport between the heads of state, the tough negotiations behind the NDB decisions reveal the complexities of having different and often competitive countries “tying the knot”.
The South African delegation should be lauded for ensuring a regional headquarters in Africa; it will mean we can put African issues on the Brics agenda and ensure that African infrastructure projects are fairly positioned within the NDB.
However, we must be realistic in our expectations; the bank is not like Cinderella slipping on a well-fitting shoe at midnight and suddenly fantasy becomes reality.
It will take at least two years to see the actual formation of the bank and each member state will have to enact domestic legislation to pass it. The bank is scheduled to start lending in 2016 and be open to membership by other countries, though the capital share of Brics members will not drop below 55 percent.
The biggest impact the new bank will have is to enable and stimulate more capital inflows towards infrastructure and sustainable development projects, because other development and commercial banks will be far more comfortable to co-finance such developments with the NDB, given that it will mitigate risk.
The summit also finalised the contingent reserve arrangement with an initial size of $100 billion (R1 trillion). This will have a positive precautionary effect and help the Brics countries forestall short-term liquidity pressures as well as promote further Brics co-operation.
A memorandum of understanding between the Brics export credit and guarantee agencies, approved at the summit, will enhance support for an increase of trade opportunities among the nations.
All of this is likely to raise the eyebrows of the global financial authorities – as well as the fact that Russia has clearly found a welcome home in Brics.
With India and China collectively making up almost half of the world’s population, the US and parts of the EU are unlikely to find support for Russia from Brics members its most endearing aspect.
Apart from the three financial and banking initiatives being pinned down, it must be said that there was a lot of fluff and hot air around almost everything else that was discussed, from Syria to climate change to the AU and everything between, with little consensus and certainly nothing concrete decided on these issues.
This reflects how the Brics nations tend to deftly side-step each other on areas of difference and concentrate on the playgrounds which have the most familiar swings. They still want to reflect a voice of the South and thus decided it was necessary to take a soft stance on pretty much everything, but a collective silence can be as powerful and pointed as a collective cry, and one the Western powers will hear loud and clear. The challenge now is for Brics to make the NDB a reality, to finalise the mandate, structure and form and then to start investing in key development projects that will serve as enablers for other parts of their respective economies – this is where the bank will have a real impact.
As such, the NDB and its effectiveness is the first but most important litmus test the Brics bloc has to pass. This summit proved that we are seeing the beginning of a new consensus, a new economic agenda, and its success will depend on deflating egos where necessary, and inflating the developmental impact of the NDB.
* Abdullah Verachia is an adjunct faculty member and head of the India Africa Business Network at the Gordon Institute of Business Science. Follow him on Twitter @averachia.