The Brics (Brazil, Russia, India, China and South Africa business communities) development bank, which is likely to be launched at the Brics summit in Durban next month will probably only invest about 10 percent to 15 percent of its capital in Africa and be based in Shanghai not in South Africa, experts believe.
They expect President Jacob Zuma and other Brics leaders – Chinese President Xi Jinping, Indian Prime Minister Manohan Singh, Brazilian President Dilma Rousseff and Russian President Vladimir Putin – to give the bank a formal “paper launch” at the summit. But it will take months, or years, before the bank gives out its first loan.
Many important decisions about the bank may be deferred, including how much capital each of the Brics governments should initially invest.
There is a proposal that they should each put in $10 billion (R89bn), but South Africa is apparently balking at that, saying it is too much for South Africa, by the far the smallest economy in the Brics. Its wants the five Brics government to contribute proportionally to the sizes of their economies.
Brics finance ministers finalised a proposal for a Brics bank last week and would present it at the summit.
Jeremey Stevens, an analyst at Standard Bank and based in China, said he believed the leaders would formally launch the bank at the Durban summit but he did not provide much detail. He was speaking at a seminar in Johannesburg organised by the SA Institute of International Affairs.
He said it was important for the Brics leaders to establish the bank now to provide some “institutional underpinning”, and to give the Brics substance and credibility as more than just an investment concept.
The four original Bric countries have held four annual summits, promoting an agenda of trying to correct what its members regard as an imbalance in global political and economic power that favours the developed world.
South Africa joined in late 2010 and will be hosting its first summit of the bloc in Durban. It has introduced the innovation of inviting the heads of the AU and the continent’s sub-regional organisations to the summit to participate in an “outreach” retreat with the five Brics leaders to discuss African issues.
Local leaders have said they would like the proposed Brics development bank to be based in South Africa and to channel significant sums of Brics capital into African infrastructure development, in particular. But Stevens said he believed it was more likely the bank would be based in Shanghai.
Hannah Edinger of Frontier Advisory estimated that no more than 10 percent to 15 percent of the bank’s capital would go to financing African projects, at least at the start. Most of the money would probably go into projects in the Brics countries themselves.
She noted that some of the Brics countries – especially India – had their own large infrastructure deficits, and so there was no consensus among them about where the bank money should be spent.
Simon Freemantle of Standard Bank said that for South Africa to try to push the Africa agenda too soon could overburden the bank.
Stevens expected the bank to start off with easier projects within the Brics countries.
It was likely to be an “agile” bank, unencumbered by the institutional and administrative bottlenecks that slowed down the execution of World Bank projects. He also expected it to focus on projects that offered comparative advantage, such as infrastructure construction and feasibility studies.
Gustavo Senechal of the Brazilian embassy said it was important for the new bank not to duplicate the work of existing development banks such as the World Bank. One way it would probably do this would be to avoid the many conditions which the World Bank, International Monetary Fund and others, attached to their financing and instead to give greater ownership to the countries where the projects took place.
Edinger saw the Brics bank supplementing, not displacing, existing development banks. It could justify itself by financing anchor projects, especially riskier ones that other banks might avoid.
She said even if the Brics bank did not invest heavily in Africa, it would facilitate the entry of Brics companies into the continent.
Freemantle noted that the Brics were already trading more with Africa than they were among themselves.
He estimated total Brics trade with Africa had reached $340bn in 2012, a more than ten-fold increase over the course of a decade, while intra-Brics trade had been $310bn.
Lynette Chen of the Nepad Business Foundation said the Brics bank should focus on infrastructure projects with regional impact – such as power stations. She noted, however, that although the proposed $50bn initial capitalisation sounded like a lot, it wasn’t so much compared with the estimated $480bn required to finance Africa’s infrastructure backlog over the next 10 years.
The Brics governments have been discussing conducting trade among themselves in their own currencies rather than the US dollar and there has been speculation that the Brics bank might transact in the Chinese yuan.
Stevens said that would help to increase investment flows into the Brics countries by cutting out the dollar transaction costs. But he saw the yuan complementing not replacing the dollar as an international transaction currency.