Cape Town - While the South African government plans to invest $2 billion (R21bn) in the new Brics bank, industry players this week questioned whether it would benefit the local economy.
The political bloc of Brazil, Russia, India, China and South Africa (Brics) plans to launch its New Development Bank (NDB) within 18 to 24 months.
Each nation will be a founding member, investing an initial $2bn while holding in reserve $8bn 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, where the bank’s proposed democratic nature was also called into question.
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,” he said.
“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.
Draper said the South African government could invest R21bn 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 asked.
“The money (we invest) might go to India. And taxpayers need to know where our money is going. That $2bn 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 Ruiters, a strategist at the Gauteng office of the Development Bank of Southern Africa, said, however, that the NDB signalled “extra capital coming into Africa”.
“We need to make sure the shortfall needed for Africa’s development projects comes our way,” said Ruiters.
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 that 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 $96bn 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 privileged access (to loans). It will be a democratic bank with sound principles.”