Johannesburg – The eagerly-anticipated USD 50 billion New Development Bank (NDB) which is to be launched by South Africa and other Brics countries in Russia this week, could unblock the financing of key African development projects.
Analyst Christopher Wood of the SA Institute of International Affairs (SAIIA) said on Monday the NDB had reached its moment of truth and would now show what it was capable of.
The NDB is to be officially launched in Moscow on Tuesday when its board of governors meets for the first time.
The board will then report to the Brics leaders at their 7th summit, which will start the next day in the Russian city of Ufa, on their plans to operationalise the bank, International Relations and Cooperation Minister Maite Nkoana-Mashabane said last week.
Brics comprises the emerging nations of Brazil, Russia, India, China and South Africa. Ufa is the capital of the Russian republic of Bashkortostan, 1,355 kilometres east of Moscow.
Wood said at a seminar on the Brics summit that the NDB and another Brics economic mechanism, the Contingency Reserve Arrangement (CRA), were being established faster than many analysts had predicted. Kundapur Kamath, a highly-respected Indian banker had been appointed as the first NDB president. South African banker Leslie Maasdorp will be its vice-president and former Reserve Bank Governor Tito Mboweni will be on the board.
Although the South African government has announced the bank will become operational this year, Wood said that though that would be technically correct, it was unlikely to issue its first loans that soon.
Getting the structure in place was the easy part and now the NDB – which is the most concrete creation of Brics – would have to make hard choices about what sort of development projects to invest in and where.
Many commentators have predicted that China’s launch of its Asian Infrastructure Investment Bank (AIIA) which has attracted much greater global attention than the NDB, would detract from the NDB.
But Wood disagreed, saying that, on the contrary, it would help to channel more of the NDB’s development funds into Africa, because the AIIB would focus more on Asia.
And the previous decision by the Brics leaders to establish the NDB’s first regional branch, for Africa, in South Africa, would also help to channel funding to this continent, he said.
Wood expected India and Latin America also to receive considerable funding. And he said that he expected the NDB to focus on financing big infrastructure projects. This would likely include some social projects such as schools and hospitals but would mainly go to economically self-sustaining projects such as roads and railways.
These would mainly be regional projects which connected the continent, with an initial focus on linking South Africa and its industrial strength, to the rest of the region.
Wood said, however, that it was not clear what difference the NDB would make, as there was already plenty of money available for infrastructure financing, including from other development banks, and what was missing so far was enough viable projects.
But he said that because NDB development financing would probably come with no political conditions – unlike the World Bank for example – the NDB could free up some projects which now faced political constraints.
As an example he cited Ethiopia’s huge Grand Renaissance Dam on the Nile River which Egypt opposes because the Nile is its lifeblood. Wood said Cairo has used its alliance with the US to exert pressure on the Washington-based World Bank not to finance the dam. The NDB would not face that constraint.
Wood said the NDB might also invest in the ambitious Grand Inga hydroelectric project on the Congo River in the Democratic Republic of Congo, because the NDB governors would be less sensitive to the environmental impact than the World Bank would be.
He said although each Brics country would theoretically contribute USD 10 billion (about R120 billion) to make up the initial USD 50 billion capital for the NDB, the effective contribution would be USD billion (about R24 billion) as the rest would be on call, in the unlikely event it was needed.
He said the CRA, also to be launched at the summit, would not be an institution like the NDB, but merely an agreement by the five Brics governments to set aside money to help any member which ran into financial trouble.
They would probably never call on it as the cost would be high, because resorting to the CRA would send a signal to markets that that country was in deep trouble.
But if any country did ever use the CRA it would most likely be South Africa, if only because the other four members were probably too big to be able to derive any real benefit from it.
ANA