SA must not ignore the potential benefits of the Brics bank, writes Saijil Singh.
Johannesburg - The Brics (Brazil, Russia, India, China and South Africa) bank has been on the cards for a number of years and the institutionalisation of it was inevitable.
From a funding perspective, the main capital contributions are initially China with $41 billion, Brazil/Russia/India with $18 billion each and South Africa with $5 billion.
The South African component is understandably lower due to the size of its economy, but with a rotational governor system, it does not marginalise SA’s input or influence.
Of the $5 billion contribution from South Africa, only 40% will have to be made directly available to the organisation, with the remaining $3 billion held locally as a capital reserve.
This is not expected to affect country liquidity and is well within SA’s means. Coface expects this to have only a small currency impact.
Now the obvious concern comes in questioning whether or not this money is well spent? Or whether participation at a governance level is necessary for South Africa?
The funds could be better utilised in primary objective programmes such as education and skills development.
But while this may be true, we must not ignore the strategic benefit to funding access and the global image of South Africa.
SA’s political influence is on a steady upward trend on African continent, and the Brics bank presents SA on a favourable platform immediately to the emerging markets in the east.
It also re-affirms SA’s strength with western economies being that SA is the only African representative nation. This is important, as SA has seen a steady decline in foreign direct investment (FDI) levels over the past seven years, while other African states seem to be benefiting from increased FDI.
This may be the push to re-ignite SA’s business confidence and in turn attract that much needed foreign investment.
*Saijil Singh is a lead analyst at Coface, the international credit insurer. The views expressed in this column are not necessarily those of IOL.