An instititution that Brics can bank on takes off
AHEAD of the 7th Brics summit, which started yesterday in the Russian city of Ufa, Business Report spoke to Leslie Maasdorp, the newly appointed vice president of the Brics New Development Bank (NDB), whose launch this week will cap years of a push by the world’s major emerging economies to reshape the global financial system.
It is one week since your appointment as the vice-president of the NDB. How do you feel about your new role?
I am both excited and humbled by the confidence shown in me to represent South Africa in the NDB. It is indeed a distinct honour to serve the country in this role. In general, I feel very fortunate, have had significant opportunities in my adult life over the past 30 years to be a part of, and have some role in major transformational events. Firstly, being part of the democratic movement for change as a student activist and trade unionist in the 1980s, I had first hand experience in building grassroots organisations and being part of significant change processes.
Then as a young policy maker in the ANC Department of Economic Planning in the early 90s working alongside mentors like Tito Mboweni, Trevor Manuel, Max Sisulu, Derek Hanekom and many others, to design new economic policies during the political transition.
Finally, being part of the first batch of public servants to join the new government in May 1994 and help design new laws and create new institutions for the democratic dispensation gave me a ringside seat to be part of, and witness to profound societal change.
I view the challenge of being part of the inaugural senior management team of the NDB in the same light. It is a unique moment in history to build a new institution, which is likely to play a profound role in the years and decades to come, in fostering infrastructure and economic development more broadly in developing countries.
Finally this is widely considered to be the Asian century. We have witnessed the resurgence of Asia and China in particular over the past few decades.
In some ways the NDB is part of this strategic pivot to Asia, which has been underway for several years. In no way should this be seen as a fundamental shift though as South Africa has and will continue to enjoy important economic relationships with the west. Brics therefore should be seen as additive to our existing economic relationships.
What is the history behind and the significance of the creation of the NDB?
The decision to establish the bank was taken several years ago at the 5th Brics summit in Durban in March 2013. In July 2014, the founding documents to create the new $100 billion (R1.2 trillion) bank was signed in Brazil. In addition to the bank, the Brics countries have also agreed to create a $100bn contingency reserve arrangement (CRA), which is meant to provide additional liquidity protection to member countries in the event of any of the countries experiencing balance of payments problems or other financial shocks.
At its core, the NDB will foster greater financial and economic cooperation among the Brics nations and other developing countries.
The formation of the NDB is significant since the Brics countries combined, comprise over 41 percent of the world’s population and account for about 25 percent of global gross domestic product (GDP).
As you know, over the past decade and a half, emerging markets have significantly increased their weight in global GDP. Investment in infrastructure is central to keep accelerating that economic growth. The converse is also true, that is, that a lack of infrastructure is a significant barrier to growth in the Brics countries as well as other developing economies.
The numbers vary but the global shortfall of investment for infrastructure is estimated to be close to $1trillion annually. The Brics bank will contribute to filling this financing gap.
In this sense, the NDB is an important addition to the global development finance architecture. It will most certainly strengthen the voice of developing countries in global development finance and provide much needed additional finance.
While the initial subscribed capital of $50bn is already significant, one should view it from the perspective of its capacity to leverage additional finance through co-financing of projects with the private and public sectors as well as other national and regional development finance institutions such as the African Development Bank (AfDB), the Asia Development Bank (ADB), Development Bank of Southern Africa (DBSA), World Bank etc.
What do you consider to be your primary responsibility as vice-president of the NDB in terms of your background as a South African?
There are still many unanswered questions at this stage as we are at ground zero with regards to the establishment of the Bank. The Treasury in South Africa together with the other treasuries in the Brics countries have done considerable work over the past few years as part of the feasibility studies for the bank.
We will naturally leverage off that work as a significant resource base to steer the establishment of the Bank.
The president and four vice -presidents have just been appointed to their respective roles. It is too early for me to comment on my role, as these matters will be finalised over the course of the next few weeks in Shanghai. In a nutshell our role as the founding core management team is to build the institution into a formidable new player in the infrastructure finance space.
What does the creation of the NDB mean in terms of the restructuring of the global financial architecture of the post-WWII era?
The NDB will obviously be a major addition to the multilateral development finance institutions. However, it should be seen as a complement rather than a competitor to the existing financial global development finance institutions.
Many commentators describe the NDB as the future substitute or a competitor to the World Bank and the IMF. The founding documents and political guidance from the Ministries of Finance of the Brics countries are very clear in this regard.
Article 2 of the founding agreement states that “The purpose of the bank shall be to mobilise resources for infrastructure and sustainable development projects in Brics and other emerging market economies and developing countries to complement the existing efforts of multilateral and regional financial institutions for global growth and development”.
In the execution of our mandate it will be evident that all of the national and regional development banks will be obvious natural partners. Local institutions in general always have superior knowledge of national projects and local regulations, better understanding of the risks and so on. So when it comes to the design, engineering and financial packaging of new projects I suspect we will work very closely with the DBSA, AfDB, ADB, World Bank and others.
We will and should benefit from the long years and decades of experience of these institutions. This is not about reinventing the wheel but complementing existing efforts to fast track infrastructure development in developing countries.
What aspect of your professional background gives you confidence that you will be able to deliver on your mandate as the vice-president?
I have been active in several roles in my career to date, which required the establishment of new institutions. I was part of the executive team, which led and built the new investment banking business of Absa Capital after the acquisition by Barclays.
During that time I served in a dual role as vice-chairman of Barclays Capital and Absa Capital. As international adviser of Goldman Sachs from 2002, I played a leading role in expanding the reach of the firm into new market segments including the public sector and the rest of the continent.
Most recently until May 2014, I served as president of the Bank of America Merrill Lynch franchise for Southern Africa and was fortunate to be part of a team, which grew the scope of that business inside, as well as outside South Africa.
In addition to my global investment banking experience over the past 13 years, I have also been active in the infrastructure finance domain for many years. I served for example as chairman of TCTA, which is a state-owned enterprise with a mandate to finance and implement bulk raw water infrastructure projects in South Africa.
In 2002, I was appointed by Cabinet as chairman of TCTA and played an oversight role from a governance perspective for seven years of large infrastructure projects. One of the landmark projects during my time as chairman was the design, financing and construction of the R1.6billion Berg River project, which augments the supply of water to the city of Cape Town.
For the past decade and more, I have been active in the annual meetings of the World Bank and IMF and have learnt a great deal about how these institutions function.
Finally, I have known the senior leadership of the Treasury, the SA Reserve Bank as well as the DBSA for many years and will have the necessary access, support and guidance from my colleagues there.
What sort of challenges do you foresee in the most immediate term for the NDB to get its work off the ground?
It is premature for me to comment on what these challenges might be as we are only having our inaugural meetings in Russia next week. I would not want to speculate what these might be other than the fact that we need to establish ourselves in Shanghai in the short term, get orientated to the environment and hit the ground running.
The fact that China is contributing $41bn, which will be the largest voting right at 39.5 percent, what mechanisms are there to ensure the NDB will not merely be a tool for Chinese interests?
Firstly, the NDB will have an initial subscribed capital of $50bn and an initial authorised capital of $100bn. The initial subscribed capital will be equally distributed among the founding members. Each participant country in the NDB will be assigned one vote and none of the countries will veto power. It will therefore work on an equal share-voting basis. China is contributing a higher proportion to the CRA, which is a separate institution to the NDB.
How would you describe the commitment that the NDB has from the five Brics nations?
All the five countries have ratified the creation of the NDB through their respective legislatures.
Furthermore, the establishment of the bank has been identified by the political principals as the most important priority for the forthcoming summit to be held in Ufa in Russia.
Ellis Mnyandu is the editor of Business Report. Follow him on Twitter: @Ellis_Mnyandu