The recent announcement by the leaders of the so-called BRICS countries – Brazil, Russia, India, China and South Africa – of the signing of a deal to create a new $100bn development bank and emergency reserve fund could be both an opportunity and a risk for South Africa.
Unveiled as a plan by Brazil’s President, Dilma Rousseff, at the 6th BRICS summit meeting in Fortaleza, Brazil, the ‘New Development Bank’ is ostensibly a challenge to the longstanding financial hegemony of institutions like the World Bank and the International Monetary Fund.
Though the BRICS nations often vie with each other and maintain more of an uneasy truce of convenience then as alliance of nations, it seems that this was a topic upon which all could agree and once the challenges were overcome, the decision was promptly made.
But as political expedient as such a move might be, much remains to be seen as to exactly what the new bank and fund will contribute back to South Africa, which in paying an equal fifth of $10bn towards the initial capital is arguably giving up a far larger share of its wealth.
This is equivalent to one-third of the capital in South Africa’s entire commercial banking system, according to financial analyst Stuart Theobald at South Africa’s Business Day, and more than the African Development Bank’s paid up capital of $7.4bn.
The motive is further questioned when you consider that the bank’s headquarters will be in Shanghai, China and the first president for the bank will come from India, while it other two principal executives will also come from Russian and Brazilian and not South Africa.
On the other hand, Africa will be a disproportionate focus for the new institution and with a regional African office set to be opened in South Africa, the country stands to receive much more indirect gain than the other nations through improvements in regional development.
“But another way could make the cost to South Africa minimal involves using our own Development Bank of Southern Africa (DBSA),” Theobald notes.
“The BRICS bank needs to avoid duplicating infrastructure as much as possible, and last year the Treasury decided to inject another $692m into the DBSA as capital to support its expansion into a major pan-African development funder, alongside its local commitments.”
A reconstitution of the DBSA as the African branch of the New Development Bank would not only make up much of South Africa’s new commitment, but as South Africa’s “savvy civil servants” have probably already figured out, “the BRICS bank will have much better credit ratings than the DBSA could ever get.”
So the real advantage to South could be not in the politics or immediate development goals, but at the price of a little control to transform the DBSA into a weightier player with global reach.