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BRICS Bank New Player in Town
The New Development Bank (NDB), previously known as the BRICS bank, opens its first office outside of its Shanghai base in Johannesburg on Thursday. Other offices are planned in the other BRICS countries — Brazil, Russia and India — but they might take some time. It’s a small step forward for the bank, which is having a moment and is also in the midst of the tricky process of finding its feet.
It’s having a moment because it got off to a flying start, with its capital in high demand for projects, particularly in India and China. The bank funded projects worth about $1.5bn in its first year of operation and is likely to fund about the same amount in the second. Its thumping competitor, the World Bank, typically funds projects worth about $25bn a year, but then it has been going for about 70 years.
The NDB has found a great niche, funding renewable energy projects and about 75% of its total funding has gone towards solar, wind and hydro projects. This has been a happy hunting ground for the bank because project costs have dropped and, consequently, they have moved from being projects that governments were doing typically to achieve climate-change goals into being self-funding projects that produce electricity at a commercially competitive rate.
Yet it’s still early days for the bank, which needs to demonstrate that it has something to offer that countries cannot get from more traditional funders, mainly the previously mentioned World Bank. Yet it does have at least one huge advantage: it doesn’t carry the stigma of being a proxy for western dominance and influence.
The bank was born out of a debate about whether this “western dominance” was real or whether the argument constitutes a convenient bogeyman to disguise some of the very obvious failings of the members of the Brics group itself. There are plenty of criticisms of the World Bank, often focusing on the voting structure of the bank, which is dominated by developed western nations. They argue, with justification, that their voting power is very much related to the fact that they provide most of the money.
The way the World Bank functions is, of course, also a massively contested subject and the bank, sometimes with justification and sometimes not, gets pulverised from both the left and the right. The left argues that structural adjustment policies, instituted after the 1979 energy crisis aimed at achieving fiscal balance, often just made things worse. From the right, it’s argued that typical World Bank projects, which are often huge infrastructure projects, end up increasing the size of government bureaucracy and ignore corruption.
For the moment, the NDB is free of these criticisms, but it faces another problem: how to distinguish itself and not fall into the same traps the World Bank has fallen into. It would not be beyond the realm of possibility for the bank to be seen as the substitution of a US master for a Chinese overseer.
The bank claims it can differentiate itself through innovation, speed and a kind of flexibility, among a whole range of laudable aims. One example would be its intention to lend in local currency, which would remove currency risk from the loan profile. In order to do that, it needs to raise local debt, and it’s well on its way to achieving that goal, raising a substantial renminbi loan in its first year of existence. Others, including in SA, will follow. It also intends to include a host of other countries as members, both as creditors and debtors.
For SA, membership of the bank is something of an unusual privilege. It is by far the smallest member of the Brics group, both in demography and financial heft. What SA can offer is sophisticated banking knowledge and financial expertise. The bank is so far the one significant thing to emerge from the Brics group; it needs to work.