20 July 2014 – The new BRICS development bank and reserve fund launched this week are intended to provide an alternative to existing Western-led institutions. Africa hopes for aid to make infrastructural improvements.
At a summit of BRICS nations (Brazil, Russia, India, China and South Africa) in Fortaleza, Brazil this week, the launch of a new development bank and reserve fund was formally announced. This is a concrete sign that these emerging economies want to gain more independence from the developed industrial world. To find out more about what the new bank could mean for Africa, DW has been talking toZhenbou Hou, an analyst with the Oversees Development Institute (ODI) in London.
Zhenbou Hou, what can this new bank achieve that is not already being done by the World Bank and International Monetary Fund (IMF)?
Firstly, what we have seen over the last couple of decades is that there is a serious financing gap for developing countries. What the IMF and the World Bank do is usually to provide emergency funds and they are not usually targeted at infrastructure development. What we have seen in the area of successful developmental experience in the large emerging countries, in particular China, is that there has been phenomenal growth, phenomenally successful infrastructure works in the last 20 years. And what the BRICS bank is going to offer is financing in the area of public sector works, in infrastructure for developing countries.
Secondly, more finance being available for developing countries is usually a welcome idea. Through studies, we at ODI have found that pretty serious financing gaps exist in developing countries so providing more finance is usually a very good idea.
What is expected to be the new bank’s focus in sub-Saharan Africa? Which countries will it be concentrating on?
I don’t think the bank has a preference at the moment but I think, sector-wise, there will be very heavy emphasis on infrastructure development and large public sector works, that is railways, highways, airports etc.
How difficult is it going to be for the new bank to gain the confidence of investors?
For a new bank, it will be difficult at the beginning anyway. We also have to bear in mind that these five countries would have different credit ratings among themselves. And how are they going to pull the sovereign risks together to afford this development bank? That is something they need to be careful with. But I think eventually, with enough financial resources as a backing – they announced at the BRICS summit a 50 billion US dollar (37 billion euros) capital pool – I think that should be sufficient at this point in time.
What role will South Africa have in this new bank?
South Africa’s role is very significant for many reasons. President Zuma used to say that South Africa is, and would be, the gateway for the BRICS countries. It is the only African country among the BRICS. It would offer expertise in how to engage in large projects in Africa. It will also inform the other BRICS banks on the business risks associated with doing business in Africa.
Does this mean that other African countries will be obliged to maintain cordial relations with South Africa if they wish to borrow money from the bank?
I don’t think South Africa has a veto and in fact, from what we have seen about this bank’s arrangements from the announcement in Brazil, no countries within the BRICS would have a veto power in the bank. We should remember that this is not the IMF or World Bank where the US has a veto power in major decision-making processes.
Zhenbo Hou is an analyst with the Oversees Development Institute in London.