Martyn Davies, analyst and chief executive of Frontier Advisory
South Africa will be home to the new $100-billion Brics bank’s first regional centre.
The announcement was made during the launch of the New Development Bank (NDB) at the sixth Brazil, Russia, India, China and South Africa (Brics) summit held last month in Fortaleza, Brazil.
The bank, which will fund infrastructure and sustainable development projects in developing countries, is scheduled to start lending in 2016.
Its head office will be based in Shanghai, with a regional centre to be set up concurrently in Johannesburg.
The development bank is designed to provide Brics countries with an alternative to the International Monetary Fund (IMF) and the World Bank when financing projects..
At this stage there is no clarity on whether or not the bank will lend to small businesses, and the Department of International Relations and Co-operation was not prepared to reveal any information regarding this.
Martyn Davies, emerging markets analyst and chief executive of Frontier Advisory, says he does not expect the bank to lend to small businesses at this stage. “The NDB has a mandate to lend to scalable Brics-designated projects.
I expect capital to be mobilised toward state-owned enterprises and hard infrastructure projects such as rail, road and ports development.”
He hopes that these scalable projects would have a positive knock-on effect in the local economy and would filter down to smaller businesses.
“Arguably, the focus should be on small businesses, which really does drive growth, innovation and productivity in an economy.”
Davies stresses any lending in the Africa region must be aligned to the interests of South African firms as the South African taxpayer is ultimately funding the bank from the South African point of view.
He expects that the development bank’s capital will almost certainly be inextricably linked to the interests of Chinese, Indian, Russian and Brazilian firms through the bank’s respective regional centres.
Hugo Pienaar, economist at Bureau for Economic Research at Stellenbosch University, believes that the bank will mainly fund large infrastructure projects.
He says it is not clear how the bank will specifically benefit small businesses.
Capital of $50 billion will initially be placed in the bank, divided equally between its five founders. Over seven years member countries must transfer $2 billion each in cash, with the remaining $40 billion to be made up in guarantees.
South Africa’s Finance Minister, Nhlanhla Nene said that the bank would not compete with other developmental institutions, but would instead “co-operate”, speaking shortly after arriving home from the summit.
He stressed that the urgency for the Brics countries now was to ensure that national legislative frameworks were setup before the next summit in order for the bank to operate.