tag:theconversation.com,2011:/id/topics/brics-development-bank-23181/articlesBRICS Development Bank – The Conversation2023-08-18T13:26:16Ztag:theconversation.com,2011:article/2100212023-08-18T13:26:16Z2023-08-18T13:26:16ZAs BRICS cooperation accelerates, is it time for the US to develop a BRICS policy?<figure><img src="https://images.theconversation.com/files/542982/original/file-20230816-25-afpteq.jpg?ixlib=rb-1.1.0&rect=21%2C129%2C3573%2C2263&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">BRICS foreign ministers meet in Cape Town, South Africa, in June 2023.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.co.uk/detail/news-photo/ministers-of-foreign-affairs-of-the-5-brics-countries-qin-news-photo/1258481879?adppopup=true">Jaco Marais/Die Burger/Gallo Images via Getty Images</a></span></figcaption></figure><p>When leaders of the BRICS group of large emerging economies – Brazil, Russia, India, China and South Africa – <a href="https://www.reuters.com/world/key-facts-about-brics-2023-summit-2023-08-07/">meet in Johannesburg for two days beginning on Aug. 22, 2023</a>, foreign policymakers in Washington will no doubt be listening carefully.</p>
<p>The BRICS group has been <a href="https://www.wilsoncenter.org/blog-post/brics-rivalry">challenging some key tenets</a> of U.S. global leadership in recent years. On the diplomatic front, it has undermined the
White House’s strategy on Ukraine by <a href="https://www.worldpoliticsreview.com/ukraine-war-brics-iran-argentina-russia-china-brazil-india/">countering the Western use of sanctions</a> on Russia. Economically, it has sought to chip away at U.S. dominance by <a href="https://theconversation.com/a-brics-currency-is-unlikely-to-dislodge-dollar-any-time-soon-but-it-signifies-growing-challenge-to-established-economic-order-206565">weakening the dollar’s role</a> as the world’s default currency. </p>
<p>And now the <a href="https://www.dailymaverick.co.za/article/2023-08-11-extra-brics-members-should-be-about-more-than-the-west-versus-the-rest/">group is looking at expanding</a>, with 23 formal candidates. Such a move – especially if BRICS accepts <a href="https://www.silkroadbriefing.com/news/2022/11/09/the-new-candidate-countries-for-brics-expansion/">Iran, Cuba or Venezuela</a> – would likely strengthen the group’s anti-U.S. positioning.</p>
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<p>So what can Washington expect next, and how can it respond? </p>
<p>Our research team at Tufts University has been working on a multiyear <a href="https://sites.tufts.edu/cierp/rising-power-alliances-project">Rising Power Alliances</a> project that <a href="https://journals.sagepub.com/doi/10.1177/13540661231183352">has analyzed</a> the evolution of BRICS and the group’s relationship with the U.S. What we have found is that the <a href="https://thediplomat.com/2022/07/can-china-achieve-its-brics-ambitions/">common portrayal of BRICS as a China-dominated</a> group primarily pursuing anti-U.S. agendas is misplaced. </p>
<p>Rather, the BRICS countries connect around common development interests and a quest for a multipolar world order in which no single power dominates. Yet BRICS consolidation has turned the group into a potent negotiation force that now challenges Washington’s geopolitical and economic goals. Ignoring BRICS as a major policy force – something the U.S. has been <a href="https://link.springer.com/article/10.1007/s40647-014-0022-2">prone to do in the past</a> – is no longer an option. </p>
<h2>Reining in the America bashing</h2>
<p>At the dawn of BRIC cooperation in 2008 – before South Africa joined in 2010, adding an “S” – members were mindful that the group’s existence could lead to tensions with policymakers who viewed the U.S. as the <a href="https://theconversation.com/madeleine-albright-saw-us-as-an-indispensable-nation-and-nato-expansion-eastward-as-essential-179925">world’s “indispensable nation</a>.” </p>
<p>As <a href="https://russiancouncil.ru/en/analytics-and-comments/analytics/what-could-take-brics-forward/">Brazil’s former Foreign Minister Celso Amorim observed</a> at the time, “We should promote a more democratic world order by ensuring the fullest participation of developing countries in decision-making bodies.” He saw BRIC countries “as a bridge between industrialized and developing countries for sustainable development and a more balanced international economic policy.” </p>
<p>While such realignments would certainly dilute U.S. power, BRIC explicitly refrained from anti-U.S. rhetoric. </p>
<p>After the 2009 BRIC summit, the <a href="http://vancouver.china-consulate.gov.cn/eng/news/200906/t20090617_4877401.htm">Chinese foreign ministry clarified</a> that BRIC cooperation should not be “directed against a third party.” Indian Foreign Secretary Shivshankar Menon had already <a href="https://economictimes.indiatimes.com/news/economy/policy/india-reluctant-to-join-de-dollarisation-chorus-at-bric/articleshow/4659464.cms?from=mdr">confirmed that there would be no America bashing</a> at BRIC and directly rejected China’s and Russia’s efforts to weaken the dollar’s dominance.</p>
<p>Rather, the new entity complemented existing efforts toward multipolarity – including <a href="https://digitallibrary.un.org/record/234074?ln=en">China-Russia cooperation</a> and the <a href="https://www.ibsa-trilateral.org/">India, Brazil, South Africa trilateral dialogue</a>. Not only was BRIC envisioned as a forum for ideas rather than ideologies, but it also planned to stay <a href="http://www.brics.utoronto.ca/docs/090616-leaders.html">open and transparent</a>. </p>
<h2>BRICS alignment and tensions with the US</h2>
<p>Today, BRICS is a formidable group – <a href="https://www.chinadaily.com.cn/a/202304/14/WS6438c78ba31057c47ebba230.html">it accounts for</a> 41% of the world’s population, 31.5% of global gross domestic product and 16% of global trade. As such, it has a lot of bargaining power if the countries act together – which they increasingly do. During the Ukraine war, Moscow’s BRICS partners have ensured Russia’s economic and diplomatic survival in the face of Western attempts to isolate Moscow. Brazil, India, China and South Africa engaged with Russia in 166 <a href="http://brics2022.mfa.gov.cn/eng/zg2022/EC2022/">BRICS events</a> in 2022. And some members became crucial export markets for Russia. </p>
<p>The group’s political development – through which it has continually added new areas of cooperation and extra “bodies” – is impressive, considering the vast differences among its members.</p>
<p>We designed a <a href="https://doi.org/10.1177/13540661231183352">BRICS convergence index</a> to measure how BRICS states converged around 47 specific policies between 2009 and 2021, ranging from economics and security to sustainable development. We found deepening convergence and cooperation across these issues and particularly around industrial development and finance.</p>
<p>But BRICS convergence does not necessarily lead to greater tension with the United States. Our data finds limited divergence between the joint policies of BRICS and that of the U.S. on a wide range of issues. Our research also counters the <a href="https://www.scmp.com/comment/opinion/article/3231367/why-chinas-dominance-puts-brics-expansion-plans-and-very-existence-jeopardy">argument</a> that BRICS is China-driven. Indeed, China has been unable to advance some key policy proposals. For example, since the 2011 BRICS summit, China has sought to establish a BRICS free trade agreement but could not get support from other states. And despite various trade coordination mechanisms in BRICS, the overall trade among BRICS remains low – <a href="https://finance.yahoo.com/news/china-floats-brics-free-trade-093000443.html">only 6% of the countries’ combined trade</a>.</p>
<p>However, tensions between the United States and BRICS exist, especially when BRICS turns “bloc-like” and when U.S. global interests are at stake. The turning point for this was 2015, when BRICS achieved major institutional growth under Russia’s presidency. This coincided with Moscow enhancing its <a href="https://carnegieendowment.org/2016/06/29/friends-with-benefits-russian-chinese-relations-after-ukraine-crisis-pub-63953">pivot to China</a> and BRICS following Western sanctions over Russia’s annexation of Crimea in 2014. Russia was eager to <a href="https://www.cambridge.org/core/elements/can-brics-dedollarize-the-global-financial-system/0AEF98D2F232072409E9556620AE09B0">develop alternatives</a> to Western-led institutional and market mechanisms it could no longer benefit from.</p>
<p>That said, important champions of BRICS convergence are also close strategic partners to the U.S. For example, India has played a major role in strengthening the security dimension of BRICS cooperation, championing <a href="https://academic.oup.com/ia/article/97/3/801/6226154">a counter-terrorism agenda</a> that has drawn U.S. <a href="https://2009-2017.state.gov/documents/organization/179207.pdf">opposition</a> due to its vague definition of terrorist actors. </p>
<p>Further constraints on U.S. power may emerge from BRICS <a href="https://www.bloomberg.com/news/articles/2023-08-14/brics-isn-t-competing-with-any-bloc-south-africa-s-sooklal-says">transitioning to using local currencies</a> over the dollar and encouraging BRICS candidate countries to do the same. Meanwhile, China and Russia’s efforts to engage BRICS on <a href="https://www.cna.org/reports/2023/06/china-russia-space-cooperation-may-2023">outer space governance</a> is another trend for policymakers in Washington to watch.</p>
<h2>Toward a US BRICS Policy?</h2>
<p>So where does a more robust – and potentially larger – BRICS leave the U.S.? </p>
<p>To date, U.S. policy has largely ignored BRICS as an entity. The U.S. foreign and defense policymaking apparatus is regionally oriented. In the past 20 years, it has pivoted from the Middle East <a href="https://www.brookings.edu/articles/the-american-pivot-to-asia/">to Asia</a> and most recently to <a href="https://www.whitehouse.gov/wp-content/uploads/2022/02/U.S.-Indo-Pacific-Strategy.pdf">the Indo-Pacific region</a>. </p>
<p>When it comes to the BRICS nations, Washington has focused on developing bilateral relations with Brazil, India and South Africa, while managing tensions with China and isolating Russia. The challenge for the Biden administration is understanding how, as a group, BRICS’ operations and institutions affect U.S. global interests.</p>
<p>Meanwhile, BRICS expansion raises new questions. When asked about U.S. partners such as Algeria and Egypt wanting to join BRICS, <a href="https://www.whitehouse.gov/briefing-room/press-briefings/2023/07/24/press-briefing-by-press-secretary-karine-jean-pierre-44/">the Biden administration explained</a> that it does not ask partners to choose between the United States and other countries. </p>
<p>But the international demand for joining BRICS calls for a deeper reflection on how Washington pursues foreign policy.</p>
<p>Designing a BRICS-focused foreign policy is an opportunity for the United States to innovate around addressing development needs. Rather than dividing countries into friendly democracies and others, a BRICS-focused policy can see the Biden administration <a href="https://foreignpolicy.com/2022/09/21/united-nations-general-assembly-biden-us-sustainable-development-goals/">lead on universal development issues</a> and build development-focused, close relationships that encourage a better alignment between countries of <a href="https://theconversation.com/the-global-south-is-on-the-rise-but-what-exactly-is-the-global-south-207959">the Global South</a> and the United States.</p>
<p>It could also allow the Biden administration to deepen cooperation with India, Brazil, South Africa and some of the new BRICS candidates. Areas of focus could include issues where the BRICS countries <a href="https://doi.org/10.1177/13540661231183352">have struggled to coordinate their policy</a>, such as AI development and governance, energy security and global restrictions on chemical and biological weapons. </p>
<p>Developing a BRICS policy could help re-imagine U.S. foreign policy and ensure that the United States is well positioned in a multipolar world.</p><img src="https://counter.theconversation.com/content/210021/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mihaela Papa previously received funding for BRICS research from Minerva Research Initiative federal grant.</span></em></p><p class="fine-print"><em><span>Frank O'Donnell previously received funding for BRICS research from Minerva Research Initiative federal grant.</span></em></p><p class="fine-print"><em><span>Zhen Han previously received funding for BRICS research from Minerva Research Initiative federal grant.</span></em></p>BRICS nations – Brazil, Russia, India, China and South Africa – compose 41% of the world population and almost a third of global GDP.Mihaela Papa, Senior Fellow, The Fletcher School, Tufts UniversityFrank O'Donnell, Adjunct Lecturer in the International Studies Program, Boston CollegeZhen Han, Assistant Professor of Global Studies, Sacred Heart UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2091412023-07-11T16:16:27Z2023-07-11T16:16:27ZEthiopia wants to join the BRICS group of nations: an expert unpacks the pros and cons<figure><img src="https://images.theconversation.com/files/536810/original/file-20230711-23-y6x8b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ethiopia's Prime Minister Abiy Ahmed (left) with China's President Xi Jinping in Beijing in 2018. </span> <span class="attribution"><span class="source">Andy Wong / AFP via Getty Images</span></span></figcaption></figure><p>A few years ago, the BRICS grouping – Brazil, Russia, China, India and South Africa – had lost salience because three of its members were in severe economic difficulty. Brazil, Russia and South Africa are primarily natural resource exporters and were badly affected by the global <a href="https://blogs.worldbank.org/developmenttalk/what-triggered-oil-price-plunge-2014-2016-and-why-it-failed-deliver-economic-impetus-eight-charts">commodity price bust</a> of 2014.</p>
<p>Russia’s <a href="https://www.britannica.com/event/2022-Russian-invasion-of-Ukraine">invasion</a> of Ukraine has now given BRICS a new geopolitical salience as the members and their respective allies respond to events. </p>
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Read more:
<a href="https://theconversation.com/south-africas-role-as-host-of-the-brics-summit-is-fraught-with-dangers-a-guide-to-who-is-in-the-group-and-why-it-exists-206898">South Africa's role as host of the BRICS summit is fraught with dangers. A guide to who is in the group, and why it exists</a>
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<p>In the emerging world order there is also now <a href="https://www.livemint.com/news/world/brics-gets-influx-of-interest-as-saudi-arabia-iran-and-more-knock-on-its-door-will-members-open-up-11682501595762.html">increased demand</a> to join BRICS, in part as a countervailing power to “the west”. <a href="https://www.reuters.com/world/americas/argentina-says-has-chinas-support-join-brics-group-2022-07-07/">Argentina</a>, <a href="https://country.eiu.com/article.aspx?articleid=393341622&Country=China&topic=Politics&subtopic=Forecast&subsubtopic=International+relations&oid=863331669&flid=93319592">Saudi Arabia</a> and lately, <a href="https://www.theeastafrican.co.ke/tea/business/ethiopia-applies-to-join-brics-bloc-of-emerging-economies-4288736">Ethiopia</a>, have expressed strong interest in becoming members.</p>
<p>I have researched the political economy of <a href="https://scholar.google.com/scholar?q=P%C3%A1draig+Carmody+%2B+RESEARCH&hl=en&as_sdt=0&as_vis=1&oi=scholart">globalisation in Africa</a> over the last 30 years. I have specifically examined the scramble for Africa by <a href="https://www.sciencedirect.com/science/article/abs/pii/S0962629807000406">the US and China</a>, <a href="https://link.springer.com/article/10.1057/ejdr.2012.8">South Africa’s involvement in BRICS</a>, the nature of <a href="https://academic.oup.com/book/33547/chapter-abstract/287921649?redirectedFrom=fulltext">BRICS engagement with Africa</a> and <a href="https://www.tandfonline.com/doi/full/10.1080/03057070.2017.1337359">market and resource access by BRICS in southern Africa</a>.
It would be a major coup for Ethiopia if it were able to join the grouping as it would raise its global profile, allow it to interact and coordinate more closely with some of the major world powers and move the discourse beyond the recent civil war there, potentially enabling it to attract more investment.</p>
<h2>Opportunities</h2>
<p>Ethiopia has <a href="https://addisstandard.com/news-ethiopia-submits-application-to-join-brics-bloc-of-developing-nations/">cited</a> its key role in founding the African Union and other institutions, along with its national interest as grounds for seeking BRICS membership. In my opinion, there are five key reasons why Ethiopia would want to join the grouping. </p>
<p><strong>Deteriorating relations with western powers</strong>: Ethiopia has historically depended on substantial western support through <a href="https://www.reuters.com/world/africa/us-suspends-food-aid-ethiopia-because-diversions-2023-06-08/">aid</a> and <a href="https://www.tandfonline.com/doi/abs/10.1080/13523260.2022.2091580">security</a> cooperation. But its relations with the west <a href="https://ethiopianbusinessreview.net/foreign-aid-holds-itself-back/">have soured</a> as a result of the <a href="https://theconversation.com/ethiopia-tigray-war-parties-agree-pause-expert-insights-into-two-years-of-devastating-conflict-193636">civil war</a>, in which human rights violations were <a href="https://www.ohchr.org/en/press-releases/2022/09/un-experts-warn-potential-further-atrocities-amid-resumption-conflict">reported</a>. Joining BRICS would make the country more geostrategically important, perhaps encouraging western powers to downplay human rights concerns, <a href="https://www.theafricareport.com/58653/drc-how-the-cia-got-under-patrice-lumumbas-skin/">as they have in the past</a> in the interests of “realpolitik”.</p>
<p><strong>Alternative growth frontier</strong>: Ethiopia remains one of Africa’s fastest growing economies, at <a href="https://www.afdb.org/en/countries/east-africa/ethiopia/ethiopia-economic-outlook">over 5% a year</a>. It has developed strong <a href="https://www.africa-newsroom.com/press/ethiopian-prime-minister-abiy-ahmed-ali-meets-with-qin-gang?lang=en">economic ties</a> with China in recent decades. Similarly, <a href="https://www.ena.et/web/eng/w/en_33771">Indian companies</a> have been <a href="https://www.tandfonline.com/doi/abs/10.1080/10455752.2012.759247/">acquiring land</a> in Ethiopia. China and India are now Africa’s <a href="https://www.statista.com/statistics/1234977/main-trade-partners-of-africa/">two largest</a> single trading partners (not counting the European Union as a single entity). Joining BRICS would signal openness and lead to greater cooperation through platforms like the business council and forum. It could also add impetus to the “<a href="https://www.huffpost.com/entry/how-real-is-the-ethiopia_b_7985180">resurgent Ethiopia</a>” narrative, an image the authorities are keen to promote to attract investments. </p>
<p><strong>Negotiations over finance</strong>: The Ethiopian government is <a href="https://newsaf.cgtn.com/news/2023-04-08/IMF-talks-with-Ethiopia-to-continue-after-progress-made-1iONtaKnpLi/index.html">negotiating</a> a financial package with the International Monetary Fund. Joining BRICS might give it greater leverage. Western powers, which largely control the IMF, might be more wary of alienating Ethiopia in BRICS and driving it further “into the arms” of China. The creation of a new BRICS currency, to challenge US dollar hegemony, is on the agenda and its existing Contingency Reserve Arrangement already partly competes with the IMF. </p>
<p><strong>Non-interference policy</strong>: BRICS powers rhetorically largely subscribe to <a href="https://www.jstor.org/stable/pdf/resrep05168.10.pdf">non-interference</a> in the sovereign affairs of other states, with the qualification that President Lula de Silva of Brazil <a href="https://www.researchgate.net/publication/285596738_Brazilian_Foreign_Policy_under_Lula_from_non-intervention_to_non-indifference">talked about</a> “non-indifference” to human rights when he was previously in power and Russia has violated the principle through invasions and election interference, amongst others. Ethiopia may be interested in the political cover that joining BRICS would provide. The Russian invasion of Ukraine has received political cover from China, and some would argue from South Africa. The Ethiopian government may be keen to avoid human rights governance conditions attached to new loans, aid or debt relief from the west. </p>
<p><strong>A prime minister seeking new friends:</strong> BRICS membership would help restore the tarnished image of Prime Minister Abiy Ahmed, who is a Nobel peace prize recipient. Ahmed was heavily <a href="https://www.reuters.com/world/africa/ethiopian-leader-marking-year-war-says-he-will-bury-his-foes-with-our-blood-2021-11-03/">criticised</a> as a war-monger during the civil war in Ethiopia’s Tigray region. Joining the BRICS club would show that his government is still politically acceptable to some major world powers. </p>
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<img alt="Photo of Russian president Vladimir Putin with Ethiopian prime minister Abiy Ahmed on the sidelines of the 2019 Russia-Africa Summit in Sochi on 23 October 2019" src="https://images.theconversation.com/files/535799/original/file-20230705-15-sqixl8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/535799/original/file-20230705-15-sqixl8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=425&fit=crop&dpr=1 600w, https://images.theconversation.com/files/535799/original/file-20230705-15-sqixl8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=425&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/535799/original/file-20230705-15-sqixl8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=425&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/535799/original/file-20230705-15-sqixl8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=534&fit=crop&dpr=1 754w, https://images.theconversation.com/files/535799/original/file-20230705-15-sqixl8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=534&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/535799/original/file-20230705-15-sqixl8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=534&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Abiy Ahmed with Vladimir Putin.</span>
<span class="attribution"><span class="source">Sergei Chirikov/POOL/AFP via Getty Images</span></span>
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<h2>The risks</h2>
<p>There would of course be risks in Ethiopia joining the BRICS. Western powers might perceive it as drifting into the alternative geopolitical bloc or alignment, which could reduce aid and investment from them. But this could also have advantages for Ethiopia’s relations with the west by making the country more geo-strategically important. </p>
<p>Based on past experience, Ethiopia would be an unlikely addition to the grouping. The last and only country to be admitted after the group’s founding was South Africa in 2010. Other countries have applied and have not been admitted. BRICS now operates in what is sometimes described as a <a href="https://www.russia-briefing.com/news/russia-s-new-foreign-policy-concept-the-impact-on-brics-plus.html/">BRICS-plus</a> format with countries such as Egypt already members of its development bank and all African leaders invited to the up-coming BRICS’ summit in South Africa. </p>
<p>Ethiopia’s economy, <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=ET">estimated</a> at around US$126.78 billion in 2022, is less than half the size of <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=ZA">South Africa’s US$405.87 billion</a>. South Africa is by far the smallest economy in the BRICS. But in some ways Ethiopia might be seen as a more representative African country in BRICS than South Africa. Ethiopia hosts the African Union headquarters and United Nations Economic Commission for Africa. Its capital, Addis Ababa, is sometimes described as the continent’s diplomatic capital. The outcome of Ethiopia’s application will likely be known after the next summit in August.</p><img src="https://counter.theconversation.com/content/209141/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Padraig Carmody previously received funding from National Geographic and the University of Johannesburg to conduct research on related topics. </span></em></p>There is increased demand to join BRICS in the emerging world order, partly as a countervailing power to “the west”.Padraig Carmody, Professor in Geography, Trinity College DublinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1862652022-07-13T13:58:54Z2022-07-13T13:58:54ZHow BRICS’ New Development Bank can improve transparency and accountability<figure><img src="https://images.theconversation.com/files/472282/original/file-20220704-24-jd8a24.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The New Development Bank has not been forthcoming with information on its funding of South Africa's Medupi power station.</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>The New Development Bank, which was <a href="https://www.ndb.int/wp-content/themes/ndb/pdf/Agreement-on-the-New-Development-Bank.pdf">formed</a> in July 2014, marks its eighth birthday this year. It was formed by the leaders of Brazil, Russia, India, China and South Africa (BRICS) when they met in Fortaleza, Brazil for the bloc’s summit. The bank was seen as a potential alternative to the World Bank and able to take a new approach to development finance.</p>
<p>The New Development Bank has since approved <a href="https://www.ndb.int/projects/list-of-all-projects/?country_name=5">11 projects</a> in South Africa and Lesotho. These involve sustainable energy, transportation, water resource management, and a COVID-19 emergency loan programme. Some of these projects, for instance the <a href="https://www.ndb.int/environmental-protection-project-for-medupi-thermal-power-plant/">Environmental Protection Project for Medupi Thermal Power Plant</a>, are of strategic importance to South Africa. Of the project’s estimated total cost of US$2.75 billion, the bank is providing a US$480 million loan.</p>
<p>This is in line with hopes that the bank would serve as a much-needed new source of financing for national and regional initiatives. Another hope was that it would be more transparent and accountable than other multilateral banks such as the World Bank. Its <a href="https://www.ndb.int/about-us/essence/mission-values/">mission and values</a>, <a href="https://www.ndb.int/wp-content/themes/ndb/pdf/Agreement-on-the-New-Development-Bank.pdf">articles of agreement</a>, <a href="https://www.ndb.int/wp-content/themes/ndb/pdf/ndb-environment-social-framework-20160330.pdf">environmental and social framework</a> and <a href="https://www.ndb.int/wp-content/uploads/2017/01/information-disclosure-policy-revised.pdf">information disclosure policy</a> make commitments about transparency and openness. </p>
<p>The bank’s <a href="https://www.ndb.int/about-us/essence/mission-values/">mission statement</a> expresses its objective of not only “achieving development goals with transparency” but also displaying “empathy” towards its projects’ intended beneficiaries. </p>
<p>Billions of dollars of investment later, however, the reality suggests that improvement is needed.</p>
<p>A study on transparency and accountability by Oxfam South Africa and the University of Pretoria’s Centre for Human Rights raises concerns about how the bank handles <a href="https://www.oxfam.org.za/wp-content/uploads/2022/06/oxfam-ndb-accountability-discussion-paper-1-web.pdf">access to information</a>. It also lacks an <a href="https://www.oxfam.org.za/wp-content/uploads/2022/06/oxfam-ndb-accountability-discussion-paper-2-web.pdf">independent accountability mechanism</a>. The study calls into question whether the bank is showing empathy towards the communities that are affected by its projects.</p>
<h2>Too little openness</h2>
<p>The study highlights transparency and accountability challenges with some of the projects co-financed by the bank. The researchers interviewed representatives of the communities near the <a href="https://www.ndb.int/lesotho-highlands-water-project-phase-ii/">South Africa Lesotho Highlands Water Project Phase II</a> and the <a href="https://www.ndb.int/environmental-protection-project-for-medupi-thermal-power-plant/">Medupi project</a>.</p>
<p>Some of these challenges are cross-cutting. For instance, the representatives said that the influx of migrant workers into their communities had put a strain on resources and services. There were also project-specific issues. These included concerns about the resettlement of <a href="https://www.oxfam.org.za/wp-content/uploads/2022/06/oxfam-ndb-accountability-discussion-paper-1-web.pdf">more than 3,000 people</a> to make way for the Lesotho project.</p>
<p>The study demonstrates the difficulty of getting project information. The New Development Bank’s responses to information requests from the researchers lacked adequate detail. Without timely and comprehensive access to information, how can communities affected by projects adequately address their concerns? </p>
<p>The bank’s website has no project documents and its information portal is hard to use. This affects the right of communities to be heard, a right that can’t be exercised without access to information. </p>
<p>Unlike most <a href="https://www.worldbank.org/en/programs/accountability#:%7E:text=The%20World%20Bank%20Accountability%20Mechanism%20is%20an%20independent%20complaints%20mechanism,a%20World%20Bank%2Dfunded%20project.">multilateral development banks</a>, the New Development Bank doesn’t have an independent accountability mechanism. Nor does it have other ways for these communities to seek redress or hold it accountable. </p>
<p>Such mechanisms are created to <a href="https://www.ciel.org/wp-content/uploads/2021/06/Glass-half-full.pdf">hold development finance institutions</a> and their clients accountable to their own policies. They also provide access to remedies for individuals and communities that are adversely affected by the activities such institutions fund. Without such a mechanism, the bank’s approach to accountability falls far short of global best practice.</p>
<p>It’s clear that much more can be done to improve transparency and accountability at the New Development Bank. </p>
<h2>Looking ahead</h2>
<p>The bank could do this in several ways:</p>
<ul>
<li><p>It must put section 23 of its <a href="https://www.ndb.int/wp-content/themes/ndb/pdf/ndb-environment-social-framework-20160330.pdf#page=12">environment and social framework</a> into practice. This requires the bank to disclose project documents and information to communities and the general public during the project design and implementation phases, and throughout projects’ life cycles.</p></li>
<li><p>It should create a structure or platform, an independent accountability mechanism, that affected communities can use to prod the bank when it fails to provide timely access to project information or to comply with its own policies and procedures. Better and more sustainable development outcomes can be achieved when the mechanism’s design process includes public consultations that incorporate different stakeholders. These public consultations should aim to genuinely solicit inputs that influence the design and implementation of the proposed mechanism.</p></li>
</ul>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/south-africa-and-international-financial-institutions-a-liaison-group-could-recalibrate-relations-177643">South Africa and international financial institutions: a liaison group could recalibrate relations</a>
</strong>
</em>
</p>
<hr>
<ul>
<li>At a national level, there have also been calls for the formation of <a href="https://theconversation.com/south-africa-and-international-financial-institutions-a-liaison-group-could-recalibrate-relations-177643">a South African liaison group for international financial institutions</a>. This group would be a platform to promote discourse between South African government institutions such as the treasury and civil society concerning the country’s relationship with international financial institutions. This group could for instance be a good platform to discuss civil society’s concerns about the New Development Bank.</li>
</ul><img src="https://counter.theconversation.com/content/186265/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Magalie Masamba is a Post-doctoral Research Fellow at the Centre for Human Rights, University of Pretoria. She receives funding from Prof. Danny Bradlow's SARCHI Chair at the University of Pretoria and works on research projects funded by the Open Society Initiative for Southern Africa (OSISA) and Oxfam South Africa. </span></em></p>The New Development Bank doesn’t have mechanisms that communities can use to hold it accountable or seek redress.Magalie Masamba, Post-doctoral Fellow, Centre for Human Rights, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1505682020-11-20T16:59:09Z2020-11-20T16:59:09ZG20: led by Russia and China, world’s ‘emerging powers’ look to push unified agenda<p>One thing the coronavirus pandemic has meant for world leaders is that it has simplified their international calendars somewhat. Take the week ending November 22: Russia hosted the <a href="https://moderndiplomacy.eu/2020/11/19/russia-highlights-of-the-xii-brics-summit/">BRICS summit</a> on Tuesday November 17, Malaysia held the <a href="https://www.apec.org/">Asia-Pacific Economic Cooperation</a> meeting on Friday November 20 and the weekend of November 21 and 22 was booked in for the <a href="https://g20.org/en/Pages/home.aspx">G20 summit in Riyadh</a>, Saudi Arabia.</p>
<p>Rather than having to board flights and live out of suitcases, leaders had to attend via video link. So COVID-19 has at least cut down on jetlag and carbon emissions.</p>
<p>For leaders of Brazil, Russia, India, China and South Africa, the virtual BRICS summit, hosted by Vladimir Putin in Moscow, was an opportunity to rehearse their priorities in the run up to the G20. As you might expect, the summit’s priority was the cross-country efforts responding to COVID-19 and how to ensure a swift economic recovery. Also on the agenda were how to coordinate and enhance cooperation in trade, energy, and counter-terrorism. </p>
<h2>Covid vaccine: a global race</h2>
<p>Leaders at the BRICS summit will have been well aware that the big story of the G20 will be the coronavirus pandemic and efforts around the world to develop effective vaccines. While the recent vaccine breakthroughs in the US and Europe will be of great interest, BRICS countries – notably Russia, India and China – want more of a focus on their own efforts and achievements. </p>
<p>Having assured his BRICS colleagues that Russia’s vaccines “<a href="https://apnews.com/article/summits-india-coronavirus-pandemic-vladimir-putin-china-63b174580063da09912890ffd167eca6">work effectively and safely</a>”, Putin called for the alliance to join forces for the mass production and use of Sputnik V, which he said had shown in early tests to be 92% effective. </p>
<p>The notion of cooperation through the bloc was enthusiastically taken up. India’s prime minister Narendra Modi said that India’s vaccine production capacities will be important “for the interests of humanity”, and Chinese president Xi Jinping said his country would “actively consider” providing its vaccines to the other BRICS countries. There is already a degree of cooperation: both Brazil and India are conducting trials for Sputnik V. </p>
<h2>Multilateralism</h2>
<p>Multilateralism was also high on the agenda. Media reports, from <a href="https://news.cgtn.com/news/2020-11-17/Chinese-President-Xi-Jinping-attends-BRICS-summit-via-video-link-VuN5bKHeO4/index.html">Chinese</a> and <a href="https://timesofindia.indiatimes.com/india/12th-brics-summit-2020-live-updates-pm-modi-russia-putin/liveblog/79260787.cms">Indian</a> news outlets particularly, reported that BRICS leaders stressed the importance of a multilateral approach to combat what was described as growing nationalism and economic protectionism in the west. </p>
<p>The forum signed the <a href="https://www.globaltimes.cn/content/1207147.shtml">BRICS Economic Partnership Strategy</a> to facilitate cooperation in a wide range of areas: economics and trade, anti-terrorism, science, technology and innovation – even the prevention of a space arms race. The bloc has an <a href="https://countryeconomy.com/countries/groups/brics">enormous economic influence</a> with its population of 3.6 billion people (42% of the world total) and 23% of world’s GDP and BRICS countries are now a force in the global trading system, able to exert a strong influence in the World Trade Organization (WTO).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/370531/original/file-20201120-13-1k32toi.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="IMF graphic showing the population, GDP and land area occupied by BRICS countries." src="https://images.theconversation.com/files/370531/original/file-20201120-13-1k32toi.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/370531/original/file-20201120-13-1k32toi.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=555&fit=crop&dpr=1 600w, https://images.theconversation.com/files/370531/original/file-20201120-13-1k32toi.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=555&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/370531/original/file-20201120-13-1k32toi.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=555&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/370531/original/file-20201120-13-1k32toi.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=698&fit=crop&dpr=1 754w, https://images.theconversation.com/files/370531/original/file-20201120-13-1k32toi.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=698&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/370531/original/file-20201120-13-1k32toi.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=698&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The growing economic and political clout of the BRICS bloc.</span>
<span class="attribution"><span class="source">IMF</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>New priorities</h2>
<p>India takes over the chair of BRICS in 2021 and Modi set out his priorities <a href="https://www.indiatoday.in/india/story/pm-modi-raises-terrorism-at-brics-summit-says-important-to-name-and-blame-responsible-nations-1741638-2020-11-17">in his speech</a>. He identified terrorism as the world’s biggest problem and stressed the importance of multilateral cooperation in countering this. But, he added, “today the multilateral system is going through a crisis”.</p>
<p>He signalled the need for reform of several major global institutions including the UN Security Council, as well as the WHO, World Trade Organization and the International Monetary Fund (IMF). </p>
<p>Putin, in turn, <a href="http://en.special.kremlin.ru/events/president/transcripts/64430">stressed the importance</a> of BRICS countries working together in areas such as science and innovation, as well as continuing to develop cultural ties and a common strategy to combat terrorism, drug trafficking and cyber crime. </p>
<p><a href="http://www.xinhuanet.com/english/2020-11/17/c_139523124.htm">Xi warned</a> that the pandemic would increase the clamour for “de-globalisation”, “economic decoupling” and “parallel systems”. This, he said, would “end up hurting one’s own interests and the common interests of all”, adding: </p>
<blockquote>
<p>We need to uphold the multilateral trading system with the WTO at its core and reject abuse of the ‘national security’ concept for protectionist purposes.</p>
</blockquote>
<p>The summit provided another chance for Modi and Xi to meet (virtually) face to face amid the two countries’ <a href="https://www.theguardian.com/world/2020/sep/08/china-india-border-soldiers-pangong-lake">border tensions in the Ladakh region</a>. Both countries have strengthened their ties with Russia in the summit, although their military standoff will continue to cast a shadow over the bloc. </p>
<h2>From BRICS to G20</h2>
<p>So the five BRICS leaders had a chance to develop a common script to take to the G20 in Riyadh at the weekend. Covering two-thirds of the world’s population and representing <a href="https://www.statista.com/topics/4037/g20-summit/">75% of global GDP</a>, the G20 group has traditionally been dominated by western powers whose economic might gave them the heft to set the global political economy. </p>
<p>But there are signs this is not as solid as it was. Disastrous coronavirus responses from the US and UK have undermined their leadership status on this, the world’s most pressing issue in 2020. This in turn provides an opportunity for emerging powers from BRICS to stand in the front row. The political turmoil surrounding the result of the US election has also muddied the waters and it will be interesting to see what the US president, Donald Trump, says and does during the summit.</p>
<p>If BRICS summit was a rehearsal of the emerging powers’ advocacy of their positioning for the new world order, the G20 summit provides a formal occasion for them to exercise their voice more widely.</p><img src="https://counter.theconversation.com/content/150568/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Xuebing Cao does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Hosted by Russia, the summit gave the BRICS group a chance to harmonise their approach before the G20 meeting in Riyadh.Xuebing Cao, Senior Lecturer in Human Resource Management, Keele UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/995262018-07-08T11:18:07Z2018-07-08T11:18:07ZHow to judge the success of the BRICS summit? Three questions will do the trick<figure><img src="https://images.theconversation.com/files/226481/original/file-20180706-122271-otx6he.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The <a href="http://www.brics2018.org.za/">10th BRICS summit</a> to be hosted by South Africa is going to be closely watched. It comes at a time when extraordinary global political and economic challenges are facing the world. </p>
<p>The BRICS bloc is made up of 5 of the leading countries in the global South — Brazil, Russia, India, China and South Africa.</p>
<p>The challenges facing the world range from country specific problems relating to domestic poverty, inequality and unemployment to climate change and a global economic system that is biased in favour of corporate interests, particularly in finance and technology. </p>
<p>One of the most immediate political challenges relate to the changing dynamics in global economic governance. The current global powerhouse, the US, appears intent on starting trade wars with both China and the European Union. Africa can’t avoid being adversely affected by a trade war between these three economic powers, which are its three largest trading partners. </p>
<p>The US is also pulling back from multilateral governance arrangements that it created. For example, it withdrew from the upcoming United Nations (UN) <a href="https://www.theguardian.com/world/2017/dec/03/donald-trump-pulls-us-out-of-un-global-compact-on-migration">conference on migration</a> and from the <a href="https://www.aljazeera.com/news/2018/06/withdraws-human-rights-council-180619173311272.html">UN Human Rights Council</a>. And Washington is effectively paralysing the World Trade Organisation (WTO) by refusing to agree to the <a href="https://economictimes.indiatimes.com/news/economy/foreign-trade/trade-wars-us-blocking-appointment-of-members-of-wtos-appellate-body/articleshow/63177200.cms">appointment</a> of new judges at the WTO Appellate Body. </p>
<p>These developments are creating a volatile and unpredictable situation for all countries. Small players on the global stage, like South Africa and other countries on the continent, face the prospect of becoming collateral damage in the destruction of the current global governance arrangements. </p>
<p>Given all these complex challenges, how should we judge the success of the BRICS Summit? </p>
<p>We can use three tests: is BRICS being strengthened? What benefits will accrue to Africa? And how is the bloc planning to influence global economic governance reform?</p>
<h2>BRICS strengthening</h2>
<p>One goal of the upcoming summit should be to strengthen the relationship between the BRICS partners. </p>
<p>A concrete way of measuring this will be to look at the number and quality of agreements to emerge out of the summit. A successful summit will result in a range of substantial agreements being reached. The world will be able to scrutinise the outcome in the communique released at the end of the meeting.</p>
<p>It is important to note that the summit is the apex event in a year-long process. During the year various groups of BRICS government officials, civil society groups and technical experts meet to discuss issues of common interest. They have included technical groups such as the BRICS water forum and a committee looking at customs cooperation. Others have involved political matters, such as meetings of foreign affairs ministers and government officials who help guide their leaders to the summit (known as Sherpas). </p>
<p>The participants in these meetings try to reach agreements on issues of mutual interest – such as establishing a BRICS vaccine research centre – or finding ways to collaborate in sectors like tourism. Their job is also to try and resolve differences. </p>
<p>These efforts feed into the work of the summit as the Sherpas prepare the statement of what has been agreed. Details of the agreements that have been struck will be released in a statement at the end of the summit. </p>
<h2>BRICS in Africa</h2>
<p>Given that the theme for this year’s summit is: “BRICS in Africa: Collaboration for Inclusive Growth and Shared Prosperity in the 4th Industrial Revolution”, it’s reasonable to expect the BRICS summit to produce benefits for Africa. </p>
<p>One area that would be beneficial for the continent would be a signal from the leaders that the BRICS members are willing to commit to funding infrastructure projects on the continent. This is important because Africa is in the process of putting in place an ambitious new <a href="https://www.iol.co.za/capetimes/news/continents-free-trade-deal-a-game-changer-for-africa-15795779">Continental Free Trade Agreement</a>. Successful implementation will require constructing infrastructure that can link the continent both internally and with other parts of the world.</p>
<p>BRICS could position itself for a critical role in the funding of these infrastructure projects.</p>
<p>Two obvious vehicles for such funds are the BRICS’s New Development Bank and the funds that China has created to support its <a href="https://qz.com/983460/obor-an-extremely-simple-guide-to-understanding-chinas-one-belt-one-road-forum-for-its-new-silk-road/">One Belt One Road Initiative</a>. </p>
<p>Thus a test for summit success will be whether it generates new financing for sustainable infrastructure in Africa, and the nature of the financing.</p>
<h2>Global governance reform</h2>
<p>One goal shared by all the BRICS states is reforming global economic governance structures like the World Bank and International Monetary Fund (IMF). The bloc hasn’t been particularly successful in this mission. But this year may be an opportune time to promote reform. </p>
<p>Actions by the US have undermined its leadership position in the world and may have made other countries more open to governance reforms in key international economic organisations. This is particularly relevant for the IMF which is reviewing its quota allocations. A shift would lead to the world body being more responsive to the concerns of its poorer member countries. </p>
<p>There is a longstanding call for the inclusion of a third African chair on the IMF board. It is unconscionable that the 46 sub-Saharan African countries have the lowest level of representation of any region on the IMF board. South Africa should push BRICS to stand behind this call.</p>
<p>The BRICS should also support making the IMF more <a href="https://theconversation.com/top-job-for-south-african-gives-african-countries-sway-at-the-imf-90700">accountable</a> to countries affected by its operations. This could be done by demanding that the IMF create an independent accountability mechanism. It is currently the only multilateral financial institution without one. </p>
<p>A key benefit of the BRICS is its potential to lead efforts to meaningfully reform the global economic system. It therefore behoves the citizens of BRICS countries to hold their governments accountable for fulfilling this potential.</p><img src="https://counter.theconversation.com/content/99526/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow’s chair is funded by the National Research Foundation. </span></em></p>The 10th BRICS Summit will be judged by how it tackles the prevailing global political and structural challenges.Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/768072017-05-03T16:01:10Z2017-05-03T16:01:10ZBRICS bank is offering more of the same rather than breaking the mould<figure><img src="https://images.theconversation.com/files/167506/original/file-20170502-17254-15fffi9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Indian and Chinese representatives mark the launch of the New Development Bank. </span> <span class="attribution"><span class="source"> EPA/XING ZHE CHINA OUT</span></span></figcaption></figure><p>The New Development Bank recently held its <a href="http://pib.nic.in/newsite/PrintRelease.aspx?relid=160274">second annual meeting</a> in the Indian capital of New Delhi to discuss the sustainability of financing development projects in its member states. </p>
<p>The multilateral bank was established by the BRICS states of Brazil, Russia, India, China and South Africa. With headquarters in Shanghai, China, it was created to support emerging economies and provide an <a href="http://uk.businessinsider.com/the-brics-countries-just-launched-a-rival-to-the-imf-and-world-bank-2015-7">alternative to the domination</a> of the World Bank and the International Monetary Fund. </p>
<p>But the new bank is already proving to be a replication of the Bretton Woods institutions. This can be seen through the <a href="http://www.business-standard.com/article/economy-policy/european-development-bank-strikes-pact-with-new-development-bank-117040300784_1.html">partnerships</a> the new bank is forming as well as its operating posture. </p>
<p>It’s also showing bias towards the development of Asian countries. This is evident from its funding patterns and the recent proposed <a href="https://sputniknews.com/politics/201703221051849196-brics-enlargement-plan/">enlargement of the BRICS bloc</a>. The list of proposed additions includes Pakistan, Bangladesh, Iran, Nigeria, South Korea, Mexico, Turkey, Indonesia, the Philippines and Vietnam. All except three are Asian. </p>
<p>The proposed expansion of the BRICS countries has been justified as a move to <a href="http://www.iol.co.za/business-report/economy/brics-plus-can-be-new-model-of-integration-8700388">strengthen the bloc</a> and fill the void created by rising protectionism in the US. But it has been met with mixed reactions even among member countries. India, for example has expressed its disapproval that BRICS “plus” is China’s ploy to <a href="https://timesofislamabad.com/china-to-include-pakistan-in-brics-plus-ignoring-indian-concerns/2017/03/13/">cut New Delhi’s influence</a> in the group by roping in more pro-China countries.</p>
<p>The New Development Bank’s business as usual and its bias towards Asia suggests that it will not become an alternative source of finance. It will not address the key areas of needs for emerging economies like human capital development, poverty alleviation and basic healthcare.</p>
<h2>More of the same</h2>
<p>The New Development Bank was set up as an <a href="http://www.paragkhanna.com/home/new-brics-bank-building-block-alternative-world-order">alternative</a> to the World Bank and IMF which are viewed to be <a href="http://thoughtleader.co.za/sentletsediakanyo/2008/07/09/can-we-trust-the-west-imf-world-bank-etc/">pushing western agendas</a>. It was to provide a development model that would be sensitive and beneficial to emerging economies. But it’s quickly abandoning this mandate and falling into the trap of operating like the institutions it was created to replace. </p>
<p>In September 2016 the New Development Bank <a href="https://www.businesslive.co.za/bd/companies/2016-09-09-world-bank-and-new-development-bank-sign-mou-to-boost-partnership/">signed partnership deals</a> with the World Bank to co-finance projects. The agreement also aims to facilitate knowledge and staff exchanges. This puts the bank in bed with the institutions it was established to counter.</p>
<p>The bank has also signed memorandums of understanding with the <a href="http://www.ebrd.com/news/2017/new-development-bank-ebrd-affirm-mutual-goals-agree-cooperation.html">European Investment Bank</a>, <a href="http://www.ndb.int/borrowings/memorandum-understanding-new-development-bank-european-bank-reconstruction-development/">European Bank for Reconstruction and Development</a>, <a href="https://www.aiib.org/en/news-events/news/2017/20170401_001.html">the Asian Infrastructure Investment Bank</a> and <a href="http://www.ndb.int/press_release/new-development-bank-international-investment-bank-sign-memorandum-understanding-develop-cooperation/">the Eurasian Development Bank and the International Investment Bank (IIB)</a>. The agreements cover co-financing of infrastructure projects, the bulk of which are in Asia.</p>
<p>Perhaps the foundations of the bank were faulty from the start. Its <a href="https://mg.co.za/article/2017-03-31-00-brics-joins-the-reigning-world-order">original designers</a> were two former World Bank chief economists, Joe Stiglitz and Nick Stern. Given this history, it’s possibly never going to challenge the world financial order.</p>
<p>Today, the New Development Bank is pushing the <a href="http://www.business-standard.com/article/news-ians/brics-bank-should-focus-on-small-scale-investments-117033001495_1.html">corporate-led development model</a> just like the World Bank, the IMF and other Bretton Woods institutions. Their investments are profit-oriented which tends to undermine social justice. Thus similar to the World Bank and IMF, the New Development Bank seems more focused on protecting its investments at the expense of saving the interests of the BRICS citizens. </p>
<p>Over the past decade, the corporate led model has impoverished many people in emerging economies, particularly in Asia. It has led to <a href="http://www.globalresearch.ca/the-seeds-of-suicide-how-monsanto-destroys-farming/5329947">farmer suicides</a>, <a href="http://www.herinst.org/BusinessManagedDemocracy/government/privatisation/banks.html">large-scale privatization</a>, <a href="https://www.globalpolicy.org/social-and-economic-policy/the-three-sisters-and-other-institutions/the-world-bank/49476-dodging-world-bank-schizophrenia-the-looting-on-africa-continues.html">natural resource looting</a> and <a href="http://projects.huffingtonpost.com/worldbank-evicted-abandoned/how-worldbank-finances-environmental-destruction-peru">environmental degradation</a>. </p>
<h2>Funding so far</h2>
<p>The New Development Bank has so far made loans of <a href="http://www.ndb.int/projects/list-of-all-projects/">$811 million to entities</a> in four BRICS countries towards energy infrastructure. Of this $300 million went to Brazil, $81 million to China, $250 million to India, and <a href="http://thebricspost.com/brics-bank-announces-first-set-of-loans/#.WQN5ePmGPIU">$180 million to South Africa</a>. </p>
<p>For South Africa, the bank has so far not provided any meaningful opportunity to obtain additional finance. The loan of $180 million (R2.6 billion) was given to South Africa’s power utility Eskom to develop 670 MW of power generation and 500 MW worth of renewable energy projects involving <a href="http://www.sabc.co.za/news/a/a239fb804c72c32d96d9df3b0fa74342/EskomundefinedgetsundefinedR2.6blnundefinedNDBundefinedloanundefinedforundefinedrenewableundefinedenergy-20161804">independent power producers</a>. This <a href="https://www.businesslive.co.za/bd/companies/energy/2017-01-16-eskom-distorts-facts-about-renewable-energy-group-claims/">unnecessary loan</a> to an inefficient state owned entity has only contributed to BRICS’s power over South Africa by adding onto the current contingents <a href="https://www.businesslive.co.za/bd/opinion/2017-03-31-the-brics-bank-green-energy-gordhan-and-the-guptas/">liabilities</a> dollar-based loans that the government has guaranteed for the next 12 to 20 years.</p>
<h2>Weaknesses</h2>
<p>There are weaknesses in the way in which the New Development Bank works that also raises questions about its intent.</p>
<p>First, the bank’s activities are often shrouded in secrecy. There are no clear official records available to the public about the bank’s activities, decisions and operational guidelines. Analysts have to rely on secondary and tertiary information sources. </p>
<p>Second, the bank is yet to present any socio-economic redress and environmental operational guidelines for communities. This would ensure that its funding does not lead to displacement, evictions, ecological destruction, loss of livelihoods and threats to the basic right to life. These issues have recurred for decades due to <a href="http://projects.huffingtonpost.com/worldbank-evicted-abandoned/how-worldbank-finances-environmental-destruction-peru">projects funded</a> by other multilateral development banks. </p>
<p>Lastly, as a co-financier with development institutions like the World Bank, the bank’s seriousness about promoting transparency, accountability and probity remains questionable. </p>
<p>To strengthen its relevance to emerging economies, the New Development Bank must review the much criticised, inequitable representation of developing countries, especially from Africa. It must also focus more on small-scale investments rather than large-scale infrastructure projects. These often lead to exclusion of people and communities, and aggravate existing vulnerabilities rather than bringing about development.</p><img src="https://counter.theconversation.com/content/76807/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sean Gossel receives funding from the University of Cape Town. </span></em></p><p class="fine-print"><em><span>Misheck Mutize does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The BRICS New Development Bank has promised to change the world of multilateral development funding but has so far failed to live up to expectations.Misheck Mutize, Lecturer of Finance and Doctor of Philosophy Candidate, specializing in Finance, University of Cape TownSean Gossel, Senior Lecturer, UCT Graduate School of Business, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/723822017-02-07T15:46:32Z2017-02-07T15:46:32ZBRICS wants to set up an alternative rating agency. Why it may not work<figure><img src="https://images.theconversation.com/files/155615/original/image-20170206-23524-1woh02u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Leaders of the BRICS bloc of states in Goa, India where they hatched the plan to launch a new credit rating agency</span> <span class="attribution"><span class="source">REUTERS/Danish Siddiqui </span></span></figcaption></figure><p>The idea of establishing an alternative credit rating agency led by the BRICS bloc of countries is <a href="http://www.fin24.com/Economy/brics-to-fast-track-new-credit-rating-agency-20161016">gaining momentum</a>. But there are questions as to whether it will prosper given the major challenges it’s bound to face.</p>
<p>Leaders from the bloc made of Brazil, Russia, India, China and South Africa are championing the idea. The idea formerly emerged during the 2015 BRICS summit in <a href="http://www.fin24.com/Economy/brics-to-fast-track-new-credit-rating-agency-20161016">Ufa</a> and was affirmed by the Goa Declaration at the <a href="http://timesofindia.indiatimes.com/business/india-business/BRICS-countries-agree-to-set-up-credit-rating-agency/articleshow/54881697.cms">8th BRICS Summit</a>. Most recently South Africa’s President <a href="http://city-press.news24.com/News/zuma-bashes-rating-agencies-that-dont-seem-to-be-well-balanced-to-brics-20161026">Jacob Zuma said</a> BRICS countries had taken the decision that they could rate themselves, and perhaps others too. The aim would be to ensure a more “balanced view” when ratings are made.</p>
<p>Both <a href="http://www.reuters.com/article/us-brazil-ratings-s-p-idUSKCN0RA06120150910">Brazil</a> and <a href="https://www.wsj.com/articles/moodys-downgrades-russia-to-junk-status-1424469136">Russia</a> have recently been downgraded by Moody’s. And for over a year South Africa has lived with a <a href="https://theconversation.com/south-africa-is-skating-on-thin-ice-as-rating-agencies-weigh-their-options-69243">possible downgrade</a> by the “big three” Western credit rating agencies, Standard & Poor’s, Moody’s and Fitch.</p>
<p>The big three have faced increasing criticism. <a href="https://www.businesslive.co.za/bd/economy/2017-01-10-moodys-sees-more-downgrade-misery-for-sub-saharan-africa/">Critics claim</a> that the frequent downgrades of developing countries are unjust and serve Western political interests. </p>
<p>BRICS has started engaging financial experts on a business model for the new rating agency as well as what <a href="http://in.rbth.com/economics/finance/2016/10/18/brics-in-search-of-business-model-for-new-rating-agency_639889">methodology it would adopt</a>. </p>
<p>This isn’t the first time there’s been an attempt to challenge the big three. China, Russia, India and Brazil have all established their <a href="https://www.rt.com/business/326232-dagong-russia-rating-agency/">own credit rating agencies</a>. But none has ever come close to establishing itself as <a href="https://www.rt.com/business/158856-russia-raitings-agency-ministry/">an alternative</a>.</p>
<p>Will the BRICS initiative be the exception? </p>
<h2>Alternative view</h2>
<p>Critics of the big three were emboldened after the 2008 financial crisis. The rating agencies were forced to pay over $2.2 billion in fines relating to their complicity in the <a href="https://www.theguardian.com/business/2017/jan/14/moodys-864m-penalty-for-ratings-in-run-up-to-2008-financial-crisis">credit crisis</a>. This further damaged their credibility and heightened accusations, particularly in emerging countries.</p>
<p>Critics have also attacked the rating agencies’ <a href="http://blogs.reuters.com/alison-frankel/2013/02/05/can-we-now-admit-its-time-to-end-issuer-pays-credit-rating-model/">issuer pay model</a>. Under this system credit rating agencies are paid by the institutions being rated (debt issuers) and not by the investors who use the information, creating a conflict of interest. Critics also argue that this entrenches geopolitical biases.</p>
<p>The hope is that a new agency would compensate for the perceived bias in the global financial architecture. It would also <a href="https://www.bloomberg.com/news/articles/2016-06-26/brics-eye-a-new-rating-company-to-reduce-established-firms-grip">create competition</a> and offer investors, issuers and other stakeholders a wider choice and a more diverse view on creditworthiness. </p>
<h2>Weakness in the BRICS muscle</h2>
<p>Given that BRICS is home to <a href="http://globalsherpa.org/bric-countries-brics/">half the world’s population</a>, accounts for more than a quarter of the <a href="https://www.weforum.org/agenda/2016/04/what-is-the-state-of-the-brics-economies/">world’s economic output</a> and has recently set up a nascent New Development Bank, the countries under its banner have, between them, the capacity to establish an influential credit rating institution. </p>
<p>But questions have been raised about whether the new rating agency satisfies a financial need or is <a href="http://www.fin24.com/Economy/brics-ratings-agency-is-politically-motivated-20161018">politically motivated</a>. And if it will be <a href="http://www.fin24.com/Economy/brics-ratings-agency-is-politically-motivated-20161018">competent to provide an independent</a>, objective and credible credit rating service based on sound methodology.</p>
<p><a href="http://afkinsider.com/134083/brics-members-divided-on-creating-their-own-credit-rating-agency-worry-about-credibility/">China has already expressed concerns</a> about the <a href="http://www.sabc.co.za/news/a/c77c8e004e76d43c979fdf3de8e44b3d/Mixed-feeling-about-proposed-Brics-ratings-agency-20160310">credibility of a new agency</a>. <a href="http://www.cfr.org/financial-crises/credit-rating-controversy/p22328">Analysts</a> have also strongly criticised the probable adoption of the existing “issuer-pay” model. This would mean that the current model is simply replicated.</p>
<h2>Tough market to crack</h2>
<p>Considering that the three major rating agencies <a href="http://www.reuters.com/article/uscorpbonds-ratings-idUSL2N17U1L4">control more than 90%</a> of the world’s ratings business, establishing a new one wouldn’t be easy. It could take years, or even decades, to gel. </p>
<p>There have been previous attempts to launch new ratings agencies. All failed to take off. Examples include the Lisbon headquartered <a href="http://business.financialpost.com/investing/the-big-3-credit-ratings-agencies-have-a-new-competitor">ARC Ratings</a> which was launched in November 2013 as a consortium of five national ratings agencies from South Africa, Malaysia, India, Brazil and Portugal. It is yet to release its first sovereign rating. </p>
<p>The CARE Rating agency of India, started in April 1993, is still rating <a href="http://www.careratings.com/about-us.aspx">small to medium enterprises</a>.</p>
<p>The Global Credit Ratings (GCR) was established in South Africa in 1995. It is only <a href="http://www.sabc.co.za/news/a/9f1c57004ea230f196dddedd3b82934c/SA-rating-agency-to-start-offering-sovereign-credit-ratings-20161810">planning to start offering sovereign credit ratings from 2017</a>.</p>
<p>Others that have been launched include:</p>
<ul>
<li><p><a href="https://www.marc.com.my">MARC of Malaysia</a> which has been operational since 1996, but still only covers corporate ratings;</p></li>
<li><p>The Hong Kong based <a href="http://www.ibtimes.co.uk/russia-china-setting-universal-credit-rating-group-rival-wests-big-three-credit-raters-1483341">Universal Credit Rating Group</a> which was launched in 2014l </p></li>
<li><p>Russia’s Analytical Credit Rating Agency (ACRA) which was established in 2015;</p></li>
<li><p>the Beijing based China Chengxin Credit Rating Group, established in 1992;</p></li>
<li><p>and Dagong Global Credit Rating established in 1994. </p></li>
</ul>
<p>None has established itself as an alternative credit rating agency of choice for emerging countries.</p>
<h2>The task ahead</h2>
<p>The biggest task for a new BRICS credit rating agency will be to convince investors, particularly those from the US and Europe, that the ratings assigned are politically impartial. One way of doing this would be to adopt the <a href="http://in.rbth.com/economics/finance/2016/10/18/brics-in-search-of-business-model-for-new-rating-agency_639889">“investor-pays” model</a> where investors subscribe to ratings released by the agencies, and the subscription revenues become its source of income. This would ensure transparency and credibility while avoiding conflicts of interests. </p>
<p>But adopting a new model might not fly given that main users of the credit rating information are global pension and mutual funds which currently use at least one of the “big three” rating agencies. They are therefore unlikely to trust any ratings from the new BRICS rating agency with a yet to be tested rating model.</p>
<p>Adopting a new model would also be tricky as the BRICS rating agency would need to wield enough influence to be able to attract sufficient subscriptions from international funds. </p>
<p>Finally, investors will be sceptical about the new BRICS rating agency’s ability to compensate for losses in the event that it issues false ratings as the “big three” <a href="https://www.theguardian.com/business/2017/jan/14/moodys-864m-penalty-for-ratings-in-run-up-to-2008-financial-crisis">did</a> in the US. </p>
<p>The BRICS agency is likely to be another failed rating agency project unless it can overcome these three hurdles.</p><img src="https://counter.theconversation.com/content/72382/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sean Gossel receives funding from the University of Cape Town. </span></em></p><p class="fine-print"><em><span>Misheck Mutize does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The BRICS bloc of states have resolved to establish an alternative credit rating agency to counter western dominance in the financial markets. Will it work?Misheck Mutize, Lecturer of Finance and Doctor of Philosophy Candidate, specializing in Finance, University of Cape TownSean Gossel, Senior Lecturer, UCT Graduate School of Business, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/669972016-10-14T13:09:26Z2016-10-14T13:09:26ZBRICS struggles to fashion coherent action due to inconsistent agendas<figure><img src="https://images.theconversation.com/files/141769/original/image-20161014-30277-1ebi302.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Challenging times for some BRICS countries</span> <span class="attribution"><span class="source">Reuters</span></span></figcaption></figure><p>A Brazilian leader’s <a href="http://www.brasil247.com/pt/247/midiatech/255738/Nassif-questiona-sanidade-mental-de-Jos%C3%A9-Serra.htm">faux pas</a> spoke volumes about the state of the BRICS alliance, ahead of the 8th BRICS summit in India. The Brazil-Russia-India-China-South Africa formation is slowly being written off as a bloc that can administer coherent political action. There were always questions since the early days of BRICS but recent party political changes in some member states have raised the hurdles.</p>
<p>In Brasilia last month, foreign minister (and occasional presidential candidate) <a href="https://global.britannica.com/biography/Jose-Serra">José Serra</a> told an interviewer that the BRICS included Argentina. And as he stumbled while spelling out the acronym, Serra also had to be prompted to recall that South Africa is a member of BRICS.</p>
<p>Well-known Brazilian journalist Luis Nassif <a href="http://www.brasil247.com/pt/247/midiatech/255738/Nassif-questiona-sanidade-mental-de-Jos%C3%A9-Serra.htm">concluded</a> that Serra – who has a doctorate in economics from Cornell University and was implicated in various corruption scandals, including favours to western oil companies against Brazil’s own Petrobras – is “neurologically damaged”. </p>
<p>In addition, it’s alleged that Serra’s president Michel Temer <a href="http://www.reuters.com/article/us-brazil-corruption-idUSKCN10I01X">received illegal contributions</a> to his election campaign in 2014 although this has not been proven in court. Marcelo Odebrecht, whose family runs Latin America’s largest construction firm, implicated the president in the electoral corruption. Though expected to remain in the post until 2018, Temer is judicially <a href="https://theintercept.com/2016/06/03/credibility-of-brazils-interim-president-collapses-receives-8-year-ban-on-running/">barred</a> from running in another election before 2024 due to prior offences. </p>
<p>In addition to political incongruous political developments in member countries, divergent economic trajectories has increased doubts as to whether BRICS is a workable project. Indian and Chinese economies are growing at more than 6% while the other three <a href="https://www.project-syndicate.org/commentary/enduring-importance-of-brics-by-jim-o-neill-2016-10">resource-cursed</a> economies are in crisis. And the unpredictable geopolitical movements add to obstacles that prevent the BRICS network from acting as a coherent bloc. </p>
<h2>Strange company</h2>
<p>Intra-BRICS geopolitical dissonance is growing. Not only has Temer’s all-white-male cabinet in Brasilia embarked upon a mass privatisation <a href="http://www.wsj.com/articles/brazil-president-michel-temer-encourages-foreign-investment-1473960926">strategy</a> to appeal to Western capital. The far-right Hindi nationalist government of Narendra Modi in New Delhi has been <a href="https://www.rt.com/op-edge/359428-brics-member-india-escobar/">cozying</a> up to the Pentagon. </p>
<p>In contrast, more actively anti-Washington leaders in Beijing and Moscow are sabre-rattling. The former’s rattling is over a few strategically-placed <a href="http://www.counterpunch.org/2016/08/19/dangerous-seas-china-and-the-usa/">rocks</a> in the South China Sea. Russian conflicts with the West continue in the <a href="http://www.counterpunch.org/2016/08/04/the-propaganda-war-with-putin/">eastern Ukraine</a> and <a href="http://www.counterpunch.org/2016/10/06/reaping-the-whirlwind-kerry-apologizes-to-al-nusra-friends-for-ever-negotiating-with-russia/">Syria</a>, not to mention allegations of Russian-hacked emails repeatedly <a href="http://www.counterpunch.org/2016/10/11/sex-lies-videotape-and-hacked-emails/">wounding</a> Hillary Clinton. </p>
<p>In Pretoria, politicians are <a href="http://ccs.ukzn.ac.za/files/BondTalkLeftWalkRight2ndedn.pdf">as usual </a>talking <a href="http://www.cadtm.org/spip.php?page=imprimer&id_article=13526">left</a> while walking <a href="http://www.counterpunch.org/2014/08/15/the-washington-pretoria-tel-aviv-relay/">right</a>. For example, Gwede Mantashe the general secretary of South Africa’s ruling ANC recently <a href="https://www.google.com/url?hl=en&q=http://www.anc.org.za/content/statement-following-meeting-national-executive-committee-held-30th-september-2nd-october&source=gmail&ust=1476454828469000&usg=AFQjCNEsMuJcuVaL7z11z7-6YXd9JQTtfA">pronounced</a>:</p>
<blockquote>
<p>South Africa will continue to call for the transformation of the Bretton Woods Institutions and oligopolistic credit ratings industry.</p>
</blockquote>
<p>Mantashe’s statement reflects the conventional expectation that global credit rating agencies will downgrade South Africa to junk status in December. With this will come a run on the currency. </p>
<p>Calling for “transformation” of the erratic New York rating agencies is absolutely <a href="http://ccs.ukzn.ac.za/files/Bond%20Berlin%20paper%20on%20debt%20and%20uneven%20development%20in%20contemporary%20South%20Africa.pdf">valid</a>. But behind the ratings agencies are their cutsomers: international financiers who now have Pretoria under the thumb of foreign debt.</p>
<p>South Africa’s debt load recently <a href="https://www.resbank.co.za/Publications/QuarterlyBulletins/Pages/Quarterly-Bulletin.aspx">hit</a> a historic record of 44% of GDP. To repay interest while permitting massive corporate profit outflows will mean yet more borrowing from Western – or BRICS – lenders.</p>
<p>South Africa’s energy parastatal Eskom is in the process of negotiating a $5 billion loan from China. This is so the country can argue the case for self-financing a nuclear programme, likely to be acquired from Russia or China. </p>
<p>In this context, a new BRICS credit rating agency with loose standards may just be another excuse to put future generations of South Africans deeper into debt, while facilitating corrupt dealings.</p>
<h2>Losing the plot</h2>
<p>Hatred of the World Bank and International Monetary Fund (IMF) is as easy to articulate from Brazil as from South Africa. As BRICS New Development Bank (NDB) vice president Paulo Nogueira Batista recently <a href="https://www.indiaweekly.co.uk/business/detail/brics-bank-exec-world-powers-misuse-world-bank-and-imf">remarked</a>:</p>
<blockquote>
<p>The Washington institutions fundamentally reflect the point of the view, the interest, the ideology of the North Atlantic powers, the Europeans on one hand the Americans on the other. </p>
</blockquote>
<p>But here the BRICS are at their most self-destructive. They had the chance to change the Bretton Woods Institutions in two ways. They could contest for leadership positions and raise their voting power with more contributions. The past months are revealing on both counts.</p>
<p>It is not difficult to argue that both World Bank President Jim Kim and IMF Managing Director Christine Lagarde need to be replaced. They won’t be, though, because the BRICS failed to put up a fight. In 2011 Lagarde was contested by a Mexican and in 2012 Kim fought a Colombian and Nigerian – but with divergent BRICS’ country backing, so neither stood a chance.</p>
<p>In 2016, both were allowed to retain their posts. This despite the fact that the former French Finance Minister, Lagarde, is <a href="https://www.theguardian.com/world/2016/jul/22/christine-lagarde-to-stand-trial-tapie-affair-appeal-fails-imf-chief-nicolas-sarkozy">subject</a> to an upcoming corruption trial. She allegedly allowed the state to give €400 million to a generous political party donor, Adidas founder Bernard Tapie. </p>
<p>Kim’s position is also secure for another term, despite being <a href="https://www.project-syndicate.org/commentary/world-bank-presidency-jim-yong-kim-by-devesh-kapur-2016-09">branded</a> as “among the worst presidents in World Bank history” and attracting strong opposition from former <a href="http://www.worldbankpresident.org/elaine-zuckerman/uncategorized/the-case-for-a-feminist-world-bank-president">feminist</a> and <a href="http://www.worldbankpresident.org/peter-bosshard-and-josh-klemm/uncategorized">environmental</a> supporters.</p>
<h2>Abstaining from leadership elections</h2>
<p>If ever there was a case for the BRICS making a stand against the imperialist multilateral banking tradition – that a European leads the IMF and a US citizen leads the World Bank – this was the year. But as University of Pennsylvania political scientist Devesh Kapur <a href="https://www.project-syndicate.org/commentary/world-bank-presidency-jim-yong-kim-by-devesh-kapur-2016-09">remarked</a>, the “World Bank’s recipe for irrelevance” was partly cooked up within the BRICS kitchen. This, he says, is because:</p>
<blockquote>
<p>In the World Bank Group’s official <a href="http://www.worldbank.org/en/about/leadership/managers">leadership</a>, the first three people listed after the president – hailing from Brazil, China, and India, respectively – are carefully distributed by nationality.</p>
</blockquote>
<p>At least one consistency is observable from the BRICS elites: a stream of anti-imperialist chatter even when the intent is to assimilate into imperialism. The same kind of sub-imperialist assimilation was on display when the IMF included the Chinese yuan in its basket of currencies in November 2015. </p>
<p>A month later, BRICS was a beneficiary when IMF voting power was <a href="http://www.counterpunch.org/2015/11/27/china-sucked-deeper-into-world-financial-vortex-and-vice-versa-as-brics-sink-fast/">rearranged</a>. This increased China’s voting power by 37%, Brazil 23%, India 11%, and Russia 8%. This is seen to have come at the expense of Nigeria which lost 41% of voting power, Libya (39%), Morocco (27%), Gabon (26%), Algeria (26%), Namibia (26%) and even South Africa (21%).</p>
<p>On top of that, last month the World Bank and BRICS New Development Bank officials signed a <a href="http://www.worldbank.org/en/news/press-release/2016/09/09/world-bank-group-new-development-bank-lay-groundwork-for-cooperation">deal</a> for:</p>
<ul>
<li>co-financing of projects</li>
<li>facilitation of knowledge exchange</li>
<li>advisory services, and </li>
<li>facilitating secondments and staff exchanges.</li>
</ul>
<p>The BRICS leaders may regret these growing ties to global power. As the BRICS-bloc coherence comes into question, a progressive brics-from-below network will offer a far more attractive version of South-South collaboration. </p>
<p><em>This story has been updated to reflect the fact that allegations of electoral corruption against Brazilian President Michel Temer have not yet been proved in a court of law.</em></p><img src="https://counter.theconversation.com/content/66997/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick Bond receives funding from the National Institute for Humanities and Social Sciences as part of a project researching civil society BRICS.</span></em></p>BRICS is slowly being written off as a bloc that can administer coherent political action.Patrick Bond, Professor of Political Economy, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/670242016-10-14T11:00:39Z2016-10-14T11:00:39ZBRICS will remain intact as long as the top three, Russia, India and China support it<figure><img src="https://images.theconversation.com/files/141770/original/image-20161014-30262-h4sx1j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">One of the major benefits for BRICS is economic cooperation</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>The alliance of Brazil, Russia, India, China and South Africa, collectively known as BRICS, are having its <a href="http://www.thehindu.com/news/national/india-to-host-8th-brics-summit-in-goa/article8385272.ece">eighth summit</a> in India this weekend with much at stake. While the bloc is still cohesive, its individual member countries are experiencing a range of internal tensions. The Conversation Africa business and economy editor Sibonelo Radebe asked Sanusha Naidu what it means for the state of BRICS.</em></p>
<p><strong>What in your view is the state of BRICS?</strong></p>
<p>The bloc’s cohesiveness is still intact as a grouping. But at the individual country level there are varying degrees of political and economic fragmentation. Brazil and South Africa are showing deep signs of legitimacy crises in terms of tensions within their governance structures, which is spilling over into <a href="http://www.dailymaverick.co.za/article/2016-03-22-brazils-political-crisis-guptagate-with-a-south-american-twist/#.WAC4APl97IU">violent protests</a> around socioeconomic inequality and political frustrations. </p>
<p>China is re-calibrating its economy by <a href="http://www.wsj.com/articles/as-growth-slows-china-highlights-transition-from-manufacturing-to-service-1453221751">shifting</a> towards a more embedded domestic driven consumption pattern, while Russia is trying to re-balance its geo-strategic position outside of Europe in the Eurasian region. India is perhaps the one BRICS member that seems to be on a better domestic <a href="http://money.cnn.com/2016/08/31/news/economy/india-economy-gdp-narendra-modi/">economic footing</a>, despite its tensions with Pakistan, which appears to be intensifying with both Moscow and Beijing seeking to strengthen ties with Islamabad.</p>
<p><strong>What are the key issues that are likely to dominate proceedings?</strong></p>
<p>The big ticket issue for the summit will be enhancing economic cooperation. This follows logically from the creation and institutionalisation of the BRICS Development Bank. India as the incoming chair of the BRICS has shown clear emphasis that under its presidency economic cooperation is the primary priority. To date the Narendra Modi administration has hosted the first ever trade fair, sought to push for a <a href="http://economictimes.indiatimes.com/news/economy/policy/arun-jaitley-pitches-for-brics-arbitration-platform-to-cut-dependence-on-developed-nations/articleshow/53890040.cms">Commercial Arbitration Centre</a> for BRICS corporates, talk of initiating an intra-BRICS free trade area, and the prospects of creating a <a href="http://www.businesslive.co.za/bd/">BRICS rating agency</a>. </p>
<p>It is likely that most of the key priorities areas in the 8th BRICS Action Plan and Declaration will be focused on consolidating economic cooperation within the group. This will be aimed at enhancing the structural conditions the BRICS’ seek to shape as the global financial architecture and complementing the New Development Bank.</p>
<p><strong>There has been some shift in the political character of some member countries (India and Brazil). Is this a significant factor in the life of BRICS?</strong></p>
<p>Domestic political shifts cannot be separated from how these will impact on a country’s engagements and relationship in global fora or intergovernmental agencies. In the case of Brazil, it will be useful to keep a watching brief on how the new government of <a href="http://www.bbc.com/news/world-latin-america-36070366">Michel Temer</a> will approach its engagement in the BRICS. Will it be a continuation from the Rousseff government? Or will Temer seek to put a different stamp of engagement with the BRICS. </p>
<p>It was clear under Dilma Rousseff that BRICS was favoured over <a href="http://www.igd.org.za/4601-long-term-visioning-for-brics-and-ibsa">IBSA</a>. Indications are that the Temer Presidency will remain committed to BRICS as it relates to resource mobilisation, and broader attempts for reforming the global multilateral system. But it could also be that of all the BRICS Temer will also be looking to strengthening bilateral partnerships with countries like China and India aimed at firming up economic opportunities for domestic growth priorities. </p>
<p>Of all the BRICS, India does seem to be the one member that has remained relatively stable on both the political and economic fronts. The Modi government has shown direction in wanting to be more than just a member of the BRICS but also a knowledge producer of ideas and initiator of frameworks. In the run-up to and under its presidency of the 8th BRICS Summit, New Delhi has demonstrated to be very active in pushing for strategic global governance structures (like those mentioned above) under the BRICS identity.</p>
<p><strong>What lies ahead for BRICS?</strong></p>
<p>In a broader sense the future of the BRICS will continue to be managed as being the platform to push for more global governance structures that enables for a levelling of the playing field at the international system. It would be focused on what has been set up and improving such structures with complimentary institutions. </p>
<p>The challenge as the BRICS seeks to continue in providing an alternative set of global governance institutions is trying to ensure that such institutions can compete on the global scale. There is also the risk of having to contend with institutions that exist within member states of the BRICS such as a proposed Commercial Arbitration Centre versus the BRICS Dispute Resolution Centre based in Shanghai.</p>
<p>As long as the top three BRICS (Russia, India and China) remain solid and committed, BRICS will continue. It is this sub-grouping of RIC, which seems to be holding the BRICS’ centre. India for its own strategic interests would not want to see an emboldened Russia or China become too dominant in the BRICS</p>
<p><strong>Is the current BRICS membership sufficient to secure the future of this bloc?</strong> </p>
<p>For now the BRICS membership is manageable. While there has been talk of expansion, bringing more members may pose certain complications to how the BRICS would seek to develop the criteria of the governance institutions it has initiated or proposing. </p>
<p>There have been indications from Russia that expansion of the BRICS is a possibility at a later stage.</p>
<p>But expanding membership also comes with its own potential risks especially if it is seen as trying to stack the BRICS with actors that may show disproportionate support for one member over another. This is something that a country like India will guard against if Pakistan is supported to join the BRICS.</p><img src="https://counter.theconversation.com/content/67024/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sanusha Naidu is affiliated with Institute for Global Dialogue. </span></em></p>BRICS goes into its eighth summit with lots of hurdles. Sanusha Naidu consideres its future prospects.Sanusha Naidu, Senior Researcher, University of South AfricaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/597002016-05-30T14:58:08Z2016-05-30T14:58:08ZBRICS needs to mature before it can challenge current world order<figure><img src="https://images.theconversation.com/files/123236/original/image-20160519-4475-s9x6fg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">BRICS leaders at a meeting ahead of the G20 summit in Turkey in 2015.</span> <span class="attribution"><span class="source">REUTERS/Mikhail Klimentyev/RIA Novosti/Kremlin </span></span></figcaption></figure><p>The rise of non-Western emerging powers like Brazil, Russia, India and China is a reality that has shaped South Africa’s foreign policy under President Jacob Zuma. </p>
<p>Foreign policy under Zuma has been characterised by his country’s growing closeness with these four countries. The leaders of these countries meet more often than they did in the past. This is the case in the context of their bilateral relationships as well as part of the Brazil, Russia, India, China, South Africa (BRICS) grouping.</p>
<p>Despite criticism that BRICS countries don’t have much <a href="http://qz.com/234903/ten-charts-that-prove-brics-nations-have-little-in-common/">in common</a>, there are clear political objectives these nations seek to pursue. </p>
<p>As a collective they are unhappy with, and critical of, Western dominance of multilateral institutions. This is because they have for many years been on the margins. They’re also dissatisfied with the perceived refusal of the West to share global power. </p>
<p>As a group, BRICS’ disenchantment with the contemporary global system has reinforced its desire to amplify its voice and strengthen its representation in international financial institutions.</p>
<h2>The glue</h2>
<p>The way in which the grouping has evolved broadly conforms to two central ways in which organisations and associations form. Firstly shared ideas, as opposed to material forces, have primacy over determining the structures of human association. Secondly, the identities of purposive actors are a function of shared ideas and are not <a href="https://books.google.co.za/books?hl=en&lr=&id=s2xjEd0ww2sC&oi=fnd&pg=PR13&dq=Wendt+A,+Social+Theory+of+International+Politics.+Cambridge:+Cambridge+University+Press,+1999,+p.1.&ots=UDqCFcHaNt&sig=aRkfM9T9aac9Si2ZqNaTNMXRZ4Q#v=onepage&q=Wendt%20A%2C%20Social%20Theory%20of%20International%20Politics.%20Cambridge%3A%20Cambridge%20University%20Press%2C%201999%2C%20p.1.&f=false">decreed by nature</a>. </p>
<p>An example is the countries that constitute <a href="http://www.cfr.org/international-organizations-and-alliances/group-seven-g7/p32957">the Group of Seven (G7)</a>. They did not begin with positively asserted common interests. They emerged as a reaction to a world whose financial and economic pillars were perceived to be unstable.</p>
<p>The G7 – now the G8 – would later evolve to become the intellectual guardian of the International Monetary Fund, presiding over “nearly all the policy innovations within the <a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674034556">Fund</a>”. The G7 continues to exist as a separate group that influences the G20 – an informal group of finance ministers and central bank governors from 20 influential economies.</p>
<p>In the same vein it is possible to see in the BRICS the potential for policy innovation. This is true in existing multilateral structures and those that it creates in parallel. One such policy innovation is the <a href="http://ndb.int">New Development Bank</a> as well as the emerging global landscape of infrastructure financing.</p>
<h2>The BRICs bank</h2>
<p>The BRICS bank is positioning itself to play a significant role in areas in which international financial institutions are seen to have failed. This includes infrastructure development and improving the international monetary system. Lou Jiwei, China’s Finance Minister, has <a href="http://thebricspost.com/brics-bank-open-for-business/#.Vz2qcJF97IV">remarked</a> that:</p>
<blockquote>
<p>The bank will aim at reform of global economic governance. </p>
</blockquote>
<p>The bank has recently made loans of US$811 million to entities in four BRICS countries towards energy infrastructure. This is made up of: </p>
<ul>
<li><p>$250 million to India’s Canara Bank for on-lending activities in renewable energy projects; </p></li>
<li><p>a $180 million loan to South Africa’s power utility, Eskom, <a href="http://mg.co.za/article/2016-04-21-brics-bank-to-loan-eskom-over-r2-billion">to build</a> transmission lines to connect 500MW of renewable energy from independent power producers to the national grid; </p></li>
<li><p>$300 million allocated to the Brazilian Development Bank for on-lending projects that would generate 600MW of renewable energy; and </p></li>
<li><p>an $81 million loan to a solar panel project in Shanghai spearheaded by Shanghai Lingang Hongbo, an energy development company. </p></li>
</ul>
<p>The New Development Bank doesn’t have the capacity to displace the traditional financial institutions in the immediate future. But it is intent on pushing hard for reforms in these institutions.</p>
<p>And the recent disbursements are too little by the standards of traditional institutions. Still, they are important in signalling a shared economic intent around infrastructure projects. According to Tito Mboweni, South Africa’s former Reserve Bank governor and a non-executive director of the new bank, this initiative is </p>
<blockquote>
<p>driven by a set of shared values and an outlook on development that seeks to counter the current <a href="http://www.bdlive.co.za/opinion/2015/08/20/brics-bank-to-balance-global-order">dominant actors</a>.</p>
</blockquote>
<p>In the African context the new bank, through the BRICS’ <a href="http://www.shanghaidaily.com/article/article_xinhua.aspx?id=321153">Africa Regional Centre</a>, could play a pivotal role in financing infrastructure projects. This is with a view to promoting structural transformation in resource-dependent economies and stimulating progress in regional integration. </p>
<p>In the case of South Africa, the new bank could make a vital contribution in providing an alternative source of finance to address the economy’s increasing development needs and infrastructure bottlenecks. </p>
<p>As such, South Africa sees member countries’ financial contributions to the new bank as an investment in the future. The need to spur growth was central to South Africa’s support for the establishment of the bank. Given that the country’s own budget is insufficient to finance its infrastructure needs, the bank will provide an opportunity for South Africa to obtain additional finance.</p>
<h2>New global order</h2>
<p>As a grouping of influential developing countries, the BRICS are poised to play a key role in reforming the international monetary system and shaping the new development agenda. In our view, this is a new regime order that will not necessarily replace the <a href="http://www.brettonwoodsproject.org/2005/08/art-320747/">Bretton Woods Institutions</a> but will exist parallel to them. </p>
<p>The BRICS countries are thinking beyond merely financing infrastructure gaps. It is possible that they may also be driven by a goal to provide a platform for policy learning in ways that could reduce the significance of the World Bank’s “knowledge partnership” engagement with middle-income countries.</p>
<p>The degree of institutionalisation evolving in the BRICS grouping provides strong, if tentative, pointers that this is indeed a regime order in the making. The countries are well positioned to advocate for the democratisation of global financial institutions to better reflect the voice and needs of all the countries that participate in them. Importantly, they are uniquely placed to build institutions that are more sensitive and responsive to the needs of developing countries.</p>
<p>But there is a long road ahead before these countries can mature into this role. They will first need to accumulate knowledge resources, project credibility in managing their economies, improve their domestic institutions and develop a degree of normative coherence. </p>
<p>Further, a global leadership role by BRICS would have to be balanced with a focus on issues related to inclusive growth and sustainable development.</p>
<p>It will not be enough to seek to correct uneven power relations in the global sphere without addressing socioeconomic vulnerabilities within the BRICS. For these countries to have appeal and project soft power they must also be seen as credible. The power of their voice in global governance processes should echo their transformative actions domestically.</p>
<p><em>This is a shortened and edited version of an article which appears in the latest issue of the <a href="http://www.saiia.org.za/news/new-issue-of-the-south-african-journal-of-international-affairs-223">South African Journal of International Affairs</a>.</em></p><img src="https://counter.theconversation.com/content/59700/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The BRICS bank is positioning itself to play a significant role in those areas in which the international financial institutions are seen to have failed.Mills Soko, Associate Professor, Graduate School of Business, University of Cape TownMzukisi Qobo, Associate Professor at the Pan African Institute, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/519462016-01-11T04:36:12Z2016-01-11T04:36:12ZSouth Africa and China: behind the smoke and mirrors<figure><img src="https://images.theconversation.com/files/106720/original/image-20151219-27880-5zacnl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Chinese and South African governments, led by presidents Xi Jingping and Jacob Zuma, cement ties during a meeting at the Great Hall of the People in Beijing.</span> <span class="attribution"><span class="source">Reuters/Wang Zhao/Pool </span></span></figcaption></figure><p>The People’s Republic of China’s relationship with South Africa has deepened significantly in recent years, as shown by a raft of economic and political proclamations.</p>
<p>The year 2014 was dubbed “the <a href="http://www.chinese-embassy.org.za/eng/zt/20140508/t1153950.htm">year</a> of South Africa in China”. It was followed last year by the “Year of <a href="http://www.focac.org/eng/zt/1_1_2_1/t1246504.htm">China</a> in South Africa”. Now South Africa has been upgraded to China’s lofty “Strategic Comprehensive <a href="http://capetown.china-consulate.org/eng/xwdt/t726883.htm">Partner</a>”. </p>
<p>And the governing African National Congress (ANC) has made no bones about how it feels. Its 2015 National General Council discussion document identifies a <a href="http://www.anc.org.za/docs/umrabulo/2015/ngc_disc_docsy.pdf">new “Cold War”</a> in which </p>
<blockquote>
<p>the exemplary role of the collective leadership of the Communist Party of China in this regard should be a guiding lodestar of our own struggle.</p>
</blockquote>
<p>Such statements have left observers wondering whether the ANC-led government is making a geopolitical turn toward China. Such sentiments have been emboldened by bureaucratic obfuscation that’s prevented the Dalai Lama from visiting South Africa on <a href="http://www.bdlive.co.za/national/2014/10/02/dalai-lama-accuses-south-africa-of-bullying">three</a> different occasions and the Chinese government <a href="http://www.news24.com/Archives/City-Press/Chinese-may-fund-ANCs-political-school-20150429">funding</a> an ANC training school. </p>
<p>China’s economic relationship with South Africa has added further fuel to the fire. China has been South Africa’s largest trading partner since 2010, with a total trade volume of <a href="http://www.saiia.org.za/opinion-analysis/south-africa-china-relations-evolving-cooperation-collaboration-and-competition">R270 billion</a> in 2013. The announcement during the China-Africa summit that China will be committing a further <a href="http://www.southafrica.info/business/economy/infrastructure/rail-170314.htm#.VnUrskp97IU">R90 billion</a> to South Africa, will only confirm sceptics’ fears of growing subjugation.</p>
<h2>Knowing which side your bread is buttered</h2>
<p>Reactions to China’s engagement tend to overlook one important fact. While, at least ideologically, the South African government may be thumbing its nose at traditional western partners, economically, multiple international engagement is the order of the day. </p>
<p>Europe and the US continue to be significant trading partners. Foreign direct investment from these regions far <a href="http://www.namc.co.za/upload/other_trade_publications/FDI%20in%20SA%2020130222.pdf">surpasses</a> what comes in from China. In fact, India is the only BRICS country - Brazil, Russia, India and China - in the <a href="http://www.cbn.co.za/news/services/money-matters-in-business/fdi-plays-a-large-role-in-developing-south-africa-s-economy-dti">top five</a> sources of foreign direct investment in South Africa. </p>
<p>Additionally, the US, UK and Germany are still the top overseas <a href="http://www.southafrica.info/travel/tourists-290514.htm#.Vmk9arh97IV">visitors</a> to the country.</p>
<p>Those of an economically pragmatic bent may be scratching their heads as to why the South African government needs to engage with China at the expense of engagements with western partners. </p>
<p>This is, in fact, by no means the case. South Africa may be taking sides at an ideological level. But at the level of international economic engagement, it is business as usual. In an instance of what Patrick Bond refers to as the <a href="http://www.amazon.com/Talk-Left-Walk-Right-Frustrated/dp/1869140540">“talk left, walk right”</a> approach, the South African government uses the language of anti-Western imperial hegemony while simultaneously being deeply engaged in the logic of global markets.</p>
<p>In fact, when it comes to international political economy, no one “talks left and walks right” more than the Chinese themselves. The country’s integration into the global market system, the rise of a consumer-orientated middle class, and its outward-bound commodity forays to support both domestic and international consumption make China a dominant player in global capitalism. Significantly its currency, the renminbi, has just been accepted by the IMF as a <a href="http://www.imf.org/external/pubs/ft/survey/so/2015/NEW120115A.htm">world currency</a>. </p>
<p>China’s engagement in Africa is an extension of this process, a fact which many in the Euro-American world, and even Africa, seem unable to digest.</p>
<p>Nothing highlights this more clearly than the recent announcement of the Chinese-driven Asian Infrastructure Investment <a href="http://www.aiib.org/html/aboutus/AIIB/">Bank</a>. The new bank includes most major global players, including South Africa. Notable <a href="http://thediplomat.com/2015/07/why-us-allies-are-happy-to-join-chinas-aiib/">absentees</a> are Japan and the US. It has eclipsed the BRICS New Development <a href="http://ndbbrics.org/">Bank</a>, presenting itself as a <a href="http://www.newsweek.com/brics-conference-plots-challenge-western-economic-domination-259093?piano_t=1">champion</a> of the global South. </p>
<p>South African and Chinese aspirations have much in common if we look at China from the perspective of a formidable global market player, rather than simply as an authoritarian single-party state. Both are deeply integrated within global markets while at the same time being engaged in domestic ideologies which are inherently antagonistic to these markets. In this respect, they are part of a broader post- Cold War economic pragamatism in which domestic and even foreign policies - be they left, right or centre - are subordinate to the market imperative.</p><img src="https://counter.theconversation.com/content/51946/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ross Anthony works for CCS. </span></em></p>When it comes to the global political economy, no one “talks left and walks right” more than China, a dominant player in global capitalism. South African and Chinese aspirations have much in common.Ross Anthony, Director of the Centre for Chinese Studies, Stellenbosch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/507822015-12-07T04:24:11Z2015-12-07T04:24:11ZWhy Africa should turn to capital markets to fund its infrastructure deficit<figure><img src="https://images.theconversation.com/files/103893/original/image-20151201-26568-197j7bg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Viana, near Luanda, Angola. China has played a major role in funding infrastructure projects in Africa but the deficit remains huge. </span> <span class="attribution"><span class="source">Reuters/Siphiwe Sibeko</span></span></figcaption></figure><p>Improving infrastructure is not only critical for economic growth in Africa but essential for ensuring the improved wellbeing of its people. This is backed by empirical research, which shows a strong link between infrastructure development and economic <a href="http://siteresources.worldbank.org/INTAFRICA/Resources/aicd_overview_english_no-embargo.pdf">growth on the continent</a>. </p>
<p>The African Development Bank reports that road access in Africa is only 34% as compared to the 50% in other developing <a href="http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic-Documents/PIDA%20brief%20closing%20gap.pdflink">regions</a>. Just about 5% of agriculture in the region is under <a href="http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic-Documents/PIDA%20brief%20closing%20gap.pdf">irrigation</a>. In Asia, however, 37% of the agricultural land area is under <a href="http://www.eu-africa-infrastructure-tf.net/attachments/library/aicd-background-paper-9-irrig-invest-summary-en.pdf">irrigation</a> and the figure for Latin America is estimated at 14%. And Africa’s average national electrification rate of 43% <a href="http://www.worldenergyoutlook.org/resources/energydevelopment/energyaccessdatabase/">compares poorly</a> with 81% in developing countries in Asia and 98% recorded in Latin America. </p>
<p>The amount of capital required to close the infrastructure gap in Africa is estimated to be in the region of US$93 billion annually <a href="http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/ECON%20Brief_Infrastructure%20Deficit%20and%20Opportunities%20in%20Africa_Vol%201%20Issue%202.pdf">until 2020</a>.</p>
<p>With China stepping in and funding economic infrastructure, as well as the establishment of the <a href="http://ndbbrics.org">BRICS Development Bank</a> and the <a href="http://www.aiib.org/html/aboutus/AIIB">Asia Infrastructure Investment Bank</a>, will the funding gap be filled? The answer is no. Africa needs to look to capital markets. </p>
<h2>What we know</h2>
<p>Sourcing funds for huge infrastructure development in Africa has always been fraught with difficulties. One major challenge is that the multilateral development finance institutions, which are dominated by the rich western countries, often impose stringent policy conditions to loans. It also appears that the funding required to close the infrastructure gaps is simply not available on the balance sheets of the World Bank and the African Development Bank. </p>
<p>Another issue is that the major lenders have historically been more active in financing social infrastructure such as health and education. Their approach to development in Africa has by and large been related to “poverty alleviation”. The critical role of economic infrastructure in spurring economic growth has not been accorded serious attention. </p>
<p>While social infrastructure is important for economic development, economic infrastructure is more urgent. Wealth creation and capital accumulation are facilitated more by investments in economic infrastructure. </p>
<p>The truth is that the old approach of countries relying heavily on multilateral and regional development finance institutions to fund infrastructure is unworkable. It is also incapable of closing the huge financing gap. In fact, neither the old nor the new institutions have the risk appetite for the kind of investments needed. If countries continue to rely on these organisations and institutions the pace for closing the infrastructure gap will be very slow. </p>
<h1>The way forward</h1>
<p>The point is that traditional development finance institutions are hesitant to provide resources for the huge but critical infrastructure investment required in Africa. </p>
<p>The emergence of the new multilateral development institutions is a welcome development. But they are in no way a panacea to current infrastructure financing challenges. The game-changing infrastructure projects that can make a dent in the infrastructure deficit and move economies to a higher growth path need to come from elsewhere. The place to start would be the time tested sources of long-term finance such as the debt market. </p>
<p>International capital markets provide a viable source of capital where, for instance, local debt markets are shallow or non-existent. Since 2007 more than ten African countries have raised considerable amounts from the international capital market in the form of <a href="http://www.euromoney.com/Article/3369170/African-Eurobonds-not-lucrative.html">Eurobonds</a>. </p>
<p>Traditionally, most African countries, with the exception of South Africa, have not seen the capital markets as a critical source of finance. One of the reasons countries didn’t float international bonds was because they didn’t have sovereign credit rating. But there are now 12 sub-Saharan Africa countries with ratings. Most have gone onto international capital markets to source <a href="http://www.euromoney.com/Article/3369170/African-Eurobonds-not-lucrative.html">funding</a>. Sadly, most countries are yet to get sovereign credit ratings, a prerequisite to accessing finance from international capital markets.</p>
<p>Yet raising debt financing in the capital market is probably one of the most potent sources of finance for rapid infrastructure development. This is because countries are able to raise funds for earmarked projects without policy conditionalities. And the cost of the funds, while relatively expensive compared with concessional loans from the World Bank and other multilateral development finance institutions, is often cheaper than loans from international banks. </p>
<p>Countries have to be encouraged to go to international capital markets to raise funds for projects. And these funds should not be used to finance consumption but should be channelled directly into the financing of much-needed economic infrastructure.</p>
<p>The railways and canals in America were largely financed with capital raised through bonds in the first half of the 19th Century. The American railways securities, as they were called, were financed from both domestic and foreign sources. </p>
<p>Since time immemorial huge infrastructure projects have been financed with funds from the capital market. This is because national budgets are often unable to support the required infrastructure expenditure. In other words, the balance sheets of states lack the fiscal space to accommodate the huge financial outlays required for infrastructure development. On the other hand project finance provides off-balance sheet resources that do not compromise the fiscal balance. </p>
<p>Any suggestion that traditional finance institutions or development finance institutions would be willing and able to fund the mega projects required in Africa is an illusion. Governments must turn to the market to raise capital.</p><img src="https://counter.theconversation.com/content/50782/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Kofi Ocran receives funding from the NRF. </span></em></p>Since time immemorial, huge infrastructure projects have been financed with funds from the capital markets. Africa should not rely on development finance institutions.Matthew Kofi Ocran, Professor of Economics, University of the Western CapeLicensed as Creative Commons – attribution, no derivatives.