Thursday 04, May 2017 by Matthew Amlôt

BRICS bank--a missed opportunity?

The New Development Bank, the multilateral bank established by the BRICS states of Brazil, Russia, India, China and South Africa, recently held its second annual meeting in New Delhi.

The bank, headquartered in Shanghai, was created with the purpose of supporting emerging economies whilst providing an alternative to the western dominated World Bank and International Monetary Fund. As of the announcement of the creation of the New Development Bank (NDB), the BRICS nations represented 40 per cent of the world’s population and agreed to establish the bank with an estimated capital of $100 billion.

Its creation could have been an opportunity to pave a new path for developmental economics, but instead the bank has been come to be seen as a replication of the existing Bretton Woods institutions. Writing in The Conversation, Misheck Mutize, Lecturer of Finance and Doctor of Philosophy Candidate, specialising in Finance, University of Cape Town and Sean Gossel, Senior Lecturer, UCT Graduate School of Business, University of Cape Town point to the partnerships NDB has engaged in, noting that it recently entered into an MoU with the European Bank for Reconstruction and Development (EBRD).

Mutize and Gossel argue that the NDB has already fallen into the trap of operating like the institutions that it is seeking to replace. By signing MoUs with institutions such as EBRD, and signing partnerships deals with the World Bank to co-finance projects, NDB has become part of the international framework it was seeking to compete with.

Furthermore, the organisation is operating with the same corporate-led, for-profit model that existing Bretton Woods multilateral institutions utilise. Although a focus was put on investments being of a social nature from the start, as NDB is profit-driven this philosophy may be somewhat undermined. The interests of the citizens of BRICS nations may be taking a backseat to the profit-driven nature of NDB.

Of the $811 million NDB has already loaned out, $180 million found its way to South Africa as a loan to the state-owned power utility Eskom to develop 670 MW of power generation and the connection of 500 MW of renewable energy projects from independent power producers—an interesting proposition considering two of Eskom’s recent leaders have stated that the organisation wants little to nothing to do with renewable energy. In January 2017, BusinessDay reported that Eskom claims that renewable energy has caused ‘a net loss’ to the economy.

As to whether this loan has had a positive effect on the South African economy is a moot point. The loan adds further pressure to a country already likely to struggle with the dollar-denominated liabilities it has built up. In combination with this the currently dilapidated rand is likely to add further challenges.