South Africa’s Finance Minister Nhlanhla Nene is optimistic that the first commitment by the ‘New Development Bank’, which was officially approved for establishment by the governments of Brazil, Russia, India, China and South Africa at the sixth Brics Summit in Fortaleza this week, will be for an African infrastructure project.
Speaking in Midrand only hours after landing from Brazil, Nene described the bank, which would be headquartered in Shanghai, China, as the “most exciting development in global development finance since the meetings in Bretton Woods, Massachusetts some 70 years ago” – those meetings led to the creation of the World Bank and the International Monetary Fund.
The bank would mobilise resources for infrastructure investment and sustainable development projects, including “transformational infrastructure projects that allow the region to take forward its regional integration agenda”.
Nene downplayed South Africa’s disappointment at not having been chosen to host the institution, whose formal creation was expected to coincide with the seventh Brics Summit, to be held in the Russian city of Ufa in 2015.
“We all would have loved to have it hosted here, but what is important is what the bank is going to do and what the benefits are for the country and the continent in particular,” Nene asserted.
“If you take account of the infrastructure needs of the continent, I would want to believe that most of the activity [of the bank] is actually going to be here [in Africa],” he added, highlighting that Africa needed to invest close to $100-billion yearly to deal with its growth-constraining infrastructure backlogs.
The bank would have authorised capital of up to $100-billion and subscribed capital of $50-billion, with all five Brics countries having an equal shareholding of $10-billion. Shareholding would be open to other emerging markets, developing countries and advanced economies, but the Brics countries would retain a 55% majority shareholding.
Nene did not believe it would be overly onerous for South Africa to make its contribution to the subscribed capital, with direct capital making up only 20% of that subscription. In other words South Africa would need to contribute $2-billion, paid in pre-agreed installments over several years.
The South African financial heartland of Johannesburg had been selected to host the bank’s first regional centre, with other hubs likely to follow later in the other Brics territories.
The leadership and physical address for the regional office were yet to be selected, but Nene confirmed that the African centre would open concurrently with the Shanghai bank. Interestingly, he also made the announcement at the Development Bank of Southern Africa’s campus in Midrand, which some believe to be a frontrunner to host the African arm of the New Development Bank.
The immediate focus for all the Brics countries, however, was to create the national legislative frameworks required to enable the bank to operate and Nene said there was a “great sense of urgency” in ensuring that everything was in place by the next summit.
He stressed that the bank would “cooperate” rather than compete with other development financiers. “It will complement the efforts of existing international financial institutions and also be an alternative source of financing for the global development challenges of our age.”