The World Bank has welcomed the proposal by Brics nations – including South Africa – to explore establishing a Brics development bank.
And said it would welcome a strong working relationship with such an institution.
At the fifth Brics summit, to be held in Durban in March this year, Brics leaders will receive a report from their finance ministers on the feasibility of setting up the bank, which would finance infrastructure and sustainable-development projects across Brics nations and other developing countries.
“The World Bank Group believes partnership is central to its development mission and would naturally welcome a strong working relationship with a new Brics development bank,” a World Bank spokesperson said in a response to the Mail & Guardian.
South Africa has been highly supportive of the proposal.
On Wednesday, the deputy minister of international relations and co-operation, Ebrahim Ebrahim, said at a provincial roadshow that the bank would “inter alia, utilise the surplus reserves of Brics countries to support development initiatives among emerging markets and developing countries to support a new model of south-south co-operation and financing”. The initial investment capital required is reportedly $50-billion, or $10-billion from each member country. South Africa’s gross foreign-exchange reserves were at $50.7-billion by December last year, according to the most recent data from the Reserve Bank released at the beginning of this month.
According to Martyn Davies, the chief executive of Frontier Advisory, a capital strategy and research firm, there has also been discussion of a fund of up to $240-billion of pooled emerging market funds to create a counterweight to the International Monetary Fund (IMF).
“There is a great deal of suspicion and even resentment toward the IMF in both Asia and Africa,” he said.
“The Brics development bank is reflective of the emerging world’s ambition to assert itself in the emerging economic world order.”
The establishment of a Brics bank poses a challenge for the likes of China, for it would duplicate that country’s own infrastructure financing in Africa, largely funded by China Exim Bank and the China Development Bank, said Davies.
“Brazil has in a similar dilemma with BNDES, its own development bank, but to a lesser extent,” he said.
“The challenge is to minimise the bureaucracy and politics in the management and decision-making of the Brics development bank institution to ensure that it is effective.”
The Brics forum is also seen as a means to reduce reliance on third country currencies, such as the United States dollar, in trade between member countries.
Ahead of the fourth Brics summit in New Delhi in March last year, Trade and Industry Minister Rob Davies said there was a “broad logic of trying to reduce our dependence on third country currencies in our own trade with each other”. There were mechanisms such as the establishment of credit accounts that South Africa was keen to explore, he said at the time.
This proposal was made by China at the Sanya Brics summit in March 2011 and such developments are in line with China’s hopes to see greater trade, particularly with Africa, denominated in its own currency, the Renminbi (or yuan).
Neither the department of international relations and co-operation nor the treasury responded to requests for comment.