There was a consensus by leaders of BRICS ‒ Brazil, Russia, India, China and South Africa ‒ regarding the formation of the BRICS development bank at the BRICS Summit held in Durban, South Africa, in March this year. The bank is expected to “mobilise resources for infrastructure and sustainable development projects in BRICS and other emerging economies, and developing countries.”
There is increasing assent that South Africa is the best option to base at this stage – a view also supported by President Jacob Zuma. Now is the time for Africa to rise to the occasion and be the base for this bank.
As a starting point, the bank is expected to require an initial capital of US$50 billion. The capitalisation of the bank is a major discussion area at this point. Capital will need to be raised amongst the BRICS countries. The question as to who will put up the US$50 billion has not been clearly addressed. The countries will either equally contribute US$10 billion or contribute as each is able.
Because infrastructure is the backbone and key driver of economic development in any economy, the starting point for the bank is expected be investment in infrastructure development. In terms of investment priority, we would hope the majority of the funds would go into Africa. Africa finds itself at a position of serious infrastructure investment deficit ‒ worth at least US$45 billion. Inefficient infrastructure is an impediment to sustainable economic growth, and with the world looking to Africa for growth opportunities, the continent would benefit greatly from such investment.
As the smallest of the BRICS countries, whether South Africa has the capacity to contribute US$10 billion is a matter of the Finance Minister discussing it and getting agreement as to how the capital would be raised.
Of course, the governance structure would likely be influenced by the capital structure. The country that puts more than an equal proportion would undoubtedly want to have a greater control. As an example, the World Bank is controlled predominately by the US as a result, to a larger degree, of the Bank’s capital structure. In the case of the BRICS bank, it is critically important to have a clearly defined governance structure – which will likely be based on the countries’ capital proportionate contribution.