BRICS bank to support sustainable projects in Africa
February 26, 2013, 10:52 am

In an exclusive series of articles to The BRICS Post, South African minister of international relations and cooperation Maite Nkoana-Mashabane explains her country’s role in the multi-lateral grouping that has come to be known as the world’s economic dynamo. This is the minister’s second and final instalment.

South Africa will host the 5th BRICS Summit in Durban on the 26-27 March, 2013. Over the past decade, we have seen a seismic acceleration of commercial and strategic engagements between the BRICS and Africa.

BRICS has nourished Africa’s economic emergence and elevated the continent’s contemporary global relevance. The recession and recovery period has enhanced this shift.

In 2010, Standard Bank economists predicted BRICS–Africa trade will “see an additional increase in the velocity of BRIC-Africa engagements, with trade and investment spearheading the commercial charge”.

The IMF also conducted a study, which indicated that the trade and investment from BRICS to low-income countries was deemed as a critical factor to protect them from the shock of the global recession.

BRICS leaders have expressed support for infrastructure development in Africa and its industrialisation within the framework of New Partnership for Africa’s Development (NEPAD), first at the Sanya Summit in 2011.

At the New Delhi Summit last year, the leaders reiterated the highest importance attached to economic growth that supports development and stability in Africa, as many of these countries have not yet realised their full economic potential.

The leaders undertook to push their cooperation forward to support Africa’s efforts to accelerate the diversification and modernisation of its economies, through infrastructure development, knowledge exchange and support for increased access to technology, enhanced capacity-building and investment in human capital, including within the framework of NEPAD.

Need for a development bank

BRICS leaders also considered the possibility of setting up a new development bank for mobilising resources for infrastructure and sustainable development projects in their markets and other emerging economies and developing countries.

One purpose of this bank would be to supplement the existing efforts of multilateral and regional financial institutions for global growth and development.

They directed the BRICS finance ministers to examine the feasibility and viability of such an initiative, set up a joint working group for further study, and report back at the next summit.

Such a new development bank could complement existing institutions and address gaps and challenges in critical sectors. President Zuma has already articulated South Africa’s strong support for this initiative and other African leaders have also indicated their keen interest.

Another related and exciting new initiative, which has just been announced, is that of the Southern African Development Community (SADC) Regional Infrastructure Master Plan (RIMP), which could involve cross-border projects with a combined investment value of up to $500 billion.

The RIMP has been finalised and will be presented at an upcoming summit, scheduled for Maputo, Mozambique, in August 2013.

The plan proposes the development of regional power, transport, water, communications, tourism and metrology infrastructure over the 15-year period, from 2012 to 2027. The intention is to align the implementation of the plan with the establishment of a SADC development fund, or bank, with an initial capitalisation of between $600 million and $1 billion.

At present, intraregional trade comprises less than 20 of total trade and the bulk of that trade takes place between South Africa and the other 14 SADC member states. Once the plan has been officially endorsed, the SADC Secretariat will conduct road shows in BRICS and other countries, targeting Brazil, China, Europe, India, Japan, the United Kingdom and the USA to expose potential investors to the opportunities available within the RIMP.

The Project Preparation Development Facility has already been established at the Development Bank of Southern Africa.

Africa is open for business

Let me now turn to Africa’s promising growth and demographic dividends, as also encapsulated in the National Planning Commission’s Vision 2030. The growth rate for sub-Saharan Africa is estimated at around 5.5 per cent for 2012; and The Economist of 6 January 2011 predicts that between 2010 and 2015, seven out of the top 10 fastest-growing economies in the world will be African.

There are many reasons for this sustained growth. These include greater stability and the increasing prevalence of democracies, and global demand for Africa’s commodities and improved economic regulatory and governance regimes.

South Africa is also cognisant that the African “demographic dividend” is already recognised by economists as the future locus for growth.

According to Standard Bank’s research, the five enduring factors driving this are a growing, younger and more affluent population; urbanisation; improved information and communications technology (ICT): sustained demand for Africa’s natural resources; and a deepening financial sector as Africans take up financial services personally and for business.

There certainly is a wide scope for cooperation in various projects within the existing BRICS structures. President Zuma addressed BRICS’ captains of industry prior to the last BRICS summit and emphasised that South Africa’s participation in BRICS was designed to help us achieve inclusive growth, sustainable development and a prosperous South Africa.

The BRICS Business Forum’s joint statement called on the respective governments to deepen economic engagement of which trade and investment were identified as the pillars of such an initiative.

The target for intra-BRICS trade was set to be enhanced from the present level of $230 billion to at least $500 billion by 2015. The business leaders called for improvement of the quality of trade by focusing on more value-added trade in the three sectors of manufacturing, services and agriculture.

At the Delhi Summit, other possible areas of cooperation, ranging from energy to construction and water provision were also discussed.

President Zuma urged us in his State of the Nation Address that the triple challenge of poverty; unemployment and inequality required our single-minded attention.

The New Growth Path framework is geared at achieving inclusive growth and creating jobs. We identified six jobs drivers to help us achieve the much-needed growth leading to jobs. These are infrastructure development, agriculture, mining and beneficiation, manufacturing, the green economy and tourism.

Enhancing trade among BRICS

To facilitate the success of these drivers, business should focus on enhancing the intra-BRICS business cooperation and coordination by promoting opportunities in the following areas.

First, is cooperation on economic opportunities in infrastructure development: South Africa has begun working intensively on its infrastructure strategy through the Presidential Infrastructure Coordinating Commission (PICC). South Africa is on course to spend in excess of R860 billion on infrastructure by March 2014.

Infrastructure is therefore at the heart of how we will change the lives of our people in the next decade.

Beyond the South African programme is the NEPAD infrastructure programme that South Africa champions as mandated by the African Union, especially the North and South road and rail projects.

Second, is cooperation on skills development: The PICC is developing a skills plan for each major project, setting out the number of engineers, artisans, technicians and technologists we need.

Work is being done with universities and further education and training colleges to speed up the production of these critical skills. We urge business to invest in skills development in their companies to promote youth training and empowerment through their engagement with BRICS countries.

Third, is the new development bank: As already explained, South Africa is excited by the plans for a new BRICS-led development bank, which would further facilitate cooperation among members of the BRICS business communities.

The bank will reinforce the BRICS grouping by utilising surplus reserves. It will also encourage investment in a more sustainable and productive manner.

South Africa will co-chair with India the joint working group under auspices of the respective finance ministers to ensure that this initiative’s feasibility be thoroughly investigated as well as benefit South Africa and Africa to the extent possible. The South African National Advisory Group on the new development bank will meet in the near future to prepare South Africa’s technical input hereto.

President Zuma has also signaled that we are convinced that we can negotiate new types of mutually beneficial developmental agreements with BRICS countries on infrastructure development.

Fourth, is promoting intra-BRICS trade: Here, I wish to challenge you all to study the agreements signed during the BRICS summit under auspices of the BRICS Inter-Bank Cooperation Mechanism. Areas covered in these agreements include the Master Agreement on Extending Credit Facility in Local Currency and the Multilateral Letter of Credit Confirmation Facility Agreement.

These measures are intended to increase commercial transactions, since currently, businesspeople have to convert local currencies into dollars before reconverting them into the currency of the trade partner, and this escalates transaction costs.

Another exciting initiative that has been launched is the Alliance of Exchanges, which will entail cross-listing of equity index derivatives and trading in the local currency.

Companies are therefore encouraged to facilitate engagement with their counterparts in BRICS countries.

South Africa seeks to increase its exports of higher value-added products and to encourage inward investment to support our beneficiation and industrial development objectives. Our work in BRICS is increasingly focused on cooperation to achieve these ends.

Finally, cooperation on another crucial infrastructure project is underway, requiring our collective involvement: the proposed high-capacity marine cable system linking the BRICS countries.

This will address the connectivity challenges which have featured as impediments to intra-BRICS trade.

The end of apartheid has put our country on a firm footing to play its part in global affairs for a better South Africa, Africa and the world. Our national agenda is aimed at achieving inclusive economic growth for our people as well as the people of our continent.

This objective is strongly complemented by the exponential and accelerator growth potential which BRICS engagement has delivered to us and our neighbours.

Therefore, the potential for growing our own trade and investment, as well as intra-African trade and investment, must be further maximised. We will utilise our chairpersonship of BRICS in 2013 to vigorously pursue support for these goals.

Our membership of BRICS will promote trade and investment, enhance industrialisation and promote job creation. There can be little doubt that South Africa will benefit and will continue to benefit from being a member of the BRICS.

The South African government pledges its commitment to continuously engage and support business in South Africa and also work tirelessly in tandem with our BRICS counterparts to forge stronger partnerships to deliver prosperity and progress to our peoples.

This is the minister’s second op-ed for TBP.  Click here to read her first piece on South Africa’s pivotal role for Africa and BRICS