Lots at stake for SA at historic Summit
March 25, 2013, 11:40 am

The initial contribution to the BRICS Development Bank will represent a huge proportion of the South African budget

It seems when it comes to the proposed joint development bank, size does count. South Africa’s economy is only one fifth of the smallest member states, Russia and India, and it remains to be seen how this would be factored when it comes to partner’s contributions.

South Africa ranked 27th according to the International Monetary Fund (IMF), is dwarfed by China, the second biggest economy in the world after the US; Brazil the eighth; India the 11th and Russia the 12th.

Whatever initial contribution is finally decided upon, ($10 billion has been mooted according to South African government officials), it will represent a huge proportion of the South African budget, compared to that of the largest member state, China.

“If the bank is an equal partnership it will be weakly capitalised because South Africa is likely to set a low threshold for contributions,” said Mark Rosenberg, Africa analyst for the Eurasia Group global political risk consultancy.

The establishment of the financial structure dedicated to regional development would reinforce the member countries’ alliance, liberating it from the Western-dominated financial institutions and inspiring growth in emerging markets.

However, many experts at existing financial institutions have played down the need for the Bank altogether. What will it do that the IMF, World Bank, African Development Bank or any other of the development banks don’t already do, ask analysts.

The new Indian chief economist at the World Bank recently warned setting it up would be a “humongous task”.

Although, Robert Zoellick, the outgoing president of the World Bank had, in 2012, backed the creation of a BRICS bank – warning not to do so would be a “mistake of historic proportions”.

The motivation for the BRICS Bank, however, seems to be political as well as frustration with the inflexibility of the IMF and the World Bank and their tardiness in transforming governance structures.

South Africa has expressed its desire to host the proposed bank thereby boosting its standing in the bloc.

“I cannot say if South Africa will be chosen as the site of this institution, but I can indicate that South Africa will be prepared to host such a bank,” South Africa’s deputy minister of international relations and cooperation Ebrahim Ebrahim had said earlier.

On Thursday last week, senior emerging market officials said plans to create the bank as well as a joint foreign exchange reserves pool that would initially hold between $90 billion and $120 billion, will probably be endorsed by the BRICS members.

“If not, and the parties are assigned different ‘roles’, South Africa’s will be largely symbolic – i.e. the bank may be based in South Africa, but ultimately financed by the other members, especially China,” Rosenberg said.

The focus in the next two days will be on whether the summit in Durban will manage to agree on a blueprint for the proposed development bank and whether South Africa can make it harder for the other members to ignore its role by hosting the institution.

David Gemmel