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Gigaba: We don’t have to rely only on the West for funding

Johannesburg – The African branch of the Brics bank means South Africa and other developing countries won’t have to rely solely on the West to fund its development, said Finance Minister Malusi Gigaba.

He was speaking at a press briefing on Thursday following the launch of the African Regional Centre of the New Development Bank (NDB) which was founded by the BRICS member nations.

He shared views on the importance of the African Regional Centre, the first regional centre of the NDB, in funding sustainable development and infrastructure in South Africa and other developing African countries.

The bank will assist the South African economy, which is facing slow growth and high unemployment, through needed infrastructure investments. According to Gigaba, these investments will reignite growth in the economy and create employment.

A credible institution among developing countries that can support their development objectives is needed. The bank will provide “favourable funding” to developing countries, with less stringent conditions. “That would ensure we don’t look towards the West for funding of infrastructure and other needs,” Gigaba said.

“For a long time developing countries have been crying out over the lack of these institutions.” The BRICS members will work to ensure the NDB becomes credible and joins the ranks of other multilateral development banks, he said.

The NDB is currently in the process of obtaining an international rating. It has a AAA rating in the domestic Chinese markets, said NDB chief financial officer and vice-president Leslie Maasdorp.

“The rating is important - (it) allows the bank to raise funding at a cheaper rate and allows it to lend at comparative rates,” he explained.

Finance Minister Malusi Gigaba witnesses President Jacob Zuma and NDB president Kundapur Kamath cut the ribbon marking the opening of the African regional Centre of the NDB. (Photo: Wikus de Wet/Netwerk24).


South Africa’s rating

Gigaba clarified that the African Regional Centre is not a means to evade a ratings downgrade. The structural weaknesses in the economy still need to be addressed to ensure it grows.

The regional centre is purely meant to assist the country in implementing its infrastructure objectives by meeting South Africa’s funding needs. “To the extent that (it) may also assist in the environment of the ratings downgrades, we will appreciate it. But we will not look to the African Regional Centre as a way of evading a ratings downgrade.

“Our own behaviour, particularly as a founding member, will have a positive or negative effect on the value of the debt that the NDB is able to issue.”

The bank will be making loans to member countries in their local currency to reduce exchange risk and the cost of borrowing for these countries. Gigaba said that the commitment by the bank to issue rand-denominated loans will assist the structure of the country’s debt and the ability to meet debt requirements.

“Most of South Africa’s debt, which has been a great benefit to us, is rand-denominated. Most of our debt is owned by South Africans, even the portion owned by foreigners,” he said. “That has provided us a cushion.”

Democratic Alliance MP David Maynier has different views on the effectiveness of the bank. “Let’s be honest, the New Development Bank is a see-no-evil alternative to the World Bank,” he said.

Referring to reports that a loan the NDB made to finance Eskom’s green energy projects has been put on hold, Maynier said it has already run into trouble.

But Gigaba told journalists that there is nothing malicious about the loan freeze, and that the loan will be called in once the economy picks up again and demand for electricity increases.

WATCH: Gigaba discusses the role of the African Regional Centre


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