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Banker to the emerging world?

Brics bank takes root in SA, pledging R20bn in loans.

The bank established by the Brics countries – namely Brazil, Russia, India, China and South Africa – is looking to broaden its membership by focusing on the world’s emerging economies.

Speaking at this week’s official launch of the New Development Bank (NDB) in Sandton in Johannesburg, President Jacob Zuma said: “The bank is working on expanding its membership to other countries beyond Brics. We certainly hope that African countries will be among the first to take up membership at the NDB.”

However, NDB president Kundapur Kamath said since a decision had yet to be taken by the bank’s board of directors to include new members, it would be “premature” to comment on this.

Leslie Maasdorp, the NDB’s vice-president and chief financial officer, said the bank’s new articles of agreement made provision for it to be open to new members.

“It was always part of the vision of the bank’s founding fathers that it would grow over time,” he said.

“It is a question of: At what pace? The articles make provision for new membership of the bank to comprise three categories. But firstly, the Brics countries will dilute their shareholding to a minimum of 55%.

“At some point in the future, the Brics countries will each hold 11% ownership of the bank [down from 20% each]. A further 25% will be set aside for developing countries. That way, in future the bank will always have 80% control by emerging countries.”

The remaining 20% of the bank will be set aside for advanced, industrialised countries or non-borrowing members.

“The bank has just completed the process of defining its terms and conditions,” said Maasdorp.

“The process has just begun. We are not yet able to admit members [as there is] no application process. The detailed process is still being defined.”

Zuma called the launch of the bank’s Africa Regional Centre office in Sandton an “historic occasion”.

“The NDB should benefit not only Brics countries, but also the whole of Africa and the developing world,” he added.

Kamath said: “One area the NDB will focus on is lending in local currency within our member countries – something that is not happening, or is only happening to a limited extent. I am a firm believer that reducing the currency risk from financing can enable infrastructure projects.”

Maasdorp said most loans from multilateral institutions were allotted in US dollars.

“A challenge that Brics members often face is that if your currency depreciates, the loan becomes more expensive. So, in China, we issued a renminbi bond last year. We are actively exploring the possibility of raising funding in South Africa in rands.”

Finance Minister Malusi Gigaba said the Sandton office was the bank’s temporary home.

Tumisang Moleke, director of the Public Private Partnership Unit at the National Treasury, would serve as acting head of the Africa Regional Centre, Gigaba said.

Kamath said the bank was in the process of recruiting a permanent head. The chosen candidate would have sound knowledge of South Africa’s economy as well as economies in Africa.

The regional office has no permanent staff yet.

“We have moved one or two of our South African colleagues from Shanghai in China to this office. We also have a secondment of one person from the government of South Africa,” said Kamath.

The staff count is expected to grow to six.

“We are hoping that by the time of the next Brics summit, we will have developed a semblance of the project pipeline and start accepting loans from the bank,” Gigaba said.

His spokesperson, Mayihlome Tshwete, said that in the coming weeks, Gigaba would meet with state-owned entities such as Eskom and Transnet regarding infrastructure projects.

Kamath said that over the next 18 months, the NDB “had the appetite” to lend South Africa about $1.5 billion (R20 billion).

“The $1.5 billion in loans that the bank has promised will go a long way towards strengthening the balance sheet of the state-owned companies to be able to implement critical infrastructure,” said Gigaba.

“For some time, developing countries have been crying out over the lack of an institution. Now that we are building it, we will continue to work to ensure that it becomes credible and joins the ranks of multilateral development banks.”

In another development, the NDB has put on hold a $180 million loan to Eskom for renewable energy projects.

“There are ongoing discussions between government, Eskom and the NDB regarding the loan provided to Eskom. It was earmarked for green energy,” Gigaba said.

“This loan could be called on in the future and used for green energy when the economy picks up.”

So far, the NDB has extended loans worth $1.5 billion to its member countries.

For this year, the bank is looking to extend loans worth between $2.5 billion and $3 billion. In 2018, $4 billion in loans is expected to be extended.

By end-2018, the bank is expecting to have a total loan book of $8 billion across 35 projects.

So far, the NDB has received capital contributions from its five members totalling $2.5 billion.

It has hired 100 people from its five member countries. By year-end, the staff count is set to reach 150 and by the end of 2018, the figure should rise to 220.

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