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Zuma applauds Brics bank local currency loans

Johannesburg – President Jacob Zuma has officially declared the opening of the African Regional Centre (ARC), of the New Development Bank (NDB), founded by the Brics member nations.

Speaking at the launch of the ARC, the first regional centre of the NDB, Zuma said due to the infrastructure gap, Africa was unable to unlock its growth potential and bring prosperity to her people. The bank aims to address these challenges by accelerating infrastructure investment in energy, transport and other productive sectors.

The President was joined by other Cabinet ministers and NDB executives including NDB President Kundapur Vaman Kamath.

The Brics (Brazil, Russia, India, China, South Africa) countries signed an agreement which established the NDB at the sixth Brics Summit in July 2014. The NDB headquarters is in Shanghai, China and was opened in February 2016. 

The bank will focus on funding sustainable development and infrastructure in member nations as well as other emerging and other developing countries.

During his address, Zuma highlighted the challenges African countries were facing due to their under-industrialisation. He said that Africa was not sleeping when this happened but this was imposed on the continent.

He lauded the bank's approach of making loans available to member countries in their local currency. Kamath explained that loans will be extended to member countries in local currency to avoid exchange rate risk.

“Reducing the exchange rate risk can enable infrastructure projects to be financed more sustainably.” This will also reduce the cost of borrowing.

“We have an appetite to do $1.5bn lending to South Africa in the next 18 months,” said Kamath.

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).

In 2016 the bank approved seven projects in the area of sustainable infrastructure, worth $1.5bn. In 2017 loans are expected to be approved for 10 projects worth between $2.5bn and $3bn and in 2018, the bank expects to approve loans for 15 to 20 projects worth $4bn. The target for the end of 2018 is to have a total loan book of $8bn. The ARC will play a major role in identifying and preparing projects, explained Kamath. 

The bank also intends to begin private sector operations in 2018 and will explore investment through public-private partnership programmes. So far the bank has recruited 100 staff from member countries, and 150 staff are expected to be appointed by the end of the year and 220 in 2018, said Kamath. 

Capital contributions

The bank has received total capital contributions of $2.6bn from its member countries. A further $900m is expected in January 2018.

The bank expects to raise additional funding of between $2bn and $2.5bn through bonds between now and 2018. So far $450m has been raised through China’s financial markets. Kamath said South Africa’s market also offers attractive opportunities in raising funds.

Vice President and Chief Financial Officer Leslie Maasdorp explained that the bank would explore the option of local currency funding. According to the bank’s five-year strategy document it has a prescribed capital base of $50bn. Of this, $10bn is paid-in capital contributed by founding members, every seven years. The remaining $40bn is comprised of callable capital.

With the capital raised in bond markets, interest rates are charged on loans made for the bank to earn a return. “Most of the loans made in the past have been in US dollars… It was a challenge many borrowers faced because when your currency depreciates the loan becomes more expensive,” said Maasdorp.

As was done in China, the ARC will consider raising funds in South African bonds and then lend this in South African rand for development projects in the country.

International rating

The bank is currently in a process to obtain an international rating. The NDB has an AAA rating in the domestic Chinese markets, said Maasdorp.

“In 2016, less than a year of opening offices it obtained a rating from two of the largest ratings agencies in China which allowed the bank to issue a bond which was AAA rated in China’s local markets,” he said.

“The rating is important. It allows the bank to raise funding at a cheaper rate and allows them to lend at comparative rates,” he said.

Speaking to journalists ahead of the event, Finance Minister Malusi Gigaga said the bank would support development across the African continent. “We are quite excited about this development, it means that after the opening today we are ready to start operating.

"And in the near future, as the NDB accepts new members  it will be in a position to provide loans for infrastructure funding to other African countries that will join as members,” he said.

WATCH: Gigaba discusses the role of the ARC


National Treasury Director General Dondo Mogajane was recently appointed to the board after former Reserve Bank Governor Tito Mboweni’s term came to an end.


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