The bloc’s new development bank seems to be working hand in hand with global institutions such as the World Bank. Photo: Danish Siddiqui/Reuters
Can the Brics bloc (Brazil, Russia, India, China and South Africa) challenge the world order? The leaders of its New Development Bank (NDB) are meeting in New Delhi this weekend, following a People’s Brics Forum, which is highly critical of the bank.
Brics leaders often state their vision of establishing alternatives to the World Bank and International Monetary Fund (IMF). Indeed, the NDB began work with environmentally orientated loans last year and in 2017 aims to add $3-billion in new credits.
The original designers of the bank were former World Bank chief economists Joe Stiglitz and Nick Stern. Public endorsements of the NDB stressed sustainable development and climate change; in private Stern offered a different rationale at a 2013 conference of the British Academy: “If you have a development bank that is part of a [major business] deal then it makes it more difficult for governments to be unreliable.”
Stern added: “We started to move the idea of a Brics-led development bank for those two reasons, coupled with the idea that the rich countries would not let the balance sheets of the World Bank and some of the regional development banks expand very much, and they would not allow their share in those banks to be diluted.”
True, Brics gained substantial IMF voting power increases in 2015 (China up 37%, India 23%, Brazil 11% and Russia 8%) and there was negligible United States or European dilution. Instead, Nigeria and Venezuela lost 41% of their voting share, and even South Africa lost 21%. Four Brics countries stood on African and Latin American heads to get their seat at the IMF table.
The NDB’s first loans did boost environmentally oriented projects — $300-million went to Brazil, $81-million to China, $250-million to India and $180-million to South Africa, the latter to connect renewable independent power producer (IPP) generators to the main grid.
But Eskom’s two most recent leaders, Brian Molefe and Matshela Koko, said they wanted nothing more to do with renewable energy, although, last month, Finance Minister Pravin Gordhan’s budget statement recommitted to paying IPP contracts.
In that budget, Gordhan refused Eskom further nuclear financing, in spite of the in-principle reactor purchase agreement that President Jacob Zuma had signed with Russia’s Rosatom, anticipated to cost $50-billion to $100-billion. The main supplier of raw inputs to the nukes — if they are built — will be Oakbay, a uranium company owned by the notorious Gupta brothers.
This week the Guptas are in court fighting Gordhan over his refusal to reverse a commercial bank boycott of Oakbay. That battle appears to be why Gordhan was recalled from a United Kingdom-United States investment trip by Zuma on Tuesday morning — to be fired.
South Africa’s NDB governor is Gordhan. And Molefe led the country’s Brics Business Council until he stepped down as chairperson following his humiliating resignation as Eskom chief executive in November.
That was the result of the public protector’s State of Capture report, which revealed the Guptas’ influence over Molefe. After he (incorrectly) claimed that the Guptas’ luxurious Saxonwold neighbourhood contained a shebeen that might explain his regular presence there, Molefe’s credibility was utterly destroyed.
Just before his Eskom resignation, he made an appeal for Brics to replace “the current ‘casino’ financial system or ‘law of the jungle’ with a project that expressly promotes the common good among nations. Brics and its allies are taking bold corrective measures by building a world system based on real value and to create a system capable of fundamentally shaping socioeconomic growth and development. There have been some significant steps taken, in particular the launch of the NDB, which has already started funding key projects.”
But at the same time Molefe was sabotaging those “key projects” — renewable energy, which suggests his NDB pronouncements cannot be taken seriously.
The NDB website itself observes “a need for multilateral development banks to reinvent themselves” but its president, KV Kamath, signed a deal with the World Bank in September for “co-financing of projects; facilitating knowledge exchange … and facilitating secondments and staff exchanges”.
In September, the Brics Business Council website declared that the often delayed NDB Africa regional centre, to be located in Johannesburg, will be “well received” elsewhere on the continent. Leading Ugandan official Louis Kasekende argued for “access to credit as quickly as possible at low rates”, especially to “reduce the timeframe of projects’ finalisation and approval process”.
That would logically mean reducing attention to environmental and social dimensions — a criticism often made by civil society.
Africa has shouldered an exceptionally high debt burden since the crash of commodity prices from 2011 to 2015. Repaying hard-currency loans becomes extremely expensive when currencies crash. For example, in 2011, R6.30 bought a dollar; today it costs twice as much.
In 2007, the foreign debt of sub-Saharan Africa was $200-billion, but thanks mainly to Chinese state loans (associated with the extractive industries), it is now more than $400-billion.
Pretoria also faces a rise in foreign debt. It was $143-billion last September, a $10.6-billion rise above the previous three months.
Soaring foreign debt is driven by multinational corporations taking South African-sourced profits and dividends to offshore financial headquarters.
As Chinese lenders, Indian steelmakers and mining houses and the Guptas externalise their own vast funding flows, the irony of the NDB is that its loans contribute to more Brics countries’ power over the one African country that had the potential to stand up and fight for justice.
But, like Molefe in the Gupta neighbourhood, the Brics rhetoric of multilateral financial reform might merely have been Saxonwold shebeen talk.
Patrick Bond is professor of political economy at the University of the Witwatersrand