BRICS (Brazil, Russia, India, China and South Africa) announced Tuesday, July 15, that they have plans to establish the New Development Bank (NDB) at the sixth annual summit meeting. The purpose of the bank is to facilitate infrastructure development in the participating, underdeveloped, countries. Globally the NDB is evidence that underdeveloped countries, particularly BRICS, are growing economically.
The bank will be based in Shanghai and will have an Indian president for six years . The Board of Directors Chair will be from Brazil and the Board of Governors Chair will be from Russia. South African President, Jacob Zuma, feels Africa has great need for the bank. This “will change the face of global economics,” he said.
Over the past decade, BRICS countries have become more powerful economically. As members of the primarily European and US controlled World Bank, they felt they did not have enough say in how developmental finances were allocated. Developing countries like South Africa and China have more than doubled their share of world trade by trading with each other. Each year emerging countries portion of world trade have increased an average of 0.8 percent. Since as early as 2003, developing countries have steadily out performed developed counties in exports. A major gap between the two has existed since 2008. The BRICS NDB is evidence of this global economic development of emerging countries.
The World Bank reports that there is a $1 trillion gap in infrastructure investment. There is a high level of demand for things like electricity in South Africa. It is estimated that 70 percent of the population do not have access to power. Low-income countries understand that basic infrastructure is the foundational key to economic growth. Despite their rapid growth, BRICS still only has an 11 percent vote in the International Monetary Fund. Efforts to give the countries a larger say failed in 2008 and 2010, because more developed nations did not want to make larger contributions. The reasons range from political to financial and differ from county to country.
In response to these challenges, BRICS created the NDB. Global financial leaders are hoping that the bank creates less rigorous lending practices that make countries like South Africa hesitant to borrow. Often restrictions hinder borrowers from creating and administering their own polices and procedures. There are also contingents and structural adjustment programs that some countries find strenuous. Overall, the organization wants lending practices to be much more efficient for developing countries. Once ratified by the parliaments of participating countries, the bank hopes to start lending in two years. Voting weight appears to be shared equally among members of BRICS. Each country has contributed $10 billion creating $50 billion in startup money. The NDB Contingency Reserve Arrangement (CRA) will provide additional protection in the event that a country can not make balance and payment obligations. The CRA has been set at $100 billion.
BRICS’ creation of a bank for new development is evidence of global development of lower-income countries. If the group’s actions go as planned the bank will continue to fuel shifts in the global market place. Emerging economies will continue to grow in the event NDB achieves this and successfully lends to under-developed countries.
By Ashley Poag