For South Africans, most of the excitement ended even before the BRICS Summit in Fortaleza began earlier this week. After the previous summit in Durban, hopes were high that the $100bn BRICS Development Bank would be headquartered in Johannesburg. The South Africans had done most of the work on putting the structure together, and as the country’s banking system is far more sophisticated than those of the other BRICS members is looked a rational choice. But last week’s the Russian Foreign Minister let slip that the new bank’s home would be in either Shanghai or New Delhi. And despite the SA delegation doing its best to swing sentiment, the Chinese city has now been officially confirmed. In this superb piece for the Institute of Security Studies, Peter Fabricius explains how this removed delusions which existed about BRICS being a grouping of equals. In Fortaleza this week, South Africa was put very firmly into its place in the BRICS pecking order. – AH
By Peter Fabricius for ISS Today
The verb ‘shanghai’ is defined by the Oxford dictionary as ‘to put into … an awkward situation by trickery’. Trickery might be putting it a bit strongly. But is South Africa keeping its eyes wide open as it ventures ever further down the BRICS (Brazil, Russia, India, China and South Africa) road?
The decision by the five BRICS leaders at their 6th summit in Fortaleza, Brazil this week to establish the headquarters of their new $50 billion development bank in Shanghai – and only a regional office in Johannesburg – spoke volumes about the priorities and power relations of the bloc. South Africa lobbied hard to get the headquarters of what is to be called the New Development Bank (NDB), a bland title which conceals considerable debate about its meaning and purpose.
The stated purpose of the bank is to finance infrastructure and sustainable development in the BRICS and other emerging and developing countries. Before last year’s 5th summit in Durban, South African officials professed to be confident that the four other members would graciously step back and allow their newest member to take the bank.
After all, were not South Africa and Africa’s development needs the most dire?But even before they reached Durban, the South Africans were shocked to discover that everyone wanted to host the bank and vigorous negotiations ensued. The Russians jumped the gun last week by leaking that Shanghai would get the bank, and that South Africa had not even been shortlisted as New Delhi was the only alternative. Despite this, President Jacob Zuma and his team – particularly Trade and Industry Minister Rob Davies – continued to lobby at Fortaleza.
When it became clear that China really wanted the bank and would very likely get it, Zuma pulled out his fallback position, a regional centre for South Africa. And so the leaders agreed to establish, simultaneously with the Shanghai headquarters, a NDB Africa Regional Centre in South Africa, which South African officials said would be in Johannesburg.
Spindoctors hailed the decision as a triumph for South Africa and for Africa, of course, although it looked more like a consolation prize.
Still, given the realities of the economic giants that South Africa is mixing with in BRICS, it was not a bad outcome. Officials suggested that the centre is likely to be based at or near the Development Bank of Southern Africa (DBSA) in Midrand. They also insisted that although getting the centre was a ‘sweetener’ to South Africa for the rather bitter medicine of not getting the headquarters, it would be more than symbolic.
‘It will put the NDB on the ground in Africa and so give it a better sense of the viability and feasibility of bankable projects; coordinate with the African Development Bank (AfDB) and DBSA; and be more hands-on to provide capacity and technical support for funding project preparation and implementation,’ one official said.
So South Africa came away from Fortaleza with something concrete to show its own people and the other Africans to whom it feels it has to justify its membership of BRICS – especially now that Nigeria has overtaken it as Africa’s largest economy. But how the centre operates in practice is as yet unclear. And particularly, how much of its spending, which Standard Bank analyst Jeremy Stevens predicts will be initially about $30 billion a year, will South Africa to able to divert to itself and the rest of Africa.
Zuma told the summit that for Africa, at least, the bank’s main purpose would be to secure long-term infrastructure financing ‘that the existing global financial architecture can no longer fully respond to’. Yet development analysts believe there is no shortage of private capital in the world for solid infrastructure projects, so much so that the World Bank is struggling to justify its existence.
Perhaps the clue to the perceived need for the NDB in Africa might be found in its lack of conditionality in lending money, which South African officials have hinted at, though this has not been stated publicly. Will it therefore fill that risky gap that the likes of the World Bank and private lenders dare not, by financing questionable projects, until they become bankable?
In any case, the decisions at Fortaleza taken as a whole, made very clear – if it was not clear before – that the overall priority of BRICS is much bigger than development and more ideological. It is nothing less than creating an alternative pole of financial and economic power to that of the West.
This is especially evident in the decision to locate the NDB in Shanghai rather than, say, Johannesburg. As one South African official said, a Shanghai base fitted much more closely, ‘the broader BRICS goal of developing an alternative financial architecture removed from London, New York and Frankfurt.’
It also of course represents China’s own global ambitions.
As Zuma’s remarks indicated, the NDB is clearly intended to be an alternative World Bank, particularly as it will be an open-ended institution, inviting membership from other emerging and developing countries. The $100 billion foreign currency reserves pool – the Contingent Reserve Arrangement (CRA) – which BRICS member states will be able to tap to overcome balance of payments crises, is equally clearly meant to be another International Monetary Fund (IMF).
Other agreements at Fortaleza, such as those to establish cooperation among the BRICS export credit and guaranties institutions – to increase trade among their development banks – and to explore the pooling of the capacities of their insurance and reinsurance markets, would bolster the ‘alternative financial architecture.’ Zuma made that goal more explicit when he hailed Fortaleza as an ‘historic and seminal moment which saw for the first time since the post-Bretton Woods Institutions era, the creation of a new and unique financing initiative.’
Although the Fortaleza Declaration stressed that the NDB and CRA were intended to be ‘supplementary’ to existing equivalents, it also expressed very clearly the anger and frustration of the BRICS leaders at the reluctance by Western powers to loosen their grip on the World Bank and IMF.
The decision to base the bank in Shanghai was therefore a warning signal to South Africa that this is an uncertain new world that it is entering, with dominant players who have their own priorities. Russia, for example, very clearly intends BRICS as a vehicle for its power play with the US.
Western diplomats are already expressing concerns that Pretoria is increasingly towing the turning-a-blind-eye Russian and Chinese line on human rights issues in the UN – and indeed to Russia’s annexation of Crimea – in contradiction of its own constitution and stated foreign policy goals.
An alternative pole in the hitherto unipolar world clearly offers South Africa alternatives. But it should tread carefully, to avoid its own interests – and even its national identity – being swamped by more powerful hegemons as surely as those Western ones it is supposedly trying to flee.
* Peter Fabricius, who is the Foreign Editor of Independent Newspapers, wrote this article for ISS Today, a publication of the Institute for Security Studies. Â
