A recent piece on BizNews by Peter Fabricius puts forward the perspective that based on the most recent meeting of the leaders of the BRICS nations, that perhaps, South Africa is not on the equal footing that it may think it is with its national companions. Having a look at the outcomes of last week’s BRICS meeting in Fortaleza is Abdullah H Verachia from Gibbs. South Africa has committed substantial funding to the new BRICS Development Bank, and the big question that needs to be asked is whether or not we will see the return on our investment, relationship and commitments? – LF
ALEC HOGG: Abdullah Verachia is a faculty member at Gibbs. He’s with us to discuss more about what happened last week. Well, Muller’s got to put the smiley face on. He’s always very good at promoting South Africa’s Brand. Given recent developments – let’s just keep the development side out on the one hand – on the political side, being a member of BRICS is all of a sudden not such a happy place to be.
ABDULLAH VERACHIA: Sure, good afternoon Alec, and thanks for the invitation. I think there’s a number of developments that have taken place recently, especially politically. I think this obviously reflects the very different nature that these BRICS countries have. You have countries that are ideologically different politically, and have different political systems and now, coming together in a grouping and doing it, I think, as a creature of convenience. In the BRICS summits that I’ve been to, what I’ve seen is that the BRICS Heads of State and the Ministers of Finance, and even the business leaders, tend to play within the swings that are familiar with them in the playground and tend to shy away from any of the contentious issues. You see the discussion that took place in Fortaleza last week was centred on three specific issues: around the New Development Bank, around the Contingency Reserve Arrangement, and then around discussions and engagements between the export development agencies.
There was a lot of hot air and discussions around various issues then, from Syria, to Palestine, to the relationship with the United States of America – the new and developed world – but it was very much statements. There was nothing concrete and I think that reflects the nature of this BRICS grouping, the fact that…
ALEC HOGG: That is interesting because O’Neill, when he called it BRICS in the first place, he was just talking about four countries. Then South Africa got involved as well, so it’s really five countries and, as you say, with very diverse cultures, diverse backgrounds, and diverse agendas on a political sense. On an economic sense, is it a good place to be, for us to be in there, though?
ABDULLAH VERACHIA: Of course, I think South Africa’s role in the BRICS is critical, in terms of advancing the African agenda. There was quite a bit of discussion and heated debate as you’ve seen with Nozipho’s interview with Muller, around the initial response from South Africa. In Durban last year, South Africa thought that we were definitely going to get the headquarters of this bank and I think, 12 months later we realised the different political and economic interest that all of the BRICS countries bring to the table, so this decision around this New Development Bank was actually taken in Delhi, in 2012. It has taken two years for the five countries to come to some sort of consensus, in terms of finality on this Development Bank. The reason for that was because there was uncertainty in terms of where the bank would be headquartered, and the mechanisation of this bank. I said the other day that it’s not as if Cinderella put on a shoe at midnight in Fortaleza, and this Development Bank is now a reality.
It’s going to take another two to three years for this bank to come into fruition. That’s going to be a tough time in those three years, as the Finance Ministers who form part of this technical task team come together and try and find some common ground in terms of the focus of the bank – where the bank will finance and the type of projects that it will finance.
ALEC HOGG: And, more importantly, how it’s going to be funded because the feedback we got from Fortaleza was that all five of the countries are going to be putting in $2bn per year, for the next seven years.
ABDULLAH VERACHIA: Correct.
ALEC HOGG: Now China has infinitely more reserves than we have because we have negative and they… Well, we don’t have negative, but we have negative debt. They, of course, don’t have debt at all. For South Africa to be putting in R140bn… That’s like one whole year’s company taxes gone into the Development Bank, as a shareholding. Those are big numbers for us to be coughing up for a small country.
ABDULLAH VERACHIA: Sure, 100 percent. I think, in comparison to China, as you rightly said, its pocket change for China but in South Africa, it’s a key part of our GDP and a sizeable contribution from our GDP every year for the next seven-years, but I think it’s a bold move from South Africa. The reason I say that is whenever you’ve got the creation and the formation of a multilateral institution, whether it was 1945 – the formation of the United Nations – or the initial formation of the World Bank and the IMF. That initial formation, and ensuring that you’ve got an equal say at the dinner table, is very important. South Africa has played quite a critical role in terms of elevating itself and putting up the requisite, initial capitalisation of that bank to ensure that we have equilibrium in terms of the say of that bank and the decision-making of that bank. We therefore have equilibrium in terms of the initial shareholding of that bank and I think that’s important because, as we go down the Rhine and as we see this increase in terms of the role of the BRICS and the importance of the New Development Bank, we’ll always have that equilibrium that was initiated from the start.
ALEC HOGG: Yes, I get you but in the IMF for instance, the contributions that you make to the IMF and to the World Bank are in proportion to your GDP. The Chinese are, many times, the contribution that South Africa makes there. In this instance, what are the benefits? What is the tangible benefit of what’s going to be a massive sacrifice for this country? I mean, R20bn; that will give us the National Health Insurance.
ABDULLAH VERACHIA: Sure. I think the tangible benefits are multifold. (1) I appreciate the fact that South Africa negotiated hard for this regional headquarters, and there was a strong push between China and India, in terms of Delhi versus Shanghai, as the headquarters. South Africa was never in the running, in terms of that headquarters.
ALEC HOGG: So why did Rob Davies think we were, and Zuma thought we were as well?
ABDULLAH VERACHIA: Well, I think there was a view. There was a strong push from the South African Government, in terms of trying to put Johannesburg as a convenient, independent, quasi-independent country, where we could actually play quite a key role, in terms of utilising Johannesburg as a headquarters for the Development Bank. I think there was a strong push as well, from Delhi and from Beijing.
ALEC HOGG: But we were never in the running. This Development Centre, is there going to be another one in the Sub-Continent? Is there going to be another one in Asia or is it just in South Africa? Do we serve parts of the world from Johannesburg?
ABDULLAH VERACHIA: No, I think the regional centre is specifically focused on infrastructure and other green energy projects in Africa. I think it gives us the opportunity to put Africa on the agenda first. They will really start having engagements with some of the other Development Banks here, the Development Bank of South Africa – the AfDB – in terms of co-financing projects.
ALEC HOGG: Is this going to be bigger than the African Development Bank, or indeed, in time is it going to be more useful to Africa than the IMF and the World Bank?
ABDULLAH VERACHIA: Well, I think in time, it is definitely going to be a much larger institution. I think the impact that the New Development Bank will have is that it obviously creates a much safer environment for other private lending institutions, to go and co-finance projects. It gives that requisite comfort to a number of private lending institutions and I think that’s where this New Development Bank has a much bigger influence than the $50m or $100-billion Dollar corpus that’s been, initially put together. It provides an opportunity for co-financing of infrastructure projects, in a number of the BRICS countries as well as beyond the BRICS countries, and that’s the agenda going forward. As the corpus grows the opportunity for financing projects beyond the BRICS countries, will definitely be there…
ALEC HOGG: Sorry, the obvious question because we are running out of time, is – will South Africa get more than the R140bn that it’s going to be putting in over the next seven years? In other words, had we just taken that 140 and invested it in our own infrastructure, will that be less than the way we can leverage this up in the New BRICS Bank?
ABDULLAH VERACHIA: Sure. I think there are obviously positives and negatives to the size of the contribution that we’ve put together. The positives for me are multifold. (1) We often speak about this lack of interregional trade in Africa, especially in Sub-Saharan Africa and it’s as a consequence of a very limited infrastructure on the Continent. This BRICS Development Bank, given the fact that the sectorial focus will be on infrastructure developments. (2) Given the fact that we’ll have a regional centre here, in Johannesburg, gives us an opportunity to ensure that we tie up some of the infrastructure development opportunities that have been, identified at NEPAD and the African Union, to the financing that the New Development Bank will put together. As we get infrastructure developments off the ground and we get the requisite financing that opens up opportunities for South African companies, who find it a huge challenge to be able to transport goods and services.
ALEC HOGG: With no doubt.
ABDULLAH VERACHIA: Infrastructure unlocks economic opportunities and I think that’s the benefit.
ALEC HOGG: No doubt, but let’s hope that we get a good bang for our R140bn because it is a lot of money and I don’t know if that penny has quite dropped yet. Abdullah Verachia is with Gibbs, a Faculty Member at the Gordon Institute of Business Science, South Africa’s leading Business School depending on which survey you look at, of course. There’s a recent one that says UCT got ahead of them but on the Financial Times Survey, Gibbs is number one.
