Brics bank to fund ‘riskier’ projects
NEW Development Bank, formed by five of the world’s bigger emerging markets, is seeking to tackle riskier and more challenging projects than traditional global finance institutions such as the World Bank.
The bank is aiming to be operational by the first quarter of next year, Tito Mboweni, a nonexecutive director of the lender and a former governor of South Africa’s central bank, said in an interview with Bloomberg TV’s Manus Cranny on Friday.
Leaders from Brazil, Russia, India, China and South Africa (Brics) formally launched New Development Bank at a summit in Russia this week to boost financial and economic ties between the emerging-markets bloc. The lender, which will have initial capital of $50-billion and aims to raise that to $100-billion over time, provides an alternative funding source to the World Bank and the International Monetary Fund.
“We do need another development bank but of a different kind,” Mboweni said. “We want to take on riskier infrastructure projects and other development projects, but there may be cases where we work together [with the World Bank].”
NEW MANDATE: Tito Mboweni
The Brics countries account for more than a quarter of the world’s economic output, according to the bank’s website. The lender will be based in Shanghai and its first president is Kundapur Vaman Kamath, chairman of India’s largest private sector lender, ICICI Bank.
Mboweni said the Brics bank would have a regional sub-Saharan headquarters based in Johannesburg. The lender planned to partner with institutions such as the Development Bank of Southern Africa to invest in infrastructure projects, he said.
“This is not a substitute for the World Bank, the Latin Russian President Vladimir Putin, right, greets South Africa’s Jacob Zuma at the welcoming ceremony for the summit in Ulf, Russia, for the Brics emerging economies American Development Bank or any other developmental financial institution,” Mboweni said. “This is an additional source of funding, but we do want to do things differently.”
Funding required by South Africa’s state-owned power utility, Eskom , “falls squarely within the mandate of the bank”, Mboweni said.
Eskom has a cash-flow shortfall of R225-billion in the five years to 2018 as it builds plants to expand capacity.
Investors are cutting back holdings in emerging-market assets as global risk aversion rises. The Brazilian real has depreciated 17% against the dollar this year, the most among 24 emerging-market currencies tracked by Bloomberg, while the rand has declined 6.9%.
South Africa’s economic fundamentals were intact, despite a weakening in the economy, Mboweni said. — Bloomberg