Brics bank to guzzle SA billions
WITH the long-awaited Brics New Development Bank due to start functioning later this year, South Africa could find itself having to cough up an unbudgeted R2-billion by the end of the year.
Over the next seven years, this contribution will balloon to R24-billion, money needed to fund a bank that many experts are not sure is necessary.
But it remains unclear where the money is set to come from in a fiscal space so tight that Finance Minister Nhlanhla Nene raised taxes in his budget earlier this year.
Speaking in parliament this week, President Jacob Zuma said the establishment of the new bank was on schedule. All countries are expected to ratify this plan by next month, and the inaugural meeting of governors is set to take place in July.
The bank, established by the five countries making up Brics — Brazil, Russia, India, China and South Africa — will start operating with an initial fund of $50-billion (about R607-billion), with each country contributing an initial $10-billion.
Treasury spokeswoman Phumza Macanda did not respond to specific questions about where South Africa would find the funds.
But an earlier Treasury document said each country would be expected to pay 20% — or $2billion — of their share, with the remaining 80% acting as “callable capital” that needs to be available only when requested. The $2-billion would be paid over seven years, in seven tranches. It was “highly unlikely” that the remaining 80% would be called for in “one fell swoop”, the Treasury said.
According to the Department of International Relations, the first tranche of $150-million (about R1.8-billion) would need to be paid within six months of the depository having received the last instrument of ratification.
If, as Zuma states, all ratification agreements are signed by next month, payment would need to be made by year-end.
The tranches become bigger each year: R3-billion in year two; R3.6-billion in years three, four and five; and R4.2-billion in years six and seven.
Chris Hart, an economist with Investment Solutions, said he believed the money would be sourced from South Africa’s foreign currency reserves.
“Two billion dollars is effectively a quarter of our foreign exchange reserves. Which, if you put it into perspective, is also the same price as one Gauteng freeway improvement programme.”
Hart said he believed South Africa may be punching above its weight in joining “this foreign misadventure”.
Sonwabo Mateyisi, director for risk advisory at Deloitte, said the $2-billion was a “worthwhile investment”.
He believes that South Africa would “disproportionately benefit” from the bank as it would have access to funding at more favourable terms and would benefit from job creation and skills development because the African headquarters would be in Johannesburg.
The Treasury also believes the benefits “far outweigh the costs of establishing this bank”, because “budget resources are not adequate to finance our infrastructure build programme” and the bank could act as an alternative stream of revenue.