This year’s US-African Leaders summit in Washington D.C. has given hope for breaching the gap in infrastructural development in Africa.
However, the BRICS countries’ have come together to form a new multilateral development bank known as New Development Bank (NDB) that will provide an alternative to US-backed institutions such as the World Bank and the IMF.
The BRICS Development Bank will have an initial capitalization of $50bn, $10bn from each of the founding members of Brazil, Russia, India, China and South Africa. Taken together, the BRICS countries represent the world’s largest market, and generate 19.8 percent of global GDP.
An additional $50bn will be held by the bank as a Contingency Reserve Arrangement (CRA), a rainy day fund designed to provide an alternative to the IMF’s emergency lending mechanism.
After extensive debates, China will host the bank’s permanent headquarters in Shanghai, India will provide its first president and Russia will chair the council of representatives.
The BRICS bank will focus on funding infrastructure projects across the developing world. US-Africa Summit initiatives have also been keen to fund infrastructure. So far, President Obama has announced $14bn worth of US private sector investment into the sector.
According to the World Bank, African countries have a $50bn per year infrastructure funding gap. Globally, the infrastructure financing gap in the developing world is estimated to amount to $1.1 trillion.
An additional $300bn is tacked onto that sum if climate mitigation measures are included according to Dirk Willem te Velde, director of the Overseas Development Institute (ODI)’s international economic development research group.
“Countries such as China have been very successful at developing a comparative advantage in infrastructure construction over the past few decades, and I think it is correct for the BRICS development bank to offer such developmental experience to developing countries,” explains Zhenbo Hou, a China-based researcher for ODI.
The rise of Brazil, Russia, India, China and South Africa have reshaped the global economic order over the past decade, as the era of the US’ relative political and economic predominance has declined.
However, the BRICS have long contended that Western institutions, including the World Bank and the IMF, have not adapted their voting structures to reflect the new global order. The creation of the BRICS bank could be seen, at least in part, as a response of this alleged ‘democratic deficit’.
“We’re helping to democratize international relations,” Chinese President Xi Jinpin stated at the announcement of the bank’s creation at the BRICS summit in Brasilia, Brazil.
Official responses to the bank’s creation from Western institutions have been supportive and expressed a desire for partnership.
“We welcome the announcement of the establishment of the BRICS development bank and stand ready to work closely with the new bank to end poverty and build shared prosperity throughout the developing world,” says Phil Hay, the World Bank’s Africa spokesperson.
“Clearly, the BRICS countries have a key role to play in helping promote global growth.”
Most of the BRICS countries already have national development banks of their own operating globally, including the China Development Bank and Brazil’s BNDES. BNDES, for its part, envisions a strong cooperative role with the new multilateral.
Source: Agency Reports
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