South Africa to host BRICS office

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South Africa to host BRICS office

South Africa to host BRICS office
Photo credit: DIRCO

South Africa is set to reinforce its position as a regional economic hub, as it prepares to open a regional office, which would channel funding drawn from the New Development Bank (NDB) of the Brazil-Russia-China-India-South Africa (BRICS) grouping.

The Africa Regional Office (ARO) is expected to open in Johannesburg by the year-end, Pravin Gordhan, South Africa’s Finance Minister, was quoted as saying.

But NDB officials told The Hindu that South Africa’s role would be initially confined within the boundaries of its neighbourhood. However, expansion of the multilateral lender, with larger African membership, can increase the NDB’s continental reach.

“Initially, it will look at South Africa”

NDB funding could help reduce Africa’s infra-funding gap, which stands at an enormous $100 billion a year, throttling the continent’s promising growth prospects. “The office can [initially] look at projects only in South Africa and the region,” says Leslie Maasdorp, NDB’s vice-president and chief financial officer. He pointed to two conditions that would guide the NDB’s funding strategy in Africa at this stage. South Africa, he stressed, must be the economic beneficiary of a funded project; and the economic infrastructure of another country receiving the investment, must be integrated with South Africa.

“For example if South African companies invest in a water scheme related to, let us say the Cabora Bassa hydro-project in neighbouring Mozambique, it is possible to do so provided the water is transported to South Africa.” “But funding a project between Mozambique and Zimbabwe would not be possible as this would by-pass South Africa.”

‘African nations can get more NDB funds’

Mr. Maasdorp explained that NDB’s funds to Africa could increase if more African members join the lender, after it opens up to new members, within the next 20 months. When it expands, the BRICS countries would dilute their share to 55 per cent, and developing countries or middle income countries would take up another 25 per cent. The rest 20 per cent would be open for the developed countries. “African countries can join and take advantage of this situation, and proportionally increase fund flows to the continent, as 80 per cent of the shareholding would be held by the emerging markets and the developing countries,” Mr. Maasdorp observed.

South African officials are confident that Pretoria would be able to play a key role in the continent’s infra development, with the NDB as a major supporting pillar. “South Africa has the best business infrastructure on the continent; if you look at the world competitiveness index, you will find us in the top five in the world.

Agriculture is also strong, as are the mining and telecommunication sectors among others,” Mr. Gordhan told The Hindu, on the sidelines of NDB’s first annual conference.

He highlighted that over time, South Africa would be able to leverage its linkages with other financial institutions such as the Development Bank for Southern Africa and the African Development Bank. “This could be paired with the boost that the NDB channel of funding would provide.” Mr. Gordhan observed that nailing specific projects for funding will not be a problem. “One of the big issues on the African continent is regional integration. Logistics and infrastructure is fairly weakly developed.

Intra-African trade is 11-12 per cent compared to East Asia, which is over 50 per cent, and Europe over 60 per cent of the total trade. So there is huge potential to develop trade related infrastructure, whether it is East Africa, Southern Africa or West Africa. So the possibilities are endless.”