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Friday, 15 May 2015 14:14

Ufa Summit to focus on Bank and Economic Questions

BricsGNAMOSCOW, May 15, 2015 (Buziness Africa) - Leaders of Russia and South Africa, Vladimir Putin and Jacob Zuma, have discussed current issues of bilateral relations and cooperation in various international arena, and most significantly the development of BRICS grouping of the world’s five major emerging economies (Brazil, Russia, India, China and South Africa) and progress that have been made so far for launching the BRICS New Development Bank (NDB) during the 7th summit slated for July 8-10 in Ufa, the capital of the Republic Bashkiria in Russia.

“We are developing our relations within the framework of international organisations, including BRICS. We need to do a lot to make sure that this organization becomes an effective mechanism for developing our economies. And we have everything we need for this,” Putin said, addressing the South African delegation headed by Jacob Zuma to the Kremlin, Moscow.


Further, Putin said Brazil, Russia, India, China and South Africa “are more and more coordinating their approaches to the key issues of international agenda taking an active part in forming a multi-polar world order and developing a modern model of global financial and trade system.”


Russia has assumed the BRICS rotating presidency from April 1, and Russia’s presidency has focused or directed its efforts on establishing the group’s NDB and the Contingent Reserve Arrangement. The foreign currency reserve pool of the BRICS group will total $100 billion. The distribution are as follows: South Africa will contribute $5 billion, Russia, India and Brazil will allocate $18 billion each, while China will provide the remaining funds, $41 billion.


The agreement on establishing the bank was signed in mid-July 2014 in Fortaleza, Brazil. The NDB primary goal and priority are to provide finance for infrastructure projects and projects of sustainable development in the BRICS countries and developing economies.


According official sources a regional African center in Johannesburg will be opened simultaneously with the opening of the BRICS bank’s headquarters in Shanghai, China. After the official launching, the banks are expected to start working by late 2015, and the full capacity of the institution to be achieved in four or five years.


The bank’s organizational structure has a three-tier system of corporate governance - the Board of Governors, Board of Directors and the President. The bank’s founding parties will be BRICS countries, which are to be vested with special authority unlike other members.


A representative of Brazil has become the first Chairman of the Board of Directors. Russian Finance Minister Anton Siluanov has been appointed as the Chairman of the Board of Governors. The first President of the bank from India and the position will rotate every five years among the BRICS nations.


The India Government has already appointed an eminent banker, Kundapur Vaman Kamath, commonly referred to as K.V. Kamath, as the head of the New Development Bank. He will have a five year term of the bank, which is likely to be operationalized within one year. Kamath is the Chairman of the India’s largest private sector bank ICICI.


After serving at ICICI for more than a decade, Kamath had moved to Asian Development Bank (ADB) in Manila, in the Private Sector department in 1988. His principal work experience at ADB was in various projects in China, India, Indonesia, Bangladesh and other emerging nations.


Many experts in the banking sphere pointedly say that Kamath’s deep understanding and diverse experience of financial markets, particularly the banking industry, make him a natural choice to head the development bank. India’s presidency of the bank will be followed by Brazil and Russia who will have five year term each under an agreement reached after negotiations among the five country-grouping.


According to official documents on the bank’s establishment, the key decisions of the bank shall be decided by a simple majority of the votes cast. The bank will be open for members of the United Nations, in accordance with the provision of the agreement.


The New Development Bank will be built on commercial principles. Compared with the Asian Infrastructure Investment Bank (AIIB), which is primarily focused on Asia, the BRICS New Development Bank will deal with projects in the grouping’s five countries, as well as viable projects in other countries.


Professor Georgy Toloraya, an Executive Director of the National BRICS Study Committee, wrote in an email interview that “an effort would be to create the road map of investment cooperation in the BRICS framework, to conclude a multilateral agreement on the encouragement and protection of investments, to single out areas for intra-BRICS cooperation and to develop cooperation in new technologies.”


Contributing to this discussion, Professor David Shinn, an Adjunct Professor of International Affairs at The George Washington University’s Elliott School of International Affairs, argues that he doesn’t really see the BRICS New Development Bank as operating in competition with the Asian Infrastructure Investment Bank.


“There is much to be done in the developing world generally and Africa specifically that will accommodate both banks in addition to the contributions of the World Bank and African Development Bank. So long as the BRICS bank is run competently and follows international standards, I expect it will make positive contributions. But first, it has to open its doors and start making loans,” he told this Special Correspondent.


The AIIB is China’s brainchild and one more initiative to give China a greater leadership voice in the region, given that reform of existing institutions such as the World Bank and broadly speaking global governance has been slow and not that reflective of China’s economic rise, explains Hannah Edinger, a Director at Frontier Advisory (a research, strategy and investment advisory firm that assists clients to improve their competitiveness in emerging market economies) headquartered in South Africa.


“While focus of both the NDB and the AIIB will be on infrastructure project financing, I don’t think these two banks will necessarily go head to head in terms of competition. Even with the existing Asian Development Bank (ADB) in the region, there is room for co-financing of projects, given that in Asia the infrastructure funding gap is multiple trillions of dollars,” Edinger said.


Chris Weafer, a Senior Partner with Macro Advisory, a consultancy advising macro hedge funds and foreign companies looking at investment opportunities in Russia, said in comments published recently that “within this new group, Russia certainly has a role because the country is the world’s biggest energy exporter and, on aggregate, the world’s biggest minerals exporter. Neither China nor India could sustain their current high pace of growth without either direct materials imports from Russia or, indirectly, from the global marketplace.”


Additionally, he says “that alone justifies a seat at the BRICS table. Beyond that, Russia is already one of the largest consumer markets in the world and is, on a per capita and per household basis, the largest in the emerging market world.”


The BRICS group of prominent emerging economies was established in 2010, when South Africa joined Brazil, Russia, India and China in what was previously known as BRIC. The five countries, (Brazil, Russia, India, China and South Africa) account for almost a half of the world’s population and around 30% of the global gross domestic product (GDP).

By Kester Kenn Klomegah in Moscow. (Buziness Africa)



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