Business
The Way Forward for the BRICS New Development Bank
Small business development, for example, would be a reasonable focus for all five countries. Brazil’s BNDES, arguably the most effective of the five development banks in the grouping, focuses 30% of its spending on MSME development. And while this would definitely be more challenging on a multinational level, there remains clear interest in and a need for these types of projects.
The second question is whether the BRICS bank will spend within the BRICS, or whether it will also be active in other countries. This is particularly important for South Africa, which is often viewed as representing the rest of the African continent in BRICS, and thus might be in favor of promoting NDB investment in the broader region.
The BRICS initial inclination seems to be to focus on domestic needs, but while this might seem a safer option, it could prove problematic. All five countries already have very large domestic infrastructure spending projects, from both governments and local development banks, meaning that there is already substantial competition within BRICS for investments with high returns.
There is less competition and higher returns available in many less developed states – whether in Africa, Latin America, or East Asia – many of which offer the chance for trans-national development projects, which are arguably more suited to the scale of funds potentially held by the NDB.
Investment in these countries would certainly not be an act of charity, it would just mean making investment decisions on hard economic considerations rather than national interest. And in the long run, national interest is also likely to benefit, particularly if investment projects win goodwill from the international community and act to unlock the type of vitally needed resources lying behind underdeveloped infrastructure in many less developed states.
The NDB’s Currency
The question of what currency the BRICS bank should transact in is perhaps the clearest fault-line between China and the rest of the group. China has made clear its desire for the Yuan Renminbi to ascend to the status of a global reserve currency. There has even been mention made of a BRICS currency, to form the basis of trade within the group. Discussions around the currency in the context of the NDB, however, seem extremely premature.
China’s economic might makes it likely that the Yuan will gain reserve status in the future, but these changes happen very slowly. Japan was the world’s second largest economy for over 40 years, and yet the Yen still plays a relatively minor role in global currency reserves. Even China’s ambitions remain modest, with their short-term aim focusing on securing a greater role for the Yuan in the basket of currencies underpinning the IMF’s Special Drawing Rights (SDRs).
