BRICS Nations Launch $100 Billion Sustainable Development Bank

Posted by on July 30, 2014 in Entrepreneurship

BRICS_leaders_in_BrazilBRICS countries, which include Brazil, Russia, India, China, and South Africa, comprise over one-fifth of the global economy. The growing economic power of BRICS nations has surpassed the level of negotiating power they command at the World Bank and the International Monetary Fund (IMF). The value of South-South trade has exceeded that of North-South trade by about $2.2 trillion – which is more than a quarter of global trade.

China has emerged as Africa’s most important trading partner. China, Brazil and India are becoming major donors for low-income countries in the “South-South” region. A substantial increase in economic and diplomatic engagement by and among developing countries over the last two decades has finally led to creation of a new development bank that will aim to serve the needs of the BRICS nations and other smaller countries more effectively than the World Bank and the IMF.

The New Development Bank (NDB) has been set up with an initial capital of $50 billion, with each of the five BRICS nations contributing $10 billion. The capital base will be used to finance sustainable development and infrastructure projects in the BRICS nations initially, but other low-income countries will be eligible to apply for funding. The BRICS bank will also have a $100 billion Contingency Reserve Arrangement (CRA), which will provide additional liquidity protection to member nations in the event of a balance of payments crisis.

The Bank will have its first president from India for a term of six years, a Board of Governors Chair from Russia, a Board of Directors Chair from Brazil, and will be headquartered in Shanghai, China. The founding nations believe that the BRICS bank/CRA may eventually bring an end to World Bank-IMF hegemony over issues such as policy lending, emergency funding, basic services funding, and funding to conflict-affected regions.

By the estimates of World Bank itself, there is a infrastructure investment gap in developing countries to the tune of $1 trillion. Existing development banks are only able to fill about 40 percent of this gap. The BRICS bank will give priority to sustainable investment in areas such as power, transport, telecommunications, water and sewage. The funding demand for sustainable development of infrastructure is expected to rise sharply as more countries gradually shift from their low-income status.

Source: The Washington Post

Image Credit: Flickr via Michel Temer

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