The New Development Bank recently held its second annual meeting in the Indian capital of New Delhi to discuss the sustainability of financing development projects in its member states.
The multilateral bank was established by the BRICS states of Brazil, Russia, India, China and South Africa. With headquarters in Shanghai, China, it was created to support emerging economies and provide an alternative to the domination of the World Bank and the International Monetary Fund.
But the new bank is already proving to be a replication of the Bretton Woods institutions. This can be seen through the partnerships the new bank is forming as well as its operating posture.
It’s also showing bias towards the development of Asian countries. This is evident from its funding patterns and the recent proposed enlargement of the BRICS bloc. The list of proposed additions includes Pakistan, Bangladesh, Iran, Nigeria, South Korea, Mexico, Turkey, Indonesia, the Philippines and Vietnam. All except three are Asian.
The proposed expansion of the BRICS countries has been justified as a move to strengthen the bloc and fill the void created by rising protectionism in the US. But it has been met with mixed reactions even among member countries. India, for example has expressed its disapproval that BRICS “plus” is China’s ploy to cut New Delhi’s influence in the group by roping in more pro-China countries.
The New Development Bank’s business as usual and its bias towards Asia suggests that it will not become an alternative source of finance. It will not address the key areas of needs for emerging economies like human capital development, poverty alleviation and basic healthcare.
The New Development Bank was set up as an alternative to the World Bank and IMF which are viewed to be pushing western agendas. It was to provide a development model that would be sensitive and beneficial to emerging economies. But it’s quickly abandoning this mandate and falling into the trap of operating like the institutions it was created to replace.
In September 2016 the New Development Bank signed partnership deals with the World Bank to co-finance projects. The agreement also aims to facilitate knowledge and staff exchanges. This puts the bank in bed with the institutions it was established to counter.
The bank has also signed memorandums of understanding with the European Investment Bank, European Bank for Reconstruction and Development, the Asian Infrastructure Investment Bank and the Eurasian Development Bank and the International Investment Bank (IIB). The agreements cover co-financing of infrastructure projects, the bulk of which are in Asia.
Perhaps the foundations of the bank were faulty from the start. Its original designers were two former World Bank chief economists, Joe Stiglitz and Nick Stern. Given this history, it’s possibly never going to challenge the world financial order.
Today, the New Development Bank is pushing the corporate-led development model just like the World Bank, the IMF and other Bretton Woods institutions. Their investments are profit-oriented which tends to undermine social justice. Thus similar to the World Bank and IMF, the New Development Bank seems more focused on protecting its investments at the expense of saving the interests of the BRICS citizens.
Over the past decade, the corporate led model has impoverished many people in emerging economies, particularly in Asia. It has led to farmer suicides, large-scale privatization, natural resource looting and environmental degradation.
The New Development Bank has so far made loans of $811 million to entities in four BRICS countries towards energy infrastructure. Of this $300 million went to Brazil, $81 million to China, $250 million to India, and $180 million to South Africa.
For South Africa, the bank has so far not provided any meaningful opportunity to obtain additional finance. The loan of $180 million (R2.6 billion) was given to South Africa’s power utility Eskom to develop 670 MW of power generation and 500 MW worth of renewable energy projects involving independent power producers. This unnecessary loan to an inefficient state owned entity has only contributed to BRICS’s power over South Africa by adding onto the current contingents liabilities dollar-based loans that the government has guaranteed for the next 12 to 20 years.
There are weaknesses in the way in which the New Development Bank works that also raises questions about its intent.
First, the bank’s activities are often shrouded in secrecy. There are no clear official records available to the public about the bank’s activities, decisions and operational guidelines. Analysts have to rely on secondary and tertiary information sources.
Second, the bank is yet to present any socio-economic redress and environmental operational guidelines for communities. This would ensure that its funding does not lead to displacement, evictions, ecological destruction, loss of livelihoods and threats to the basic right to life. These issues have recurred for decades due to projects funded by other multilateral development banks.
Lastly, as a co-financier with development institutions like the World Bank, the bank’s seriousness about promoting transparency, accountability and probity remains questionable.
To strengthen its relevance to emerging economies, the New Development Bank must review the much criticised, inequitable representation of developing countries, especially from Africa. It must also focus more on small-scale investments rather than large-scale infrastructure projects. These often lead to exclusion of people and communities, and aggravate existing vulnerabilities rather than bringing about development.