Support for Brics development bank

Support for Brics development bank

A development bank run through Brics, for its small and medium enterprise sector, has been supported by various economists and national financial institutions.

Economists from Brics countries have thrown their weight behind the establishment of a Brics development bank, saying it will help to improve the social and economic status of developing countries.

If established, the bank is most likely to finance infrastructure and sustainable development projects in Brics members and other developing countries. Together the Brics countries (Brazil, Russia, India, China and South Africa) account for 25 percent of global gross domestic product (GDP) and 40 percent of the world’s population.

Key among the benefits of such a bank would be providing smart finance to local small and medium enterprises, which played a vital role in creating employment in developing countries, said the economists, who were meeting at the fifth Brics summit, being held at the Durban International Convention Centre from 26 to 27 March.

Their discussion was held during a business session entitled “Finance for economic development” moderated by the Industrial Development Corporation’s chief executive, Geoffrey Qhena. It took place on the first day of the summit.

Qhena said the SME sector was a key driver of economic development. It contributed 36 percent to South Africa’s GDP and employed 75 percent of the country’s workforce. In China, the sector was a huge employer, with 40 million people working in it. It also sustained 3.5 million people in Brazil.

Lili Wang, a senior executive in the Industrial and Commercial Bank of China (ICBC), said she felt the Brics development bank would improve financing for SMEs, a sector which contributed 75 percent to the total employment figures in her country.

At present, SMEs found it difficult to access finance because of a number of factors, she said. Chief among these were their lack of adequate corporate governance and management. She also said commercial banks were “inadequate” to support SMEs but that the government had made some strides, especially in providing management training.

The China Development Bank had worked to make sure SMEs in China and abroad – particularly in Africa – got the necessary finance to execute projects. Of particular note, the bank was partnering with the IDC through its China-Africa Development Fund to co-fund infrastructure development projects.

The Brics development bank would be a welcome move for some projects that the National Empowerment Fund (NEF) and the IDC had “put together”, said Philisiwe Mthethwa, the chief executive of the NEF, a government agency set up to provide capital to promote and facilitate black economic empowerment.

She said the agency had put together “lucrative opportunities” that Brics partners could tap into, in the form of multi-billion rand projects and funds. These included a R33-billion strategic projects fund set up to “increase black-owned businesses from infant stage”.

Mthethwa said it would be ideal for local black-owned companies, especially in target sectors like tourism and agro businesses, to partner with Brics countries.

“Thirty transactions are close to financial closure and hopefully when they are completed these companies will provide 150 000 to 200 000 decent jobs.”

Projects in the pipeline included:

  • A R1.6-billion rare metals industries project expected to create 250 jobs;
  • The R1.6-billion Busa Med, a medical infrastructure project expected to create 1 200 jobs; and,
  • The US$97-million (R900-million) Link Africa broadband fibre network project expected to create 200 jobs.

In addition, the IDC had about R53-billion worth of deals under consideration. Some deals had been concluded recently, including the R3.7-billion Scaw Metals project.

The IDC was busy modernising the company with additional investors being sought in the near future, said Mthethwa.

Other transactions in the pipeline included the FibreCo project, a R2.4-billion joint venture between CellC, Convergence Partners and Dimension Data; and the R2-billion bio ethanol project earmarked for Eastern Cape. Some of these would hopefully be financed through the new Brics development bank, she added.

Sim Tshabalala, the chief executive of Standard Bank, put in a sobering word. He said the road ahead was long if African financial institutions wanted to be competitive and smart in providing finance, especially to SMEs. “African financial institutions are non-existent.

It is necessary to build the financial infrastructure first because most individuals in developing countries, SMEs included, do not have bank accounts,” he said.

“The challenge is what we have to do for these people to be included in the financial system.” The best way forward was for financial institutions to have increased competition, be innovative in their business dealings and deal with issues of demand and supply, said Tshabalala.