Major developing countries and emerging economies will be meeting in South Africa. Development finance is high on the agenda of the BRICS summit amid uneven post-pandemic recovery. Established by the BRICS countries in 2014, the New Development Bank anticipates playing a bigger role in promoting the development agenda of emerging economies. African countries have every reason to embrace it.
First and foremost, the young and promising financing tool helps to address near-term funding issues. The World Bank predicts that growth of sub-Saharan African countries will slow down to 3.2% in 2023, slower than the average 4% among all developing economies. The sluggish economy is dragging down the progress of development programs. The situation is likely to be exacerbated by geopolitical uncertainties caused by the lingering Ukraine conflict, including the fallout from the breakdown of the Black Sea grain deal, which will push up global food prices. African economies need more resources to shore up their post-pandemic recovery, on top of the existing financing channels. The New Development Bank is a reasonable supplement.
(Headquarters of the New Development Bank/CFP)
Secondly, to get involved in a financing platform that is in favor of using local currencies would be a beneficial hedge to fluctuation of the U.S. dollar and the euro. Largely due to hawkish and uncoordinated financial and fiscal policies, currency fluctuation has caused headaches to the world economy since the onset of the post-pandemic era. Developing countries have also borne the brunt of currency fluctuation, heavier than what it has been in the U.S and Europe. Under such circumstances, any lending facility would require stable currencies and ample funding to support its credibility. BRICS countries, such as China and India, which have strong bond markets and resilient currencies, are capable of contributing to the stability of the development bank. Also, members of the New Development Bank and the BRICS group are like-minded in the realm of increasing the presence of local currencies in development finance and cross-border settlements. To join the club is certainly a smart idea to increase resilience against currency fluctuation.
Thirdly, one evident trademark of NDB-financed projects is green transformation. It has been suggested that the developing countries in Africa are likely to be the most direct victims of climate change, yet both the financial assistance they have received in this realm and the financial promises from traditional polluters are badly insufficient. The NDB prioritizes green financing simply because it is a critical issue for the developing world, which has limited options but to take care of themselves and get prepared for the consequences of humanity's inability to address the issue on time. Around 40% of existing NDB projects are related to efforts designed to address the impacts of climate change. There is little doubt that any proposals connected with sustainable growth in Africa will get particular attention from the lending bank.
Lastly, to join a young financing platform like the New Development Bank is in-line with the long-term ambitions of developing countries – better representation in global governance and a more multipolar world order. It has been argued that the establishment of a financing platform is the eventual threshold of the maturing of South-South cooperation. A persuasive example would be the speculation towards the creation of a BRICS currency. Although it is an idea very far away down the road, it is indeed an ambition of South-South cooperation. One could argue that for African countries, in the long run, the benefits of getting involved in this BRICS development bank outweigh any negative byproducts and short-term concerns.
(Dilma Rousseff, President of the New Development Bank/CFP)
NDB officials say they will not try to disrupt and replace the existing schemes of global and regional development finance, as the financing structure of the bank is still U.S.-dollar centric and it is not their intention to replace the U.S. dollar or established financial institutions. In fact, the bank's president, former Brazilian President Dilma Rousseff, has promised closer partnership with other multilateral financial institutions. It will not be an either-or choice for African countries to join the NDB.
So far, the New Development Bank has approved almost 100 projects totaling more than 34 billion U.S. dollars. Apart from founding members Brazil, Russia, India, China, and South Africa, it has been joined by Bangladesh, the United Arab Emirates and Egypt. Uruguay is in the process of joining the NDB, while Saudi Arabia is in talks to become a member.
It is time for more African countries to follow suit and join the club.
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