Brics bank set for launch at the next summit in SA

2012-05-05 10:09

The Brics (Brazil, Russia, India, China and South Africa) bank will be launched early next year in South Africa when the political and economic bloc of powerful emerging nations next meet.

Not only will this be the first Brics summit in South Africa, but it will be the first summit of the influential bloc of nations on African soil.

It is expected that the launch of the international development bank – which has gained traction since last month’s summit in New Dehli, India – will be announced at the South African summit next year.

The idea for the bank was to finance and settle trade between the Brics nations in domestic currencies and the renminbi. The location of the bank is yet to be revealed.

During his address to the South Africa-India Business Forum held in Pretoria this week, President Jacob Zuma announced that South Africa would play host next year.

Zuma said that the hosting of the next summit would be a step forward in “realising the objective of establishing a Brics development bank”.

The bank is increasingly seen by South Africa as a source of alternative infrastructure finance, this as the nation plans to roll out a close to R1.2 trillion infrastructure plan announced by Finance Minister Pravin Gordhan in his Budget speech.

China, the world’s fastest-growing economy, is increasingly becoming South Africa’s most significant trading partner and plans are afoot to ensure an increase in trade volumes with India.

According to Trade Invest SA’s latest figures, South Africa’s trade with the Bric nations has increased seven times over the past 10 years – from R33.7 billion in 2002 to R263 billion last year.

Trade Invest SA reports that from 2006 onwards South Africa’s trade with Bric grew by an average of 28% year on year.

South Africa’s trade with the Bric nations recovered strongly after a brief dip, attributed to the global financial crisis of 2008. After this minor downward trend, trade picked up sharply from 3% in 2009 to 29% by last year.

China continues to be an important trading partner for South Africa in both imports and exports.

Of the R263.5 billion trade with Bric nations, China accounts for 71.5% of the trade – at R188.4 billion – followed by India, with 20.3%. Brazil and Russia only make small proportions of South Africa’s trade.

However, the establishment of a development bank is likely to mean a steep rise in trade volumes between South Africa, and Brazil and Russia.

The bank is likely to facilitate ease of transactions at preferential currency exchange rates and have the effect of cutting out the US dollar in trade between the five nations.

Owen Skae, director of Rhodes University’s business school, said: “I think the timing of the launch is more to do with getting their ducks in a row, setting a deadline for launching as that happens to be the fifth summit in South Africa.”

Skae said it is significant as the spotlight will be on the summit and no doubt the world will have many questions to ask regarding the detail of the bank’s launch.

“For instance, how will it be funded? What will be the contribution from each country? Who will head it up? What are the governance principles? Who will be the beneficiaries, and so on,” he said.

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