The newly launched African Regional Centre (ARC) is expected to help South Africa implement its infrastructure objectives and meet other funding needs, says Finance Minister Malusi Gigaba.
The Minister was speaking on Thursday following President Jacob Zuma’s launch of the BRICS New Development Bank (NDB’s) African Regional Centre in Sandton, Johannesburg.
“You cannot evade a ratings grade by establishing an alternative. To the extent that may also assist in the environment of a ratings downgrade we would appreciate but we are not looking at the Regional Centre as a way of evading a ratings downgrade,” said Minister Gigaba in response to a question from media.
Minister Gigaba said the process of establishing the ARC has been in the making for many years.
“We did not rush this process, what we have done now is to expedite the process since April 2017 so that we are on par with other founding members of BRICS,” said the Minister.
Minister Gigaba also welcomed NDB President Kundapur Kamath’s comment earlier in the day that the bank -- which is a multilateral development bank -- will issue rand denominated loans.
“We quite appreciate the commitment by the bank to issue rand denominated loans because it will assist a great deal in terms of the structure and quality of our debt and our ability to meet our debt requirements. We need to address structural weaknesses in the economy,” said Minister Gigaba.
In his comments to the official launch of the ARC earlier in the day, Kamath said the ARC will be the face of the NDB in Africa. The objective of the New Development Bank is to finance infrastructure and sustainable development projects in BRICS and other emerging economies.
Project identification and loan book
The bank, which started operations in July 2015, had by the end of 2016 approved seven projects in area of sustainable infrastructure totalling US dollars 1.5 billion to all member countries.
In 2017, the bank said Kamath expects to approve loans aggregating US dollars between 2.5 billion and 3 billion for about ten projects.
“In 2018 we expect to present with total lending of about 4 billion. The target is to end 2018 with a loan book of about 8 billion for projects,” said Kamath, adding that the bank wants to identify a strong project pipeline it can support.
Kamath further added that the bank expects the ARC to play a major role in project identification.
Working with the Presidential Infrastructure Coordinating Commission (PICC) South Africa is in the process of finalising its project pipeline.
“We are hoping that we should by the time we go to the BRICS Summit [to be held in China in September] have developed a semblance of the project pipeline that we will finalise and start accepting funding, loans from the bank. The 1.5 billion dollars more or less that has been promised by the bank as the President of the NDB was saying will go a long way towards assisting us to strengthen the balance sheets of state owned companies in order to implement critical infrastructure in the areas we agreed to,” said Minister Gigaba.
Minister Gigaba said government is working closely with the bank in terms of ensuring that the projects are bankable.
“They are critical projects in terms of our priorities. In so doing we would also assist the South African economy because at the present moment an environment of slow growth and high unemployment we do need infrastructure investments in order to reignite growth in the economy to get employment,” said the Minister.
Meanwhile, the NDB’s founding documents makes provision that the bank would be open to new members other than the current BRICS members.
NDB Vice President and Chief Financial Officer (CFO) Leslie Maasdorp said that it was part of the bank’s vision that it grows beyond the five BRICS countries.
“The articles of the bank make provision that the new membership of the bank will be comprised of three categories - firstly the BRICS countries will dilute the shareholding to a minimum of 55% at some moment in the future. A further 25% will be set aside to developing countries in that way 50% of the bank will always in the future be controlled by emerging markets. That underscores the narrative stated by President Zuma and President Kamath that this bank is the voice of emerging markets within the multilateral space. The final 20% will be set aside for advanced industrialised countries,” said Maasdorp.
However, the bank is not yet able to admit new members.
“There’s no application process where a member can apply to join tomorrow. The detailed process is still being defined, the essential key point is that it will be dominated by emerging markets, African countries,” said the CFO.
Rating of the bank
One of the key aspects of multilateral banks that makes them unique is that they are very highly rated. The NDB -- of which its headquarters are in Shanghai, China -- has a AAA rating in Chinese capital markets.
“The bank is in the process to obtain an international rating, that is an ongoing process. We have started our engagements. The rating is important in that it allows the bank to raise funding in the debt market at a cheaper rate that allows us to lend. The bank is rated now but only in China and we are in the process of obtaining an international rating,” said Maasdorp.
Earlier in the day President Zuma preceded over the launch of the ARC.