BRICS development bank likely to focus on infrastructure

The planned BRICS development bank is expected to focus on financing infrastructure development projects, and providing auxiliary support for project preparation such as feasibility studies, according to a report released by the South Africa-based Standard Bank on Tuesday.

The proposed institution will also contribute "constructively" to the development of more robust and inter-dependant ties between the BRICS nations, said the lender.

Representatives from the BRICS counties — Brazil, Russia, India, China, and South Africa — are expected to discuss the creation of the common development bank for the bloc at the Fifth BRICS Summit in Durban on March 26 and 27.

A working group is expected to be set up at the summit to kick-start the creation of the bank, and the summit is expected to deliver concrete plans for its objectives, structure and governance, ultimately allowing for its formal establishment, it said.

"The proposed BRICS bank is expected to operate as a conduit for funding economic development, much like the World Bank," said Jeremy Stevens, Standard’s Beijing-based economist, and one of the authors of the report.

"We believe the bank will focus on financing projects linked to intra-BRICS bilateral multipliers and shared interests such as job creation and urbanization, with a particular emphasis on physical infrastructure projects."

However the BRICS bank is not being created as a counterweight to multilateral development banks, notably the World Bank, he said.

Instead, it would be "an auxiliary funding institution, albeit more aligned to the BRICS development agenda".

He added that the success of a bank will depend on specialization, rather than creating overlapping agendas with other development financing institutions and state policy banks within the nation group, including Brazil Development Bank, China Development Bank and Export-Import Bank of India.

"A host of pragmatic issues require resolution, including the funding sources, ideal borrowers (whether it will be sovereigns or includes the private sector), types of project, geographical reach, bank headquarters and many others."

It has been proposed that each of the five member states would initially contribute $10 billion in seed capital to the BRICS bank.

The bank would then aim to borrow from global capital markets by issuing bonds, thus becoming a non-resident borrower in the US, Europe, Hong Kong and elsewhere.

"It is inevitable that the contributions will pressure some members more than others and associated risks may vary, as will the fund’s decision-making process. Unless pragmatically managed, political strains similar to those faced within the IMF may emerge," said Stevens.

With a much smaller pool of economies acting as guarantors, the BRICS bank is likely to have less favorable funding costs than the World Bank as well as individual BRICS state policy banks, he added.