Source:
BUSINESS DAY TV: The Brics Development Bank as a mechanism of change
by Transcript service, July 16 2014,
2014-07-18 14:26:04.0
Transcript service, July 16 2014
BUSINESS DAY TV: The Brics Development Bank as a mechanism of change
MARTYN Davies is from Frontier Advisory and Christopher Wood is a researcher at the South African Institute of International Affairs.
Part 2
BUSINESS DAY: We’re discussing the sixth Brics Summit which wraps up today in Brazil.
The Brics Bank was one of the key items on the agenda and also looked at the five member block as entering a new stage of co-operation. With us on News Leader are Martyn Davies from Frontier Advisory and Christopher Wood a researcher at the SA Institute of International Affairs.
Christopher do you think this meeting takes the Brics to a new level? South Africa chaired some of the councils over the past year… we spoke to Coenraad Bezuidenhout from The Manufacturing Circle yesterday and he certainly seems quite positive about some of the agreements that are coming out of this.
CHRISTOPHER WOOD: I’d say so… the bank and the contingent reserve take it to another level. The question is what is the level that comes after that, because there is talk now of further co-operation on things like export finance, reinsurance, on just basic macro-economic policy… in those areas there’s a lot less scope for common principles that are going to guide them to actually be able to turn this into real action.
So the challenge is going to be about how they use the bank more than what new innovations that come afterwards. This bank is going to really be their mechanism to effect change. Just as for the G-20 you’ve got the World Bank to really turn their ideas into actions. So the question is what comes next and I don’t think that’s a very clear answer.
BDTV: And how much of a challenge do you see it being, figuring out the answer because as much as we’re looking at co-operation here Martyn we’re looking at economies that compete on a global scale?
MRTYN DAVIES: Exactly that. Geopolitical collaborators, geoeconomic through trade competitors and even these days also competing for FDI (foreign direct investment). So you strip out the anti-western rhetoric, where there’s substance. Your comments about… from the Manufacturing Circle are interesting because what we’ve seen is… I’m stepping back a second… I’m a little bit sceptical about states directing capital.
Now unless you’re Chinese in recent years, no one really does developmental finance as well as the Chinese have and do, even as part of their foreign commercial policy. So aligned to this new development bank, from a South African perspective especially… the Brazilians, the Chinese most certainly, the Russians yes, the Indians try to an extent, align their foreign commercial policies through their own respective… Exim bank (Export-Import bank) and development banks… think Brazilian Development Bank in Brazil, China Development Bank, Exim Bank China, with the interests of their own domestic companies. So the conversation taking this further… what I would like to pick up on is saying ‘well since South Africa is contributing quite a sizeable amount to this capitalisation, making funds available for the bank to tap into, how are we projecting the interests of South Africa Incorporated into the Brics, into emerging markets and ultimately into Africa?’ Because ultimately the South African taxpayer is financing this.
BDTV: Martyn do you see economic benefits flowing out of this for South Africa such as standardised tariffs, so we don’t see flooding of cheap Chinese imports or cheap Brazilian chicken into the market?
MD: No, this is the whole thing… that’s called global trade and competition… and competition generally speaking is a positive thing and global trade lifts all boats ultimately. The thing is that in China’s case right now, again this is not a political conversation, this is a market reality. We can somehow think that… and this again… states are… and this is naivety… to believe that somehow a government to government conversation can somehow impede and restrict China’s manufacturing competitiveness. We thought about that in our textile garment sector, we may be thinking about it in chickens vis-à-vis Brazil. I’m sorry it doesn’t work like that. So the opportunity now for us from a manufacturing perspective has nothing to do with government to government interaction.
China in the next 10 years will lose approximately 80-million jobs… 80-million jobs because of the rising costs of production and how its stripping gains from productivity. Where are those jobs going? Light industrial, blue collar manufacturing, factory floor jobs. Most of them are going into Asia… so the real… Vietnam, Myanmar, Philippines, Indonesia… are the usual suspects.
So the real opportunity for us has nothing to do with Brics summits and government to government discussions. It’s about how does South Africa, unions aside, or other African countries step up to the plate and attract these 80-million jobs potentially in the next decade. We’re on the cusp of a 19th century style industrial revolution if only we only realised it. Coming out of China it’s a market force, it’s not a government created one.
BDTV: What’s your response to that Christopher because of course that’s the one reality? The other reality is that you’re dealing with economies, South Africa, Russia, the Indian economy, the Brazilian economy as well, that all have structural problems of their own… so how’s that coming to bear in addition to that on this collective collaborative agenda?
CW: Well I do agree with Martyn in as much as the Brics aren’t going to be able to direct trade flows. They’re not even going to be able set up a trade block or anything like that. I don’t see that happening and no one’s going to enter into a trade deal with China because, as Martyn says, they’re all too scared of Chinese productivity.
But we need to understand that this bank isn’t meant to solve all our problems, this isn’t meant to create or determine our structural transformation in each of the five countries. This has got a very focused mandate on infrastructural and sustainable development and I do think that the real question here is whether the cost that we’re putting in of the $2bn paid up-front capital is really worth the infrastructure development that we’re going to get, both in South Africa and in the rest of the continent to which we are closely intertwined.
BDTV: How do we leverage more off this relationship of South Africa sitting within the Brics entity?
CW: Well you leverage it through getting access to these resources for one thing, that’s of course the big thing. But basically we’re leveraging credibility. Our access to credit markets that we need to grow infrastructure aren’t based on hard fundamentals alone, they’re based on perceptions. And our perceptions are assisted when we’re backed up not just by our own funding but by the funding of four other massive emerging economies, and that’s the real thing that we can get to benefit from this. We can get cheaper access to credit to develop the infrastructure. We were going to spend the same amount of money basically if we’re going to fix our infrastructure, but we’re going to do it cheaper if we’ve got the assistance of four other large emerging economies helping us out.
BDTV: How do we ensure though Martyn… it’s something we discussed with Christopher previously, that China doesn’t drive its own agenda here because here we have South Africa looking into Africa, but China has its own agenda in Africa… so can we direct funds from this development bank to projects in Africa that aren’t going to step on China’s toes?
MD: Look, the largest financiers of infrastructure on the continent are the Chinese… through two institutions, China Exim Bank and China Development Bank. The loan book of China Exim Bank is probably nudging in Africa, probably $50bn. That’s come about in the last 10-12 years or so… this is a sizeable capital chunk. I’m somewhat sceptical because we… as the South African government, this is our own economic neighbourhood after all. I can hardly think of one example where we have Chinese state-owned companies in infrastructure, in extractive industries which are partnered with South African corporates in what is after all our own economic hinterland, on projects. Or will this be different? And you can’t blame the Chinese for boosting their national interest because that’s what countries do. If they do it better than others… well we need to step up to the plate.
BDTV: How much of a tussle do you see this being down the road?
CW: That’s a big question. I don’t think South Africa’s development power should ever be imagined as challenging China, particularly since China’s base is in low cost manufacturing which we’re just never going to be competitive in, or barring some miracle, it’s not going to be any way competitive. We’re going to be in higher end products, we’re going to be in services, we’re going to be in finance, and now of course as China transforms, as wage costs particularly drive transformation in China, it’s going to be interesting to see whether we increasingly come into competition with the Chinese.
Whether they’re going to move into the type of higher end manufacturing where we maybe have some capacity to compete and that’s going to be the big question. So it’s going to be in the future… but at the same time I don’t think the bank or the Brics necessarily are going to either stop that or going to damage our ability to achieve it. We should work with our rivals as well just so that we can sit at the table with them and understand what they’re doing.
BDTV: I’m sure this discussion is one we can continue on another occasion… of course it’s going to be interesting to see how this entire relationship is going to be evolving….
2014-07-18 11:23:24.0
MARTYN Davies is from Frontier Advisory and Christopher Wood is a researcher at the South African Institute of International Affairs.
Part 2
BUSINESS DAY: We’re discussing the sixth Brics Summit which wraps up today in Brazil.
The Brics Bank was one of the key items on the agenda and also looked at the five member block as entering a new stage of co-operation. With us on News Leader are Martyn Davies from Frontier Advisory and Christopher Wood a researcher at the SA Institute of International Affairs.
Christopher do you think this meeting takes the Brics to a new level? South Africa chaired some of the councils over the past year… we spoke to Coenraad Bezuidenhout from The Manufacturing Circle yesterday and he certainly seems quite positive about some of the agreements that are coming out of this.
CHRISTOPHER WOOD: I’d say so… the bank and the contingent reserve take it to another level. The question is what is the level that comes after that, because there is talk now of further co-operation on things like export finance, reinsurance, on just basic macro-economic policy… in those areas there’s a lot less scope for common principles that are going to guide them to actually be able to turn this into real action.
So the challenge is going to be about how they use the bank more than what new innovations that come afterwards. This bank is going to really be their mechanism to effect change. Just as for the G-20 you’ve got the World Bank to really turn their ideas into actions. So the question is what comes next and I don’t think that’s a very clear answer.
BDTV: And how much of a challenge do you see it being, figuring out the answer because as much as we’re looking at co-operation here Martyn we’re looking at economies that compete on a global scale?
MRTYN DAVIES: Exactly that. Geopolitical collaborators, geoeconomic through trade competitors and even these days also competing for FDI (foreign direct investment). So you strip out the anti-western rhetoric, where there’s substance. Your comments about… from the Manufacturing Circle are interesting because what we’ve seen is… I’m stepping back a second… I’m a little bit sceptical about states directing capital.
Now unless you’re Chinese in recent years, no one really does developmental finance as well as the Chinese have and do, even as part of their foreign commercial policy. So aligned to this new development bank, from a South African perspective especially… the Brazilians, the Chinese most certainly, the Russians yes, the Indians try to an extent, align their foreign commercial policies through their own respective… Exim bank (Export-Import bank) and development banks… think Brazilian Development Bank in Brazil, China Development Bank, Exim Bank China, with the interests of their own domestic companies. So the conversation taking this further… what I would like to pick up on is saying ‘well since South Africa is contributing quite a sizeable amount to this capitalisation, making funds available for the bank to tap into, how are we projecting the interests of South Africa Incorporated into the Brics, into emerging markets and ultimately into Africa?’ Because ultimately the South African taxpayer is financing this.
BDTV: Martyn do you see economic benefits flowing out of this for South Africa such as standardised tariffs, so we don’t see flooding of cheap Chinese imports or cheap Brazilian chicken into the market?
MD: No, this is the whole thing… that’s called global trade and competition… and competition generally speaking is a positive thing and global trade lifts all boats ultimately. The thing is that in China’s case right now, again this is not a political conversation, this is a market reality. We can somehow think that… and this again… states are… and this is naivety… to believe that somehow a government to government conversation can somehow impede and restrict China’s manufacturing competitiveness. We thought about that in our textile garment sector, we may be thinking about it in chickens vis-à-vis Brazil. I’m sorry it doesn’t work like that. So the opportunity now for us from a manufacturing perspective has nothing to do with government to government interaction.
China in the next 10 years will lose approximately 80-million jobs… 80-million jobs because of the rising costs of production and how its stripping gains from productivity. Where are those jobs going? Light industrial, blue collar manufacturing, factory floor jobs. Most of them are going into Asia… so the real… Vietnam, Myanmar, Philippines, Indonesia… are the usual suspects.
So the real opportunity for us has nothing to do with Brics summits and government to government discussions. It’s about how does South Africa, unions aside, or other African countries step up to the plate and attract these 80-million jobs potentially in the next decade. We’re on the cusp of a 19th century style industrial revolution if only we only realised it. Coming out of China it’s a market force, it’s not a government created one.
BDTV: What’s your response to that Christopher because of course that’s the one reality? The other reality is that you’re dealing with economies, South Africa, Russia, the Indian economy, the Brazilian economy as well, that all have structural problems of their own… so how’s that coming to bear in addition to that on this collective collaborative agenda?
CW: Well I do agree with Martyn in as much as the Brics aren’t going to be able to direct trade flows. They’re not even going to be able set up a trade block or anything like that. I don’t see that happening and no one’s going to enter into a trade deal with China because, as Martyn says, they’re all too scared of Chinese productivity.
But we need to understand that this bank isn’t meant to solve all our problems, this isn’t meant to create or determine our structural transformation in each of the five countries. This has got a very focused mandate on infrastructural and sustainable development and I do think that the real question here is whether the cost that we’re putting in of the $2bn paid up-front capital is really worth the infrastructure development that we’re going to get, both in South Africa and in the rest of the continent to which we are closely intertwined.
BDTV: How do we leverage more off this relationship of South Africa sitting within the Brics entity?
CW: Well you leverage it through getting access to these resources for one thing, that’s of course the big thing. But basically we’re leveraging credibility. Our access to credit markets that we need to grow infrastructure aren’t based on hard fundamentals alone, they’re based on perceptions. And our perceptions are assisted when we’re backed up not just by our own funding but by the funding of four other massive emerging economies, and that’s the real thing that we can get to benefit from this. We can get cheaper access to credit to develop the infrastructure. We were going to spend the same amount of money basically if we’re going to fix our infrastructure, but we’re going to do it cheaper if we’ve got the assistance of four other large emerging economies helping us out.
BDTV: How do we ensure though Martyn… it’s something we discussed with Christopher previously, that China doesn’t drive its own agenda here because here we have South Africa looking into Africa, but China has its own agenda in Africa… so can we direct funds from this development bank to projects in Africa that aren’t going to step on China’s toes?
MD: Look, the largest financiers of infrastructure on the continent are the Chinese… through two institutions, China Exim Bank and China Development Bank. The loan book of China Exim Bank is probably nudging in Africa, probably $50bn. That’s come about in the last 10-12 years or so… this is a sizeable capital chunk. I’m somewhat sceptical because we… as the South African government, this is our own economic neighbourhood after all. I can hardly think of one example where we have Chinese state-owned companies in infrastructure, in extractive industries which are partnered with South African corporates in what is after all our own economic hinterland, on projects. Or will this be different? And you can’t blame the Chinese for boosting their national interest because that’s what countries do. If they do it better than others… well we need to step up to the plate.
BDTV: How much of a tussle do you see this being down the road?
CW: That’s a big question. I don’t think South Africa’s development power should ever be imagined as challenging China, particularly since China’s base is in low cost manufacturing which we’re just never going to be competitive in, or barring some miracle, it’s not going to be any way competitive. We’re going to be in higher end products, we’re going to be in services, we’re going to be in finance, and now of course as China transforms, as wage costs particularly drive transformation in China, it’s going to be interesting to see whether we increasingly come into competition with the Chinese.
Whether they’re going to move into the type of higher end manufacturing where we maybe have some capacity to compete and that’s going to be the big question. So it’s going to be in the future… but at the same time I don’t think the bank or the Brics necessarily are going to either stop that or going to damage our ability to achieve it. We should work with our rivals as well just so that we can sit at the table with them and understand what they’re doing.
BDTV: I’m sure this discussion is one we can continue on another occasion… of course it’s going to be interesting to see how this entire relationship is going to be evolving….
News, views, analysis and multimedia coverage of the Brics nations
Register for our 
Login OR Join up TO COMMENT