THE showpiece decision of the Brics summit, the five-nation gathering of leading developing nations taking place in Durban, is the creation of a new development bank.
How important is this decision and how useful will the bank turn out to be?
The biggest problem with the concept is that it appears to emanate as much out of a desire to rival the World Bank as a desire for a trade-boosting, infrastructure-supporting entity. In a sense, it’s rooted in ideology rather than practicality. And that ideological decision is rooted in a statist approach to development, rather than a market-related approach. Hence the question becomes: can a development bank established to replace what its participants view as the Washington Consensus with the Beijing Consensus really work?
This is a different question to the technical one of whether development banks are desirable. In broad terms, they are. There are a host of examples of successful development banks, and by some estimates there are nine already operating in South Africa, including the Development Bank of Southern Africa and the African Development Bank.
The argument against the Brics Development Bank, or BDB as it is likely to be called, is really that development finance in South Africa, and in Africa for that matter, is not the key problem. The problem is bringing workable, bankable projects to fruition. South Africa already has a well-developed financial sector, and good projects with good prospects are usually able to attract capital.
The problem is that capital provision is only one aspect of any enterprise. The more important commodity is a positive business environment, including regulatory ease and certainty, labour stability and modest taxation. All of these generally require not only a pro-business mentality but a pro-market mentality. That mentality exists but in a muted and circumscribed way in most of the Brics countries.
The Chinese in particular might argue that they have a different route, that of state-dictated economic growth. The South African government seems enamoured of this approach, which its supporters describe as "the developmental state". Yet the differences between the two countries are so enormous, comparison verges on the absurd.
It is possible to level some other critiques at the bank, too.
The five nations involved have all pledged to capitalise the bank with $10bn each as a start, but this does not make for much of a bank.
By comparison, the World Bank grants loans of between $30bn and $40bn a year. China’s export-import bank, the Exim Bank of China, is estimated to grant more loans on its own than the World Bank does.
What’s more, it is significant that all participants are contributing equally, despite the great difference in the size of the economies of the different countries. Presumably, this is dictated by the political necessity of ensuring that no country is seen to be dominating. The consequence, however, is that the bank will be constrained by the speed at which the smallest country — that would be South Africa — can run.
That argument in favour of the bank is really that it cements the foundations of the institution. It allows the participants to deflect the claim that the Brics grouping is a "talk shop", and demonstrates some practical utility.
For South Africa, this is important. The country has managed to engineer a way into the organisation despite being way out of the frame economically, on the basis that its presence is symbolic of continental participation. It’s therefore crucial that South Africa is able to deliver on that implied promise and become a true gateway into Africa.
Being part of a well-capitalised, professionally run, practically orientated bank could help in that process. But there is lots of ground to cover before it can be demonstrated that this is what will eventuate here.