Banking on Success
SONG WEIWEIA wind project in southeast China’s Fujian Province. The second phase of the project was financed by the New Development Bank As one of the major supporting facilities of the BRICS cooperation, the New Development Bank (NDB), headquartered in Shanghai, China, formally came into existence as a legal entity in 2015 to provide much needed funding to assist infrastructure development.
ChinAfrica spoke to Leslie Maasdorp, Vice President and Chief Financial Officer of NDB, to find out more about the bank’s operation and its plans going forward. An edited excerpt of his views follows:
ChinAfrica: What is the role of the NDB in the BRICS group?
Leslie Maasdorp: The NDB was established to finance long-term infrastructure, especially sustainable infrastructure, in Brazil, Russia, India, China and South Africa. There is a huge need to finance the building of ports, roads and railways, and power all kinds of big infrastructure so as to continue the process of industrialization and the economic growth of these economies. All of the BRICS economies are emerging markets and in need of some new economic infrastructure. There is a huge financing gap in the building of this infrastructure.
There are existing financial institutions that also finance infrastructure construction. We were started by these five countries to complement, [and] to be an additional resource to help them with infrastructure roll-out.
What achievements has the NDB made up to date?
The bank was started in July 2015. Since then, we have completed loans to the tune of $5.1 billion. Those loans are for projects in all of the sectors that I’ve mentioned: ports, airports and railways, [and with a] strong focus in renewable energy, some focus on water and urban infrastructure - so the bank has in a very short space of time established itself and has 120 professionals working for the institution. As I mentioned, we have completed about 16 projects in the five countries.
How does the NDB create a balance of funding among its member countries?
The bank firstly is unique in the sense that it is owned in equal shareholding by the five BRICS countries; so each country holds 20 percent of the shares. Each of the five countries put in $2 billion of equity, and we have also what’s called callable capital of $40 billion. So the total subscribed capital base of the bank is $50 billion. The bank is focused on a model of equal participation by the five members. So the five countries are also represented equally in the form of top management. Each country has one representative; therefore, no country has veto power in the bank or controls the bank. It’s run equally by the BRICS countries.
How does the NDB work in harmony with other international financial institutions?
The NDB was created as a voice of the emerging markets. All of these five BRICS members are developing countries; however we definitely work in a complementary fashion with other financial institutions like the World Bank, the Asian Development Bank and the African Development Bank. The reason for that is the large demand for infrastructure funding.
The amount of infrastructure funding needed to build all the new roads, ports, airports and power stations required is very large. Each of these banks contributes to that effort and there is still a massive gap of funding needed. So there is no real competition among these banks. We are all owned by the government, so we therefore have a public policy mandate. We all focus on financing infrastructure.
In fact, we are working right now on projects where we cooperate directly with the World Bank and Asian Development Bank, and we are funding these projects together. What is unique about the NDB is that our focus is much more on the demand and the needs of developing countries and emerging markets.
What innovative approaches to development will the NDB pursue?
So first, as I have already mentioned, the overwhelming majority of our projects are focusing on sustainability. So whatever we do, we are going to build it in such a way that we are focusing on the long-term needs of the five countries, [and] on how to reduce carbon emissions in these economies. We will contribute to clean and green energy in these countries. So that’s the first differentiator. Second, we want to level off new technology [as] there has been significant advances in technology in the way infrastructure is built today. The kind of world we live in 20 or 30 years from now is going to be very different from the world we live in today. So we are trying to look at all the ways in which we can use the best that technology offers.
The third aspect of importance in innovative approaches is that in the past, multilateral banks mainly advanced loans in the U.S. dollars, [but] we will also lend to countries in their local currencies which then enables the countries to avoid foreign exchange risk. The bank will also pursue local currency financing, which is also a form of innovation.
Fourth, we will also look at new forms of financing with the private sector. So the bank will not only lend to the government and state-run enterprises, but will also lend to the private sector to bring in more private sources of capital to finance these infrastructures.
In what way can the NDB be of help to Africa’s development as a whole?
First, the bank is focused on lending mainly to the BRICS countries; so in Africa, South Africa is the only member country for now. However, we will put specific emphasis on projects that advance and enhance regional connectivity and regional integration. So in South Africa, we will look at projects that can benefit the region. That’s the first way the African continent will benefit.
The second way is that the bank will, in the next year or so, open up its membership to new countries to join and we anticipate that other African countries will join the bank and then will be able to directly apply for loans. The reason why countries will be quite interested [in this] is because the cost of capital or interest rate of the loans will be very competitive. We will be able to give better rates compared to what they get from commercial banks. So we will be able to help the advancement and development of Africa by granting loans for infrastructure construction in these countries.
** Comments to [email protected]