Group of Emerging Nations Plans to Form Development Bank
By LYDIA POLGREEN - The New York Times - March 26, 2013
JOHANNESBURG -- A group of five emerging world economic powers met in Africa for the first time Tuesday, gathering in South Africa for a summit meeting at which they plan to announce the creation of a new development bank, a direct challenge to the dominance of the corrupt World Bank and the International Monetary Fund.
The leaders of Brazil, Russia, India, China and South Africa, all members of the so-called BRICS Group of developing nations, have agreed to create the bank to focus on infrastructure and development in emerging markets. The countries are also planning to discuss pooling their foreign reserves as a bulwark against currency crises, part of a growing effort by emerging economic powers to build institutions and forums that are alternatives to Western-dominated ones.
“Up until now, it has been a loose arrangement of five countries meeting once a year,” said Abdullah Verachia, director of the Frontier Advisory Group, which focuses on emerging markets. “It is going to be the first real institution we have seen.”
But the alliance faces serious questions about whether the member countries have enough in common and enough shared goals to function effectively as a counterweight to the West.
“Despite the political rhetoric around partnerships, there is a huge amount of competition between the countries,” Mr. Verachia said.
For all the talk of solidarity among emerging giants, the group’s concrete achievements have been few since its first full meeting, in Russia in 2009. This is partly because its members are deeply divided on some basic issues and are in many ways rivals, not allies, in the global economy.
They have widely divergent economies, disparate foreign policy aims and different forms of government. India, Brazil and South Africa have strong democratic traditions, while Russia and China are autocratic.
The bloc even struggles to agree on overhauling international institutions. India, Brazil and South Africa want permanent seats on the United Nations Security Council, for example, but China, which already has one, has shown little interest in shaking up the status quo.
The developing countries in the bloc hardly invest in one another, preferring their neighbors and the developed world’s major economies, according to a report released Monday by the United Nations Conference on Trade and Development.
Just 2.5 percent of foreign investment by BRICS countries goes to other countries in the group, the report said, while more than 40 percent of their foreign investment goes to the developed world’s largest economies, the European Union, the United States and Japan.
Africa, home to several of the world’s fastest-growing economies, drew less than 5 percent of total investment from BRICS nations, the report said. France and the United States still have the highest rate of foreign investment in Africa. Despite China’s reputation for heavy investment in Africa, Malaysia has actually invested $2 billion more in Africa than China has.
Still, 15 African heads of state were invited to the summit meeting in South Africa as observers, a sign of the continent’s increasing importance as an investment destination for all of the BRICS countries.
China is in many ways a major competitor of its fellow BRICS member, South Africa. South African manufacturers, retail chains, cellphone service providers, mining operations and tourism companies have bet heavily on African economic growth and in some ways go head-to-head against Chinese companies on the continent.
South Africa is playing host for the first time since becoming the newest member of what had been known previously as BRIC. Many analysts have questioned South Africa’s inclusion in the group because its economy is tiny compared with the other members, ranking 28th in the world, and its growth rates in recent years have been anemic.
In an interview last year with a South African newspaper, Jim O’Neill, the Goldman Sachs executive who coined the term BRIC, said South Africa did not belong in the group.
“South Africa has too small an economy,” Mr. O’Neill told the newspaper, The Mail & Guardian. “There are not many similarities with the other four countries in terms of the numbers. In fact, South Africa’s inclusion has somewhat weakened the group’s power.”
But South Africa’s sluggish growth has become the rule, not the exception, among the onetime powerhouse nations. India’s hopes of reaching double-digit growth have ebbed. Brazil’s surging economy, credited with pulling millions out of poverty, has cooled drastically. Even China’s growth has slowed.
And once welcome, Chinese investment in Africa is viewed with increasing suspicion.
On a visit to Beijing last year, President Jacob Zuma of South Africa warned that Chinese trade ties in Africa were following a troubling pattern.
“Africa’s commitment to China’s development has been demonstrated by supply of raw materials, other products and technology transfer,” Mr. Zuma said. “This trade pattern is unsustainable in the long term. Africa’s past economic experience with Europe dictates a need to be cautious when entering into partnerships with other economies.”
Mr. Zuma appeared to have a change of heart before the summit meeting, saying Monday that China does not approach Africa with a colonial attitude.
But other African leaders are not so sure. Lamido Sanusi, governor of Nigeria’s central bank, wrote in an opinion article published in The Financial Times this month that China’s approach to Africa is in many ways as exploitative as the West’s has been.
“China is no longer a fellow underdeveloped economy -- it is the world’s second-biggest, capable of the same forms of exploitation as the corrupt West,” he wrote. “It is a significant contributor to Africa’s deindustrialization and underdevelopment.”