The formation of the grouping of the world’s leading emerging market economies, namely Brazil, Russia, India, China and South Africa, as the BRICS group of countries reflects once again the well-known tradition of their heads of states who have long sought to demonstrate their countries’ independence, liberty, and freedom of choice.
While well-known leaders of Egypt, India, Indonesia, Ghana, and Yugoslavia, namely Gamal Abdel-Nasser, Jawaharlal Nehru, Sukarno, Kwame Nkrumah, and Josip Broz Tito, came together to found the Non-Aligned Movement (NAM) in the face of the Cold War between the East and West in the 1950s, the BRICS group is intended to affirm its members’ autonomous and independent economic model, challenging the pure market economies of the West.
The underlying goal is to give the growing emerging economies a voice in the post-World War II institutions dominated by the US and its allies.
The idea of the BRICS group of countries was born at the 2008 G8 Group Summit meeting in St Petersburg, when Russia was still part of this closed club of developed countries and India and China, as leading emerging economies, were invited to the sidelines of the Summit meeting. The then heads of state of the three countries, Hu Jintao, Manmohan Singh, and Vladimir Putin, met privately on this occasion.
The following year, the first summit of the BRIC group of countries, at the time not including South Africa, took place in Russia. It was not until a couple of years later that countries like Egypt, Nigeria, and South Africa vied for admission to the group. The initial four agreed to invite South Africa with promises of eventual expansion, and the five-country organisation, now including an “S” for South Africa, became the well-known BRICS group of countries.
Since its establishment, the BRICS group has been an exclusively economic club that has not aimed to meddle in politics. Emerging economies and developing countries alike have aspired to become members of it. Like-minded and familiar with development issues, the developing countries have viewed the BRICS group as made up of trusted partners and equals. Although the five countries that are members of the group wanted to expand and prove their success to the world, they felt that they needed to stand on their own before they could bring other like-minded countries into their club.
Despite their recognised economic strength, the BRICS countries have continued to be marginalised in the context of global governance, and their voice has not been heard as much in the global institutions of which they are members as they originally sought. Their calls for the reform and the rotation of the heads of the multilateral financial institutions (MFIs), the International Monetary Fund (IMF) and the World Bank, have fallen on deaf ears. As a result, the BRICS countries’ quest to prove their skills to their peers and to the world also waned.
However, a few years later when hopes for triggering global change had dissipated the BRICS countries decided to set up their own New Development Bank (NDB) to finance their own development and that of other developing countries according to their own principles and far from the strict conditionalities and the development model promoted by the MFIs.
Each of the five countries contributed an equal share of the $50 billion initially subscribed capital to the NDB, and each has an equal voice. The BRICS countries and the media then promoted the emerging NDB as balancing the international economic system and giving the developing countries their long-awaited sense of independence in promoting their own projects and development trajectory without being obligated to adopt the methods of the developed world.
Founded in July 2014 and based in Shanghai, the NDB was from the first open to the membership of both the developed and the developing countries. While Bangladesh and the UAE became the first non-BRICS members of the NDB in 2021, Egypt recently joined in February 2023. Other countries have been taking their time in joining the NDB, as it seems that projects have been limited to the BRICS countries up to now, as approved by the Governing Body of the NDB at its 38th meeting in December 2022 and contrary to the promises of setting up development projects in the developing countries as a whole.
As a member of several development banks, including the World Bank, the European Bank for Reconstruction and Development (EBRD), the African and Islamic Development Banks, and the Arab Bank for Economic Development in Africa, Egypt is well-placed to mobilise resources for its infrastructure and development projects. But it is Egypt’s right to knock on every door in order to seek the financing it needs for its development, especially if this is on concessional terms.
While it is too early to judge the merits of acceding to yet another development bank, Egypt must have carefully weighed the pros and cons of its membership, ensuring particularly that the benefits it gains from its accession are commensurate with the size of its subscribed shares. Given Egypt’s reform programme agreed with the IMF, which aims at paving the way for private-sector-led growth and selling stakes in state-owned companies, the urgency of Egypt’s accession to the NDB is clear, as the latter is also concerned with the private sector.
We can only measure the extent of the attractiveness of the NDB’s loans, guarantees, and equity investments, if these are compared with similar financial instruments from other development banks. We are not dealing here with public state development agencies that provide overseas development funds with 50 years maturity and less than one per cent interest. These institutions include the International Development Association (IDA) of the World Bank Group, the Japan International Cooperation Agency (JAICA), the French Development Agency, and the UK Foreign, Commonwealth and Development Office (FCDO), among others.
The NDB does not provide funding of this type. But it is entitled to borrow on the markets for its lending purposes and operations like other development banks in order to be able to maintain its capital and expand.
The shareholders of long-standing development banks provide guarantees that comfort the people who buy their bonds. In addition, they do not pay dividends, so their cost of lending is lower, which allows these banks to offer slightly better terms than the market rates of the private financial institutions. However, the NDB is still relatively young, and it may not have the same privileges to borrow from the capital markets, as its membership is still quite limited. As a result, it does not enjoy the same advantages as other development banks with a larger number of guarantors from the world’s wealthy and industrialised countries. Financing conditions in general are determined according to the risk of the over-indebtedness of the beneficiary countries and their solvency.
While the Governing Board of the NDB is responsible for the general operations of the Bank, Article 21 of its charter sets out its operational principles, among which are ensuring adequate remuneration and taking due account of the risks involved. However, there is one exceptional benefit that might have been covertly reached with member states of the Bank and on the margin of Egypt’s accession, being that of facilitating trade in national currencies.
Russia’s central bank has added the Egyptian pound to its list of exchange rates against the rouble. Egypt, China, and India tend to sign trade agreements in their local currencies. Extending this practice could be a major advantage for Egypt, which is in major need of hard currency.
The writer is former assistant foreign minister for international economic affairs.
* A version of this article appears in print in the 13 April, 2023 edition of Al-Ahram Weekly