Will the Brazil-Russia-India-China-South Africa (BRICS) bloc ever really challenge the world financial order, as is often advertised? New Development Bank (NDB) leaders meet in Delhi this weekend, to restate a vision of financial alternatives to the World Bank and International Monetary Fund (IMF). Indeed the NDB began with environmentally-oriented loans last year, and in 2017 aims to add $3 billion in new credits.
But from South Africa’s standpoint, chaos reigns. Finance Minister Pravin Gordhan was one of 20 ministers and deputy ministers fired or shifted by President Jacob Zuma at midnight on Thursday. The new labour federation headed by Zwelinzima Vavi and Irvin Jim plus a ‘Save South Africa’ movement combining progressives and liberals have called for an #OccupyTreasury protest in Pretoria, given the prospects – they argue – for a full-fledged looting of state resources by Zuma’s patronage-oriented allies.
Gordhan, who was one of the NDB’s five Governors, is replaced by Malusi Gigaba, a former African National Congress (ANC) Youth League leader who since 2010 has served at cabinet level overseeing public enterprises and home affairs, replete with controversies over excessive visa control-freakery and white-elephant infrastructure. Surprisingly to all observers, the SA Communist Party’s leaders (including Blade Nzimande who is higher education minister, Jeremy Cronin who is deputy public works minister and a half-dozen others) were not touched in the Cabinet reshuffling. They had threatened that if Gordhan was fired, they would quit en masse, so this weekend’s House-of-Cards-style maneuvers will be of unprecedented intensity.
Financiers reacted by driving the currency 5% lower in the first hours of Friday, and with renewed threats of an international junk rating imposed on the country’s bonds. Parliamentary opposition parties had on Thursday launched the 8th attempt at impeachment (if 50 ANC members of parliament agree when the vote comes up in early May, that could end Zuma’s political career – a prospect he takes into account regularly). The left opposition party launched a court challenge. None of these is likely to sway Zuma, who wants his last two years as president to be unencumbered by an austerity-oriented Treasury.
Chaos is not limited to South Africa’s conflict over the Finance Minister job and hence BRICS NDB representation, but also entails the unwillingness of the only local NDB borrower so far – the electricity parastatal Eskom – to support renewable energy; the apparent state manipulation by an Indian family (the Guptas) and a Russian nuclear vendor; and perhaps most importantly, the country’s (and continent’s) capitalisation and debt repayment capacities.
Greenwashing finance and multilateral deform
Why green loans? The original NDB designers were two former World Bank chief economists, Joe Stiglitz and Nick Stern. Although their public endorsements of the NDB stressed sustainable development and climate change, in private Stern offered a different rationale during a 2013 conference of the elite British Academy (which he chairs): “If you have a development bank that is part of a [major business] deal then it makes it more difficult for governments to be unreliable.”
Stern asked, “are there any press here, by the way? OK, so this bit’s off the record. We started to move the idea of a BRICS-led development bank for those two reasons. Coupled with the idea that the rich countries would not let the balance sheets of the World Bank and some of the regional development banks expand very much, and they would not allow their share in those banks to be diluted.”
While this is true, the BRICS gained substantial IMF voting power increases in the 2015 restructuring (e.g. China up 37%, India 23%, Brazil 11% and Russia 8%), but with negligible United States or European dilution. Instead, the rising BRICS shares were as a result of Nigeria and Venezuela losing 41% of their vote, along with Libya at -39%, Morocco -27%, Gabon -26%, Algeria -26%, Namibia -26%, Cameroon -23%, Mauritius -21% and even South Africa lost 21%.
Four BRIC countries stood on African and Latin American heads to get better executive director seats at the IMF table. When they got there, the BRICS directors approved the reappointment of Christine Lagarde in 2016 and after she was convicted on a $430 million corruption charge last December, the IMF directors unanimously endorsed her continued employment.
The NDB’s first loans did boost environmentally-oriented projects, as $300 million went to Brazil, $81 million to China, $250 million to India and $180 million to SA, the latter to connect renewable Independent Power Producer generators to the main grid. But these processes are accomplished with mostly local-currency inputs, hence the US$ loans were inappropriate. Like the other multilaterals, NDB repayments are in US dollars, which adversely affect the borrower’s balance of payments, although the NDB has started fund-raising from yuan and rupee markets so this may eventually change.
But worse, Eskom’s two most recent leaders, Brian Molefe and Matshela Koko, simultaneously announced that they wanted nothing more to do with renewable energy. A massive battle over renewables was only resolved a month ago when Gordhan’s Budget Statement recommitted to the IPP contracts. (Koko may well have to step down after last week’s conflict-of-interest revelations involving a scandalous $100 million tender suspiciously won by his stepdaughter’s company.) Gordhan also refused Eskom further nuclear energy financing, beyond an initial $15 million: a tiny downpayment on the in-principle reactor purchase agreement that Zuma had made with Moscow-based Rosatom, at an anticipated cost of $50-100 billion. The main supplier of raw inputs to the nukes will be Oakbay, a uranium (and coal) company owned by the notorious Gupta brothers.
This week’s Gupta-versus-Gordhan turmoil is extremely important to the BRICS not only because the former finance minister was an NDB Governor. (The Guptas spent this week in court fighting Gordhan over his failure to reverse the main SA commercial banks’ boycott of Oakbay and other Gupta-owned firms. That boycott is the widely understood reason that Gordhan was recalled from a UK-US investment trip on Tuesday morning: to be fired.)
Also, the oft-rumoured ascension of Molefe to a Cabinet post has been postponed – unless Communist Party members Rob Davies and Ebrahim Patel now leave Zuma’s government in protest. Molefe was SA’s BRICS Business Council leader until recently (now he is one of five), until forced to resign as Eskom chief executive as a result of the Public Protector’s “State of Capture” report, revealing manipulation of Eskom by the Guptas including phone records and a GPS tracker. After implying that the Gupta’s lush Johannesburg neighbourhood hosts a shebeen (pub) that could explain his regular presence in Saxonwold, Molefe’s credibility was permanently destroyed. Nevertheless, in January, Molefe was appointed to parliament amidst fresh controversies over Gupta meddling and predictions of Molefe’s appointment to Cabinet.
Just before the Eskom resignation, Molefe made an articulate appeal for a replacement of “the current ‘casino’ financial system or ‘law of the jungle’ with a project that expressly promotes the common good among nations… BRICS and its allies are taking bold corrective measures by building a world system based on real value and to create a system capable of fundamentally shaping socio-economic growth and development. There have been some significant steps taken, in particular the launch of the NDB, which has already started funding key projects.”
Yet these are the very ‘key projects’ – renewable energy – that Molefe was sabotaging at that time, suggesting his NDB pronouncements simply cannot be taken seriously. The NDB website itself observes “a need for Multilateral Development Banks to reinvent themselves” on the one hand, but on the other, its president KV Kamath last September signed a deal with the World Bank for “co-financing of projects; facilitating knowledge exchange… and facilitating secondments and staff exchanges.”
In contrast to Molefe, two other NDB executives from SA receive regular praise. Ironically, Pretoria’s Non-Executive Director is former Reserve Bank Governor (1999-2009) Tito Mboweni, who had slammed the NDB as “very costly” in 2013. Upon accepting the NDB directorship two years later (as the only one of the five not employed by a BRICS state), he promptly declared that nuclear energy financing “falls squarely within the mandate of the NDB.”
Mboweni is International Advisor to Goldman Sachs. That should have been an embarrassment in January 2016 when according to financial journalists, the bank “identified shorting the rand as one of its top trades for this year due to falling commodity prices and SA’s current account deficit.” At that point the SA currency was rapidly pushed down to its historic low of R18/$. (It since recovered to R12/$ after the speculative wave ebbed, but recent Treasury turmoil just drove it below R13/$.)
SA’s NDB Vice President and Chief Financial Officer, Leslie Maasdorp, also worked at Goldman Sachs (and Barclays and Bank of America), led Pretoria’s failed privatisation strategy and was an unsuccessful, short-lived chief executive of privatised education firm AdvTech.
One other NDB job remains open: the much-advertised head of the NDB Africa Regional Centre in Johannesburg. In December 2015, Zuma announced that his 2014-15 finance minister, Nhlanhla Nene, would urgently take that job. It appeared to be a fig-leaf appointment, so as to replace the fiscally-conservative Nene with a man – Desmond van Rooyen – considered close to the Guptas.
This caused such an uproar that not only did three top white bankers communicate to Zuma that he must reverse course, but also a “critical intervention” (according to the country’s leading business writer, Peter Bruce) was made by Beijing’s owners of the Johannesburg-based Standard Bank, leading to van Rooyen’s firing within four days, and Gordhan’s appointment.
Zuma, acting as clumsily as usual, never had a guarantee of Nene’s job from the NDB officials, who subsequently stalled the Africa Regional Centre’s launch. It was originally scheduled for March 2016. Then last September, the BRICS Business Council website declared that the new Centre’s Johannesburg headquarters would be ready by November. (The Africa Regional Centre is still to be launched, now more than a year late.)
The location was ‘well received’ in the rest of Africa, according to the Business Council, because the NDB will lend to other countries, not just the BRICS. Leading Ugandan official Louis Kasekende argued that Africa should “have access to credit as quickly as possible at low rates,” especially to “reduce the timeframe of projects finalisation and approval process.”
Inappropriate finance for Africa
Reducing the timeframe would logically mean reducing attention to environmental and social dimensions (the critique of development banks and the NDB most often made by civil society). But the larger problem is the exceptionally high debt burden African countries now shoulder, following the world crash of commodity prices from 2011-15. The NDB would offer Africa only hard-currency loans that are extremely expensive when currencies crash.
As the Financial Times recently reported, “One factor Africa’s indebted countries have in common is sharp devaluations of their currencies against the US dollar. Since mid-2014, the Mozambique metical is down 56 per cent against the dollar, the Angolan kwanza 41 per cent and the Ghanaian cedi 36 per cent, for example.” In 2011, 6.3 South African rand bought a US dollar; today it costs twice as much.
After multilateral lenders’ and G7 debt relief in 2006, the foreign debt of SubSaharan Africa was cut by $100 billion, to $200 billion. But thanks mainly to Chinese state loans (associated with the extractive industries), it is now up again above $400 billion, with countries like Angola, Chad and Ghana paying more than 30% of their governments’ revenues on debt servicing.
South Africa’s own payment obligations to the BRICS NDB will become onerous as well. To capitalise the NDB, $680 million was allocated by Nene in 2015-16, rising steadily to $3.2 billion this year and $6.2 billion by 2020. The NDB’s capital base, which is notionally $100 billion, is shared equally by all five (unlike the $100 billion Contingent Reserve Arrangement which treats South Africa the way the IMF does, with a much smaller share of the quota: $10 billion). Other multilateral financiers cost South Africa $19.2 billion in ‘provisions’ made in the current budget (i.e. to be paid when called for by the financier); indeed only the IMF capital subscription will be more costly ($6.4 billion this year, rising to $7.2 billion in 2020) than the NDB.
Paying these substantial subscriptions is onerous, given that they contribute to enforcing the neo-liberal ideology that continues oppressing the continent’s people. But moreover, South Africa also faces a terrifying rise in its own foreign debt, which according to the March 2017 SA Reserve Bank Quarterly Bulletin had risen to $143 billion in September 2016, a $10.6 billion rise over the prior three months. At 50% of GDP, this is the highest debt burden in the country’s modern history; the only prior default was in 1985 when the ratio was 40%.
The main reason for soaring foreign debt is that multinational corporations are taking SA-sourced profits and dividends to London and other offshore financial headquarters, causing a persistent current account deficit. Indeed, as Chinese lenders, Indian steelmakers, other BRICS mining houses and the Gupta family externalise their own funding flows, the tragic irony of the NDB emerges.
In short, the unnecessary NDB loans to Eskom contribute to more BRIC power over the one African country, South Africa, that once had the potential to stand up and fight for justice. But perhaps just like Molefe in the Gupta’s lush Johannesburg suburb, that liberatory rhetoric might just have been Saxonwold shebeen talk.
Meanwhile in Delhi, the NDB annual meeting will be preceded by a day-long critique by the BRICS People’s Forum at the Indian Social Institute on March 30. It’s appropriate to conclude with their similar misgivings:
“the Bank is shrouded under a veil of secrecy. The website of the Bank lacks information about its activities to the extent that more than official records, one has to rely on secondary and tertiary sources of information… the NDB is yet to draft any such [socio-economic and environmental] operational guidelines and redressal… communities may face threats of displacement, evictions, ecological destruction, loss of livelihoods, and severe curtailment of basic rights to life. These issues have recurred for decades due to projects funded by other multilateral development banks. Moreover, as a co-financier with other development institutions, the intensity of NDB’s seriousness on the objectives of promoting transparency, accountability and probity stands questioned.”
Patrick Bond is professor of political economy at the Wits University School of Governance in Johannesburg and co-editor of BRICS: An anti-capitalist critique (published by Haymarket, Pluto, Jacana and Aakar).