The world’s top emerging economies namely Brazil, Russia, India, China and South Africa (BRICS) launched their joint development bank named New Development Bank (NDB) on 15th July 2014. The signing of the agreement in Fortaleza Brazil by the heads of the five countries brought to culmination the process initiated in March 2013 in the BRICS’ 5TH Summit in Durban South Africa.
Seen as a move to stamp their economic significance in the globe, the five member countries will each contribute $10 billion to the initial capital of the bank. This will constitute a total of $50 billion as initial capital and give the five member countries equal voting powers. The capital shall however be raised to $100 billion with time. The money shall be used to finance development projects in the emerging economies, with infrastructure and sustainable development being the major focus areas.
Beside the core capital, the bank shall also have a Contingent Reserve Arrangement (CRA). With $100 billion put in the reserve, the aim is to cushion the member states against liquidity shocks in tough economic times. China shall contribute 41% of the total amount to the reserve, Brazil, India and Russia each shall contribute 18% while South Africa shall contribute the remaining 5%.
With no member country being allowed to raise its capital investment in the bank without the consent of the other four countries, the bank is set to start lending from 2016. It shall also open its doors to other countries then but the total shareholding of the five founding countries shall not be allowed to go below 55%.
China managed to win the bid to be the host country for the NDB’s headquarters which shall be located in Shanghai. The African Regional Centre for the bank shall be located in Johannesburg South Africa. India shall provide the president for the bank for the first 6 years while the chairman for the Board of Governors shall come from Russia and the chairman for the Board of Directors come from Brazil.
The opening of the New Development Bank is seen by analysts as a game changer to the international finance dynamics. The Breton Woods institutions namely the World Bank and the IMF are also on the spot as the bank comes as a competitor in development lending and as a comparative on matters efficiency and effectiveness. However, after all is said and done, the success of the NDB will be based on the execution of their plan not on the signing of the agreement.