ActionAid South Africa Draft Discussion Paper – Financing for Development? The Development Bank of South Africa and its Footprint in Africa

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The DBSA beyond South Africa

The DBSA is regarded as a key player in “development” infrastructure in South Africa and beyond its borders. Within Southern Africa and increasingly within Sub-Saharan Africa, it is both a “financier of infrastructure, a manager of project preparation facilities, a catalyst for partnership among neighbouring countries, a capacity builder and a knowledge broker”.

The work of the Bank is undertaken through the International Financing Division. The DBSA and the African Development Bank are the two main indigenous state-owned public development finance institutions based in Africa. According to the Bank’s 2013 Integrated Annual Report, the main role of this division is to “leverage infrastructure development opportunities and stimulate economic growth” in Southern Africa, beyond South Africa.

In 2012, SADC adopted 15-year Regional Infrastructure Development Master Plan (RIDMP), which provides a framework for cooperation amongst member states in energy, transport, information and communications, water and tourism projects. Current estimates of the overall plan are in the region of US$500-billion.

At an investor’s conference in Maputo last year, a short term action plan, estimated at US$63-billion, and key factors to guide the implementation of the RIDMP was agreed. These included issues such as project preparation, financing and implementation, building institutional capacity and the importance of coordination. A committee of SADC finance ministers has been established to discuss mechanisms to oversee project financing and institutional mechanisms. Once such mechanism put in place is the Project Preparation and Development Facility (PPDF). Seed capital of just $US1.2-billion is provided but way below the projected budget. SADC governments are committed as the primary funders of the RIDMP through the offering of international bonds.

The DBSA is currently involved in several infrastructure projects in the region. In the 2011-2012 financial year, disbursements amounted to R3,2 billion. For the 2012-2013 financial year, in what the Bank describes as a “challenging trading environment”, loan approvals totalled R5.6-billion but actual disbursements amounted to R665-million. Net profit grew year on year from just over R18-million to just over R294-million. Within SADC, the international development agencies of countries as Japan, China, India, the UK and Germany are already involved with other multi-lateral agencies such as the World Bank and the African Development Bank.

The DBSA has loans committed mainly in the transportation, energy, mining, ICT, health, financial services and manufacturing in Angola, Lesotho, Mozambique, Tanzania, Zambia, Zimbabwe and small multi-country projects. A key project towards regional integration is the agreement by the regional economic communities – SADC, Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC) – to develop the North-South Corridor by upgrading the road, rail and port infrastructure and the concept of “one-stop border posts” in the countries involved. This agreement is known as the “Tripartite Agreement” and endorsed by the African Union through its Presidential Infrastructure Champions Initiative which SA President, Jacob G Zuma, chairs.

As part of its new mandate emphasising project preparation, the Bank has focused on project origination as an “important element for generating business and improving development impact”. According to the Bank this enables the international financing division to “play a proactive role in shaping projects” whilst supporting the development of “infrastructure solutions for the region”. This is a shift from the Bank approving funds for externally designed projects.

Currently one such large scale project appraisal in the energy sector is the Ruzizi 3 Hydro Project on the border between the DRC and Rwanda which will generate electricity for the two countries and Burundi. Another is the Zizabona Energy Interconnector covering Namibia, Botswana and Zambia to power generation sources in Zimbabwe.

From a SADC perspective a key issue is the character and governance of the DBSA. On the one hand, it is an institution created by an act of parliament in South Africa and is owned and accountable to its shareholder which is the South African government. Yet on the other hand, its development finance mandate extends to Southern Africa and beyond. This has created tensions within the region, particularly within civil society, and questions are posed as to whether in name it could truly live up to its name as a “Southern African development bank”, given its limited funding, its mandate and shareholder accountability.

  1. Gearing for the Future – DBSA, BRICS and International Relations

According to DBSA estimates, average forecasted growth across Africa is expected to be between 4 and 5 per cent. Foreign direct investments are projected to increase to approximately US$54-billion in 2015 for infrastructure particularly roads, rail, ports, airports and in sanitation, water and energy. Based on these forecasts the DBSA believes it is “well positioned” to increase its footprint on the continent by investing in core sectors viz., energy, water and transport and bring about “immense strategic benefits to both South Africa and the rest of the continent”.

The key issue is whether the DBSA will be able to compete with the finance and investment institutions in the US and Europe which combined hold the largest share of projects on the continent. According to Deloitte’s latest research report on the construction industry, of the total $222-billion in infrastructure projects currently underway in Africa, thirty seven per cent are worked on by US and European companies, 12 per cent by Chinese companies and the rest are undertaken by contractors from Korea, Brazil, Japan, Australia and South Africa.

One way of reducing the costs and risk exposure is to work with international partners outside of the region. The DBSA, together with institutions such as the European Investment Bank, the French Agency for Development, the UK’s Department for International Development, the German Credit Agency for Reconstruction and the UN’s Office for Project Services, has led technical and grant assistance facilities to support regional integration. Recently the European Union (EU), under the terms of the South Africa-EU Infrastructure Investment Programme approved a facility of GBP 100-million to be managed by the DBSA on behalf of the SA government. In addition, the Bank seeks to “leverage its relationships” with leading institutions from Asia and the BRIC nations to secure co-financing for regional projects.

The fifth meeting of the BRICS countries was held for the first time South Africa in March 2013 under the theme “BRICS and Africa – partnerships for integration and industrialisation”. Over the last few years trade and foreign direct investment between Africa and the countries in this new economic bloc has surged. Trade between China and Africa increased from US $10 billion in 2000 to US $190 billion in 2012. India, Brazil and Russia have been active in promoting small- and medium-scale enterprises, mining and energy projects on the continent. As a result the BRICS bloc is now Africa’s largest trading partners with trade expected to reach more than US $500 billion by 2015, with 60 per cent from China alone.

As stated earlier, their presence and involvement is largely based on their domestic demand for the abundant minerals and land on the continent as well opportunities to tap into the rising middle class estimated at about one third of Africa’s one billion population. According to UNCTAD, as a result of the large demand for infrastructure in the resources sector, the most significant area of trade between BRICS and Africa is in the manufacturing and telecommunication, financial and retail services sectors.

Boosting growth in food production in particular and the agricultural sector in general is vital for African countries. Brazil, which in recent years has emerged as a leading global player in agricultural production particularly in sugar, coffee, soybeans, ethanol, poultry and beef, wants to support Africa in this area and reduce the impact of food insecurity. However there are serious concerns over the takeover of land in Africa by many countries including those in BRICS to produce for their own domestic markets. The problem of “land grabs” has been well documented by civil society organisations in Africa and elsewhere. This, however, will also form part of another ActionAid study.

It is common knowledge that South Africa is the smallest BRICS country both in terms of population as well as in the size of its economy. However, because South Africa currently accounts for one third of Sub-Saharan African economy, it is regarded as strategic from a geo-political view and a “gateway” for BRICS into Africa, and especially its abundant natural resources. As the BRICS are consolidating their positions in Africa through massive investments, by the time of the Durban conference, negotiations were at an advanced for the establishment of a new funding model to finance BRICS projects, to enhance their global funding role, and to foster south-south cooperation.

During the conference, agreement was reached and the leaders announced their intentions to launch their own “development bank”. According to South African International Relations Minister Nkoana-Mashabane, the decision was made “as a result of the need to change the way business is conducted in international finance institutions”. Prior to becoming a formal member of the BRICS bloc, South Africa was a founding member of the India-Brazil-SA (IBSA) group of countries. The DBSA will be the government’s lead agency in the BRICS discussions on the new development bank and it is likely that at the next BRICS meeting in Brazil in 2014 more light will be shed on the details of the Bank.

This places South Africa in a position in which it has to manage its political, social and economic relations with African countries with mutuality, care and respect. Already, as the so-called gateway, it has to manage perceptions of playing “gatekeeper” and in the case of the G20, the role of “interlocutor”. There’s also the position of “big brother”. SA’s commitment to promoting regional interests whilst also advancing national interests will place it between a rock and a hard place. As the same time SA plays a key role in a range of multi-lateral institutions trying very hard to balance national policy and interests with those of Africa and allies in the global north and south.

Coordinating this work, whilst balancing the different interests and managing bilateral agreements in pursuit of a “better world”, is a huge responsibility. There are times when the country gets it right and there are others when it goes wrong. Given the country’s recent history in overthrowing apartheid and replacing it with a progressive rights-based constitution, there are valid expectations that in everything it does, it is guided by a progressive vision, principles and values for a just, sustainable and peaceful world. In the course of this work, the country and especially its citizens must remain vigilant against any repetition of old systems and practices of colonial thinking and imperial designs.

DIRCO’s Strategic Plan 2013-2018 sets out a vision and strategy for how SA will conduct it’s relationships with other countries. According to Minister Maite Nkoana-Mashabane,

“Our struggle for a better life in South Africa is intertwined with our pursuit for a better Africa in a better world. Our destiny is inextricably linked to that of the Southern Africa Region. Regional and continental integration is the foundation of Africa’s socio-economic development and political unity, and essential for our own prosperity and security”.

To this end, the plan articulates a role for SA in the AU and the UN systems to find “just and lasting solutions to “outstanding issues of self-determination and decolonisation” on the continent. In supporting socio-economic development the government will continue to disburse funding through the African Renaissance and International Cooperation Fund.

In this period, DIRCO also plans to replace this fund with the establishment of the South African Development Partnership Agency to “manage all outgoing development cooperation programmes. One of the key challenges with the cabinet will be the ability to effectively coordinate policy and policy implementation across departments – finance, trade and industry, DIRCO, economic development and the presidency amongst others - beyond the country’s borders. A similar challenge exists within South African civil society with many organisations working separately on different issues such as migration, trade, worker rights and foreign policy. The recently formed South African Forum for International Solidarity provides a networking space to for these organisations to share their work and collaborate in monitoring government plans and action.

In the context of the current global financial architecture, development financing has been dominated by the Bretton Woods institutions established to finance post-World War II reconstruction in Europe. The countries from the BRICS bloc have accused the World Bank and IMF of representing the interests of powerful northern countries and slow in transforming to meet the development financing needs of fast growing countries such as Brazil, India and China. Together the five BRICS countries account for 40% of the world’s population and a 25% of global gross domestic product (GDP) and together have currency reserves of over $4-trillion. Whilst the Durban Summit announced the formation of a development bank with seed capital of $10-billion from each country, the exact details regarding the role, structure, location and operations of the Bank are still in the development phase.

The mere establishment of BRICS, still in its infancy stage, has generated new debate about the political economy of a multipolar world. New donor funding, policy think tanks, private sector research institutions, business to business councils, academic cooperation, development finance cooperation committees and new government departments amongst others have been established as result. Regular meetings, conferences, seminars are funded to exchange knowledge and strategy. Within civil society debate rages as to whether the new bloc will constitute a “potential radical shift from the prevailing global political economic framework” or merely a “relocation of power” to the elites in the global south.

In an article published in Pambazuka, the director of ActionAid South Africa, Fatima Shabodien, cautions against the proposed BRICS development bank “becoming an ‘emerging economies’ version of the World Bank”. She goes on to say that the “ideology represented by the World Bank has not worked for us, and has been largely inimical to the needs and aspirations of the poor, and of African women in particular”. The focus on infrastructure development in Africa, whilst important and necessary, must have a “defined redistributive mechanism” to ensure that “the poor have access to water, electricity, decent housing and quality education for children”.

She warns that countries in BRICS must go beyond their own narrow national interest. South Africa in particular, must ensure that our membership of BRICS represents not only the business interest of SA, but that of the continent more broadly in this formation. BRICS members have to ensure that development in their respective regions happens in a manner as inclusive as possible.

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