Mandate for BRICS Bank - Gateway House

Two years after it was initially proposed, the mandate of the BRICS Bank still remains unclear. China is pushing for the bank to take a greater role in infrastructure. Russia is looking for the bank as an alternative platform for building reserves in non-dollar currencies. South Africa would benefit from hosting the bank as it will add to its competency as a financial centre. Brazil would benefit from the bank serving as a facilitator of trade. India has shown interest in the bank serving as the financier for projects in Africa and other developing countries. While these indicate interest, so far no concrete vision has been agreed upon by the five countries.

The ambiguity about the mandate makes this article below that Gateway House had written last year still pertinent. Gateway House had suggested that the mandate of the BRICS Bank be to focus on incubating public service delivery programs such as affordable housing, high-skilled training and industry-linked job programs. These socio-economic concerns are common to all five countries and will also plug financing needs where existing institutions such as the World Bank currently do not focus on.

– Akshay Mathur, Head of Research, Gateway House

This feature was originally published by Gateway House on 26 March 2013.

At the 5^th BRICS Summit that begins in South Africa today, the heads of state of Brazil, Russia, India, China and South Africa are expected to ratify the creation of the BRICS Bank. After discussion and study for over a year by the respective governments, the bank will be launched with seed money estimated at between $50 billion to $100 billion, and most likely an equal share of voting rights for the management of the bank.

What remains unclear is what the Bank will focus on. So here’s a possible objective to consider: financing of new public service delivery models that will benefit emerging nations, starting with the BRICS countries.

Take for instance the latest statement of the South African Agriculture Minister Joemat-Pettersson on March 20, 2013, days before the Summit, that “Brazil had a lot of hungry people to feed, but the president introduced the zero hunger programme and it resulted in fewer and fewer people going to bed hungry.” Impressed by the creativity and speed with which Brazil has tackled food security and education through its Fome Zero programme that brings 20 different public service programs under a single umbrella, the Minister now wants to adopt the same model for South Africa.

Or consider India’s own redesigned PURA governance model (Providing Urban Amenities to Rural Areas) to build infrastructure for all the basic amenities a village would need, such as water, sanitation, electricity and more under one government initiative. It was initially launched as a pilot programme in 2004 in seven states but did not meet its expected success. The Planning Commission now admits in its most recent 12^th Five Year Plan (2012-2017) that the disappointment was due to a singular focus on infrastructure alone and the lack of private sector participation.

Both of these would be ideal candidates for an initiative funded by the BRICS Bank.

There are three dimensions that set these models apart from the typical development projects supported today by existing multilateral institutions like the World Bank or the Asian Development Bank.

First, these are models that need financial support at the incubation stage as opposed to most of the schemes or projects such as those for water or roads that are mainly funded for implementation after appropriate feasibility studies.
Second, the incubation can be supported with an affordable budget. The pilot phase for the PURA model was launched in 2004 at the time only cost Rs. 30 crores ($5.5 million). It would be a miniscule outlay for the $100 billion BRICS Bank to incubate, considering that its success can transform the lives of 700 million people living in the 600,000 villages of India.
Third, these are not spin-offs or reverse-engineered western models. They are conceived by, and tested in, emerging nations. Moreover, they are creative and untested models that require structural changes to be made in the way public service delivery currently works in the developing world.

Currently, no such bank in Asia or Africa (which would cover four BRICS countries) runs with this specific mandate, perhaps under the apprehension of the complexity of the project or the fear of offending the specific country’s political system of governance.

There is, however, a precedent by the Inter-American Development Bank (IDB), the multilateral development bank for Latin-America. IDB funded two of the world’s award-winning innovative governance models – Oportunidades (Opportunities) and BECATE. Oportunidades introduced conditional cash transfers in 1997 for health, education and nutrition in Mexico. It was later popularized by Brazil’s Bolsa Familia, the flagship programme of Fome Zero, when it was launched in 2003, eventually spreading to more than 30 countries in the world including Chile and Zambia. It was even launched in New York with the name Opportunity NYC in 2007. Similarly, BECATE, a labour market program also in Mexico, was launched with the help of IDB to introduce an on-the-job training programme that places unemployed, unskilled workers with businesses for training. India should seriously consider emulating elements of BECATE for our own MGNREGA law, enacted in 2005, which currently guarantees employment without guaranteeing skill development or industrial placements. Human resource companies such as TeamLease have been demanding a revamp of the Apprenticeship Act of 1961 to enable such links.

This last digression only corroborates a larger point. If a BRICS Bank were to support such initiatives, it would emerge as the pioneering incubator of new public service delivery solutions and simultaneously encourage the sharing of best practices across the developing world.

There may be many more such proposals pending before governments of developing countries, or being tried by the existing multilateral development institutions, proposals not widely known. Perhaps such an initiative can lead to the creation of a separate institution for knowledge sharing – a BRICS Institute for Public Service Delivery (More on that in the next article).

For now, the BRICS Bank needs to make funding of new models one of its primary objectives. Success in supporting them will show that it is possible for emerging nations to design and test home-grown solutions that have successfully addressed domestic compulsions in the particular political and economic environments they operate in. The Bank can also then support such initiatives in countries outside of BRICS, should other nations request for it. The Brazilian Development Bank and India’s own EXIM Bank are already supporting programs in African countries such as Angola and Mozambique.

India can specifically benefit from such a Bank. Domestic development finance institutions such as IDFC or Rajasthan Finance Corporation today mostly support government schemes or industrial projects. The Mahindra group (which is one of the founder members of Gateway House) courageously and successfully tested the PURA model completely on its own in the state of Tamil Nadu when rebuilding villages after the Tsunami of 2004. But it does not have to be a solo effort. With institutional support and opportunity for partnership in the redesigned PURA launched by Ministry of Rural Development, there is scope to do a lot more by many more.

China and Russia may want to support such models in reengineering the manufacturing or technology sectors if that is their need. Even if they do not need development money, they will benefit from this observatory of innovations for governance and public service delivery; in addition, they can use the experience when investing in Africa and other parts of the world where they wish to extend a positive influence.

Given the crisis that has currently paralyzed and also bankrupted much of the Western world, and the existing multilateral institutions increasingly occupied in rescuing Europe, now is certainly the best time to demonstrate that Western solutions need not be the answer to all global problems.

Akshay Mathur is Head of Research at Gateway House: Indian Council on Global Relations.

This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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