The Brics bank, green energy, Gordhan and the Guptas
Unnecessary NDB loans to Eskom increase Bric power over the one African country that had the potential to fight for financial justice
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 — minus one conspicuous governor, Pravin Gordhan — 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 $3bn in new credits.
But from SA’s standpoint, all is not well, judging not only by repeated conflicts over NDB representation, but also the only local borrower’s unwillingness to support NDB-financed renewable energy, apparent state manipulation by an Indian family and a Russian nuclear vendor, and perhaps most importantly, the country’s (and continent’s) capitalisation and debt repayment capacities.
Why green loans? The bank’s original 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 very different rationale at a 2013 British Academy workshop: “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 then asked (according to a YouTube recording), “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 true, four Brics gained substantial IMF voting power increases in a December 2015 restructuring – China up 37%, India 23%, Brazil 11% and Russia 8% – but with negligible US or European dilution. Instead, the rising Bric shares were as a result of Nigeria and Venezuela losing 41% of their vote, along with Libya (down 39%), Morocco (27%), Gabon (26%), Algeria (26%), Namibia (26%), Cameroon (23%), Mauritius (21%) and even SA lost 21%.
The main supplier of raw inputs to the nukes – if they are built – will be Oakbay, the uranium company owned by the Gupta brothers
Four Brics countries stood on African and Latin American heads to get weightier director seats at the IMF table. And when they arrived in 2016, the directors approved the reappointment of Christine Lagarde and, after she was convicted of negligence in a $430m French corruption case last December, the IMF directors unanimously endorsed her continued employment.
To be sure, the NDB’s first loans did boost environmentally oriented projects: $300m to Brazil, $81m to China, $250m to India and $180m to SA to connect Independent Power Producer (IPP) renewable energy generators to the main grid. But these processes are accomplished with mostly local-currency inputs, hence the dollar loans were inappropriate. Like other multilateral financiers, NDB repayments are made in dollars, adversely affecting a borrower’s balance of payments (although the NDB has started fundraising from yuan and rupee markets, so this may eventually change).
Just after taking on the NDB debt, Eskom’s two most recent leaders, Brian Molefe and Matshela Koko, announced that they wanted nothing more to do with renewable energy. The battle was resolved only a month ago, when Gordhan’s final budget statement recommitted Eskom to the IPP contracts.
Simultaneously, Gordhan had refused Eskom further nuclear energy financing from the fiscus (following a $200m 2016 payment), in spite of the in-principle reactor purchase agreement between President Jacob Zuma and Moscow-based Rosatom at an anticipated cost of $50bn-$100bn. The main supplier of raw inputs to the nukes – if they are built – will be Oakbay, the uranium company owned by the 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. Also, the oft-rumoured ascension of Molefe to a Cabinet post has been postponed, unless South African 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). His council leadership switched to Independent Newspapers owner Iqbal Survé after Molefe’s Eskom resignation, a result of the public protector’s State of Capture report revealing Gupta influence over Molefe. After implying the Guptas’ neighbourhood hosts a shebeen that might explain his regular presence in Saxonwold, Molefe’s credibility was permanently destroyed.
Just before resigning, Molefe attacked the IMF and World Bank in a newspaper column. He called for the 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 socioeconomic growth and development. There have been some significant steps taken, in particular the launch of the NDB, which has already started funding key projects.”
Just after taking on the NDB debt, Eskom’s two most recent leaders, Brian Molefe and Matshela Koko, announced they wanted nothing more to do with renewable energy
These were the very “key projects” — renewable energy — that Molefe was actively sabotaging. Likewise, the NDB website observes “a need for multilateral development banks to reinvent themselves” on the one hand, but on the other, its president KV Kamath signed a deal with World Bank president Jim Kim in September for “co-financing of projects; facilitating knowledge exchange … and facilitating secondments and staff exchanges”.
It’s hard to believe NDB-related rhetoric. Pretoria’s NDB non-executive director is Tito Mboweni – the Goldman Sachs adviser who in 2013 slammed the NDB as “very costly” and in 2015 declared that nuclear energy financing “falls squarely within the mandate of the NDB” – and the bank’s vice-president and chief financial officer is Leslie Maasdorp (also formerly of Goldman Sachs).
But one other crucial NDB job remains open: the much-advertised head of the Africa regional centre.
Recall that in December 2015, Zuma announced that Nhlanhla Nene would urgently take that job, a fig-leaf appointment to justify replacing him with Des van Rooyen, considered a Gupta proxy. Not only did three top local bankers communicate that Zuma must reverse course, but the “critical intervention” (according to Peter Bruce) was made by Chinese co-owners of Standard Bank.
NDB officials subsequently stalled the Africa regional centre’s launch, originally scheduled for March 2016. Last September, the Brics Business Council website declared that the new centre’s Johannesburg headquarters would be ready by November. It is still to be launched.
The Johannesburg location was “well received” in the rest of Africa, according to the Brics Business Council. Leading Ugandan financial official Louis Kasekende announced that Africa should “have access to credit as quickly as possible at low rates”, especially to “reduce the time frame of projects finalisation and approval process”.
Reducing the time frame would logically mean less attention to environmental and social dimensions (the critique of development banks and the NDB most often made by civil society). But a larger problem is the extreme debt burden African countries now shoulder, following the 2011-15 crash of commodity prices.
The NDB can offer Africa only hard-currency loans that grow more expensive when currencies depreciate. In 2011, R6.30 bought a dollar; today it costs twice as much.
After Western debt relief in 2006, sub-Saharan Africa’s foreign liabilities were cut by $100bn, to $200bn. But thanks mainly to Chinese state loans (associated with the extractive industries), the debt is now above $400bn. Angola, Chad and Ghana pay more than 30% of their governments’ revenues on repayments.
SA’s own payment obligations are also onerous, because to capitalise the NDB, $680m was allocated by Nene in 2015-16, rising steadily to $3.2bn this year and $6.2bn by 2020. The NDB’s notional $100bn capital base is shared equally by all five (unlike the $100bn contingent reserve arrangement, which treats Pretoria as does the IMF, with a much smaller share of the quota, just $10bn).
Moreover, Pretoria also faces a terrifying rise in its own foreign debt, which the Reserve Bank last month reported rose to $143bn in September 2016, up $10.6bn from June. At 50% of gross domestic product (GDP), this is the highest debt burden in the country’s modern history; the only prior foreign debt default was PW Botha’s in September 1985, when that ratio was only 40%.
When Molefe was at Eskom he was raising $5bn from China – vital for a future nuclear reactor purchase – and at Transnet he also raised $5bn from the same source for (now controversial) locomotives to export 18-billion tonnes of coal through Richards Bay. Environmental factors were simply null and void.
Another key reason for our soaring foreign debt is to raise hard currency, much of which pays multinational corporations to remove SA-sourced profits and dividends to London and other hot-money offshore financial centres (by licit and illicit means). This current account deficit persists even when, as in 2016, SA runs a trade surplus. Today, as Chinese lenders, Brics-based mining houses and the Gupta family externalise funds, the tragic irony of the NDB emerges.
In short, unnecessary NDB loans to Eskom contribute to more Bric power over the one African country, SA, that once had the potential to fight for financial justice. But perhaps just like Molefe in the Guptas’ lush suburb, such liberatory rhetoric might just have been diversionary Saxonwold-shebeen “talk-left”, to disguise a “walk-right”: into the hands of next-generation predatory lenders.
• Bond is professor of political economy at the Wits University School of Governance in Johannesburg and co-editor of BRICS (published by Jacana Media).