Development Finance in the BRICS Countries
by Axel Harneit-Sievers, C.P. Chandrasekhar, Mark Grimsditch, Yu Yin, Mzukisi Qobo, Carlos Tautz, João Roberto Lopes Pinto, and Fabricia de Andrade Ramos. Heinrich Böll Foundation, New Delhi, 2015.
Table of Contents
Summary:
For decades, the world of development banking was dominated by a few multilateral actors, foremost the World Bank Group as well as regional development banks. In recent years, some established banks have much expanded their scope of operation, while new actors and interests are moving in. A number of national development banks, for example from China and Brazil, have entered the international arena in a big way, often operating far outside of their respective home countries and becoming truly global actors.
The BRICS group of five major emerging economies (Brazil, Russia, India, China and South Africa), during the BRICS Summit in Fortaleza, Brazil, in July 2014, formally announced the creation of the group's own New Development Bank (NDB). China, in October 2014, launched the Asian Infrastructure Investment Bank (AIIB), and in May 2015, Japan announced a massive 100 billion USD financial package for an Asia infrastructure programme within the framework of the Asian Development Bank.
The new rush into development banking is going to have substantial large-scale political, socio-economic and environmental implications. At the same time, development banking, it appears, is becoming more diverse and competitive than ever. Or is it?
The very concept of "development" means different things to different people. In fact, there have been branches of development banking directed, for example, at the support of small scale farming or medium-scale businesses. But overall, it is the creation of infrastructure – and of large-scale infrastructure – which has been at the heart of development banking in the post-World War II era. The very rationale of development banking is to mobilise long-term, large scale financing for projects where other – usually private – sources of finance either do not exist or are unable or unwilling to participate due to the risks of long-term engagement.
The new and expanding institutions of development finance reflect the considerable growth of political and economic self-confidence in the emerging economies. It remains to be seen how far they will really challenge established patterns of global development banking.
In the midst of major expectations of the positive political impact of the new development finance institutions for the developing world, considerations of the kind and quality of the very "development" that these banks may contribute to have largely taken a back seat. Investment in large-scale infrastructure is necessary for economic growth; but at the same time it typically entails considerable social and ecological costs. Frequently there are manifest and severe implications, especially the displacement of local populations and the destruction of natural habitats and biodiversity.
For decades, protests and social movements in affected regions and countries have pointed to these issues, and some of them have managed to stop or modify projects. For example, since the 1990s, the number of big dam projects commissioned declined in many parts of the world, at least outside China. Local resistance and international criticism appear to have made it more difficult to construct big dams in the same manner as in decades past.
After numerous struggles, social and environmental safeguards and procedures apply to financing of infrastructure by the World Bank. Despite criticism, especially from civil society actors, about their implementation, the World Bank standards create the reference baseline against which to evaluate and debate infrastructure projects; they constitute the precondition for a degree of transparency which allows public scrutiny of the work of the world's major development finance institutions.
With growing competition within the world of development financing, existing standards and safeguards could be at risk. Competition between financing institutions could contribute to weakening them; various national development banks are far less susceptible to international pressure than the World Bank.
In this regard, critics view the ongoing revision of the World Bank safeguards with scepticism. From the perspective of social and ecological protection, it would be a tragedy if an increased diversity of actors and the stronger role of the Global South in the field of development finance, as desirable as it appears from the political perspective, resulted in a weakening and crowding out of safeguards and standards applied in decisions about infrastructure financing.
Many champions of social and environmental protection for vulnerable groups and endangered habitats feel ambivalent about the recent expansion of development banking, particularly for large-scale infrastructure development. Some question the entire development model behind large-scale infrastructure directed towards economic growth. Others focus on engagement with governments and especially the existing and newly emerging development finance institutions in order to achieve better outcomes. Non-specialist actors in the development field may wish to improve their understanding of new trends and challenges in the field of development finance and expand their engagement on this issue. As the NDB is being created by the BRICS countries, it is worthwhile to take a closer look at the practice of and experiences with development banking in each of these countries in order to understand where they are coming from and what perspective they are taking in its creation.
This volume aims to provide background information for an informed debate about development financing from the perspective of emerging economies, especially the BRICS countries. It includes five essays that address the experiences with (mostly national) development banks, showing a high degree of diversity in national policies.
In the first essay, C.P. Chandrasekhar provides an overview of the rationale and major trends in global development banking, comparing experiences and trends from emerging economies within BRICS and beyond them. The four contributions that follow look at the national experiences in each of these countries. For Brazil, Carlos Tautz, João Roberto Lopes Pinto and Fabricia de Andrade Ramos study the rise of the Brazilian Economic and Social Development Bank (BNDES) from a national to a global player, whose structures and policies many observers believe will influence the NDB created by the BRICS countries. Mark Grimsditch and Yu Yin look at the large "policy banks" created by China's government In order to promote national infrastructure expansion and China's international engagement; in terms of sheer scale, these banks have changed the world of development finance over the last two decades. C.P. Chandrasekhar looks at the decidedly different experience of India, where large-scale development banking has lost relevance; instead, public-private partnerships have been used on a large scale for infrastructure financing, with quite mixed results. Finally, Mzukisi Qobo studies the two main development banks of South Africa, with a particular focus on identifying ways to increase civil society engagement with these banks and their policies.
Table of Contents
Preface: Development Banking in the BRICS Countries | Axel Harneit-Sievers
Introduction: Development Banking in Comparative Perspective | C.P.Chandrasekhar
Brazil's National Bank for Social and Economic Development BNDES: A Critical Analysis | Carlos Tautz, João Roberto Lopes Pinto and Fabricia de Andrade Ramos
Development Finance in India | C. P. Chandrasekhar
Development Finance: A Review from China | Mark Grimsditch and Yu Yin
Development Banks & Civil Society in South Africa | Mzukisi Qobo
Introduction: Development Banking in Comparative Perspective | C.P.Chandrasekhar
Brazil's National Bank for Social and Economic Development BNDES: A Critical Analysis | Carlos Tautz, João Roberto Lopes Pinto and Fabricia de Andrade Ramos
Development Finance in India | C. P. Chandrasekhar
Development Finance: A Review from China | Mark Grimsditch and Yu Yin
Development Banks & Civil Society in South Africa | Mzukisi Qobo
Summary:
For decades, the world of development banking was dominated by a few multilateral actors, foremost the World Bank Group as well as regional development banks. In recent years, some established banks have much expanded their scope of operation, while new actors and interests are moving in. A number of national development banks, for example from China and Brazil, have entered the international arena in a big way, often operating far outside of their respective home countries and becoming truly global actors.
The BRICS group of five major emerging economies (Brazil, Russia, India, China and South Africa), during the BRICS Summit in Fortaleza, Brazil, in July 2014, formally announced the creation of the group's own New Development Bank (NDB). China, in October 2014, launched the Asian Infrastructure Investment Bank (AIIB), and in May 2015, Japan announced a massive 100 billion USD financial package for an Asia infrastructure programme within the framework of the Asian Development Bank.
The new rush into development banking is going to have substantial large-scale political, socio-economic and environmental implications. At the same time, development banking, it appears, is becoming more diverse and competitive than ever. Or is it?
The very concept of "development" means different things to different people. In fact, there have been branches of development banking directed, for example, at the support of small scale farming or medium-scale businesses. But overall, it is the creation of infrastructure – and of large-scale infrastructure – which has been at the heart of development banking in the post-World War II era. The very rationale of development banking is to mobilise long-term, large scale financing for projects where other – usually private – sources of finance either do not exist or are unable or unwilling to participate due to the risks of long-term engagement.
The new and expanding institutions of development finance reflect the considerable growth of political and economic self-confidence in the emerging economies. It remains to be seen how far they will really challenge established patterns of global development banking.
In the midst of major expectations of the positive political impact of the new development finance institutions for the developing world, considerations of the kind and quality of the very "development" that these banks may contribute to have largely taken a back seat. Investment in large-scale infrastructure is necessary for economic growth; but at the same time it typically entails considerable social and ecological costs. Frequently there are manifest and severe implications, especially the displacement of local populations and the destruction of natural habitats and biodiversity.
For decades, protests and social movements in affected regions and countries have pointed to these issues, and some of them have managed to stop or modify projects. For example, since the 1990s, the number of big dam projects commissioned declined in many parts of the world, at least outside China. Local resistance and international criticism appear to have made it more difficult to construct big dams in the same manner as in decades past.
After numerous struggles, social and environmental safeguards and procedures apply to financing of infrastructure by the World Bank. Despite criticism, especially from civil society actors, about their implementation, the World Bank standards create the reference baseline against which to evaluate and debate infrastructure projects; they constitute the precondition for a degree of transparency which allows public scrutiny of the work of the world's major development finance institutions.
With growing competition within the world of development financing, existing standards and safeguards could be at risk. Competition between financing institutions could contribute to weakening them; various national development banks are far less susceptible to international pressure than the World Bank.
In this regard, critics view the ongoing revision of the World Bank safeguards with scepticism. From the perspective of social and ecological protection, it would be a tragedy if an increased diversity of actors and the stronger role of the Global South in the field of development finance, as desirable as it appears from the political perspective, resulted in a weakening and crowding out of safeguards and standards applied in decisions about infrastructure financing.
Many champions of social and environmental protection for vulnerable groups and endangered habitats feel ambivalent about the recent expansion of development banking, particularly for large-scale infrastructure development. Some question the entire development model behind large-scale infrastructure directed towards economic growth. Others focus on engagement with governments and especially the existing and newly emerging development finance institutions in order to achieve better outcomes. Non-specialist actors in the development field may wish to improve their understanding of new trends and challenges in the field of development finance and expand their engagement on this issue. As the NDB is being created by the BRICS countries, it is worthwhile to take a closer look at the practice of and experiences with development banking in each of these countries in order to understand where they are coming from and what perspective they are taking in its creation.
This volume aims to provide background information for an informed debate about development financing from the perspective of emerging economies, especially the BRICS countries. It includes five essays that address the experiences with (mostly national) development banks, showing a high degree of diversity in national policies.
In the first essay, C.P. Chandrasekhar provides an overview of the rationale and major trends in global development banking, comparing experiences and trends from emerging economies within BRICS and beyond them. The four contributions that follow look at the national experiences in each of these countries. For Brazil, Carlos Tautz, João Roberto Lopes Pinto and Fabricia de Andrade Ramos study the rise of the Brazilian Economic and Social Development Bank (BNDES) from a national to a global player, whose structures and policies many observers believe will influence the NDB created by the BRICS countries. Mark Grimsditch and Yu Yin look at the large "policy banks" created by China's government In order to promote national infrastructure expansion and China's international engagement; in terms of sheer scale, these banks have changed the world of development finance over the last two decades. C.P. Chandrasekhar looks at the decidedly different experience of India, where large-scale development banking has lost relevance; instead, public-private partnerships have been used on a large scale for infrastructure financing, with quite mixed results. Finally, Mzukisi Qobo studies the two main development banks of South Africa, with a particular focus on identifying ways to increase civil society engagement with these banks and their policies.
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