The BRICS Development Bank has been launched. The Asian Infrastructure Investment Bank is taking off. Where is Nigeria?
As a slate of long-term projections suggest, Nigeria’s huge economic potential requires huge determination.When Muhammadu Buhari took over from Goodluck Jonathan, he ran on a platform of security and zero patience to corruption. Those are the preconditions for the creation of prosperity and growth.
The best way to unleash Nigeria’s potential for agricultural modernization, industrialization and urbanization is investment into infrastructure, however. That ensures productivity, growth and jobs.
A year ago, the large BRICS economies launched the New Development Bank. Now the China-proposed Asian Infrastructure Investment Bank (AIIB) is a reality as well. In the former case, South Africa has played a central role. In the latter case, African economies have not yet come forward.
Today, Nigeria is the largest economy of Africa. The emerging-economy development banks could contribute to the realization of the Nigerian dream. What is Abuja waiting for?
The New Development Bank
For years, China, along with other large emerging economies, had grown exasperated with the slow pace of reforms in the international multilateral financial institutions, such as the International Monetary Fund (IMF), the World Bank, and the Asian Development Bank (ADB).
In the advanced economies, these institutions are seen as international. In the emerging world, they are perceived as dominated by American, European and Japanese interests, as reflected by their voting quotas, investment allocations and the nationality of their leaders.
After hollow promises, the BRICS leaders agreed to launch a new development bank at the 5th BRICS summit in Durban, South Africa in March 2013. About a year later, they established the $100 billion New Development Bank and a reserve currency pool worth another $100 billion.
While Shanghai was selected as the bank’s headquarters, an African regional center would be established in Johannesburg.
The BRICS Bank will focus mainly on infrastructure projects, with authorized lending of up to $34 billion annually. As the U.S. Federal Reserve is expected to hike rates in the fall, the bank will also provide assistance to countries suffering from the anticipated economic volatility.
In addition to current BRICS members, the Tsipras government of Greece has explored the possibility of joining the New Development Bank.
The current members include East Asia’s largest emerging economy (China), its counterpart in South Asia (India), Eurasia (Russia) and Latin America (Brazil) but not in Africa. Instead of Nigeria, South Africa has the central role in the bank.
The Asian Infrastructure Investment Bank
The Asian Infrastructure Investment Bank (AIIB) was formally launched on June 29. Put forward by Chinese leaders in October 2013, the initiative has moved ahead very rapidly.
In June 2014, China proposed doubling the registered capital of the bank from $50 billion to $100 billion, with half from Beijing and the rest from the other founding members.
Despite pressure, US allies in Southeast Asia joined the AIIB. Following India’s footprints, so did the rest of the South Asia, Australia and New Zealand. What changed the game was the UK’s participation, as the “first major Western country.” Afterwards, other EU core economies – Germany, France, and Italy – followed in the footprints. So did much of the Middle East and Latin America.
In Asia, the AIIB means an urgent international response to a massive economic need. Internationally, it translates to the opportunity of other nations to participate in Asia’s growth momentum.
The ADB has less than $80 billion in capital, while the World Bank’s member states have subscribed to $223 billion of subscribed capital. In practice, the latter can loan some $50 billion per year. While such sums sound impressive, they are very far from what is needed. According to ADB, Asia’s economic development needs total at $8 trillion in 2010-20.
In addition to the 57 original founding member countries, a dozen new countries have applied to join the AIIB.
For now, the membership list does not include sub-Saharan African nations – not to speak of the continent’s largest economy, Nigeria.
The African Development Bank
Some observers argue that African nations should focus their energies on the African Development Bank Group (AfDB).
Since its creation in 1964, the AfDB has had an important role in African development. Through its three arms – the African Development Bank, the African Development Fund and the Nigeria Trust Fund – the AfDB has mobilized African unity behind worthwhile initiatives.
Ostensibly, the World Bank, the IMF and the ADB work for the international economy. In practice, they are led by US, European and Japanese interests.
What about Africa’s regional bank? In 2014, sub-Saharan African nations controlled 25 percent of voting powers at the African Development Bank. In contrast, G7 nations had more than 50 percent of the total. Control matters.
The established international multilateral institutions were created by and reflect the terms of the major advanced economies. Neither the New Development Bank nor the AIIB can or seek to replace them. Instead, the two represent the first multilateral banks that were created by and reflect the terms of the large emerging economies.
Nor do these two seek to be exclusive and restrictive. They have opened doors to advanced economies as well.
Growth through infrastructure investments
The New Development Bank and the AIIB are dedicated to infrastructure initiatives in emerging and developing economies, particularly but not exclusively in emerging Asia.
Thanks to regional and trans-regional initiatives, both banks will also play a major global role.
The question is, why did Nigeria not take a more proactive role in these bank initiatives in the Jonathan era? And how should Nigeria participate in such opportunities in the Buhari era?
Infrastructure investments are critical to Nigeria’s growth. Time is a luxury Abuja does not have.
Original version was released by BusinessDay, the leading business daily of Nigeria, on June 29, 2015
Dr Dan Steinbock is the research director of international business at the India, China and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and EU Center (Singapore). For more, see http://www.differencegroup.net