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Tuesday, 21 May 2013 15:54

Analysts caution EAC on Brics bank

Written by Rosemary Mirondo

Dar es Salaam. While financial experts are optimistic of the Brics initiative to set up a bank that will lead to less rigid lending conditions, others fear that it will open doors for the institution to tap into Africa’s resources.

The bank would have access to a huge and growing market, though the power struggle between the nations involved could lead to difficulties. China holds vast foreign exchange reserves and is likely to be, in some manner or other, the dominant player in the Brics bank.

The financial analyst for Serengeti Advisors Ltd, Mr Hamim Gwiyama, says that African countries should be wary of such banks or economic groupings because they come with their own objectives.

“Such groupings either have intrinsic or extrinsic objectives that will benefit poor countries but mostly tap into untouched resources in African countries,” he says. Leaders of Brics nations Brazil, Russia, India, China and South Africa made the decision to create the new bank at their meeting in Durban last month.

The Brics nations were still unable to settle the location or structure of the bank, which will initially focus on infrastructure and development projects. They also refused to say whether the long mooted Sh79 trillion ($50billion) seed capital plan would be approved.

Mr Gwiyama notes that Brics’ intrinsic objective may be to support infrastructure of untapped natural resources that have emerged abundantly in African countries.

In East Africa such countries include Tanzania which has discovered gas and Kenya and Uganda which have recently found oil deposits.

“Am sure they will issue loans with less rigid conditions, which will make us embrace them. However, in the long run it will only open doors for them to tap into our untouched resources,” he said.

He calls on the East African Community (EAC) to forge a strong economic union that would enable it to control its own resources and market.

According to him, the EAC should concentrate on building greater negotiation powers with such groupings rather than continuing to depend on them to fund its economy. He warns that such dependence ultimately leads to countries remaining poor.

He notes that Brics is a member of the World Bank and the International Monetary Fund (IMF) and therefore its initiatives would not make a huge difference because they are all governed by the world’s financial system and must, therefore, conform to the rules.

World Bank communication officer Loy Nabeta says the bank welcomes the establishment of a Brics development bank and is ready to work closely with it to end poverty and build shared prosperity throughout the developing world.

She says that the World Bank Group already works with all Brics countries by sharing their knowledge and making available financial resources.

According to her, a major part of the World Bank’s strategy is to partner with regional development banks, non-governmental organisations, civil society groups as well as national development banks to enhance the effectiveness of their collective work.

“We anticipate that the new Brics bank will be an invaluable partner in this effort. Clearly, the Brics countries have a key role to play in helping promote global growth,” she said.

“One of the driving forces behind the development of the Brics bank is the desire to increase investment in infrastructure. The World Bank shares this concern,” she said.

Economic researcher and University of Dar es Salaam don, Dr Haji Semboja, says the Brics bank will increase windows for access to finance depending on loan and credit facilities.

According to him, Tanzania will benefit from the initiative because the country will access loans for untapped resources that it has in abundance while also acquiring discipline on commercial facilities.

“The proposed Brics development bank represents an important new situation that has the potential to further circumscribe their influence,” he says.

However, the details of how the Brics bank is governed and how it will operate remain unclear. What is even uncertain is the amount of initial capitalization, with various sums of money being bandied about.

It will certainly be some years before the bank is operational, but in the long term it could have a significant impact.

A consultant in economics and business at Mzumbe University, Dr Honest Ngowi, says it is an alternative to development finance for African countries, which depends only on the World Bank and IMF.

He said that the Brics bank will finance infrastructure with flexible conditions thereby improving arrangements that are a huge hindrance for developing countries.

“The Brics bank might also enable the World Bank to relax its terms as it will have more competition,” he said.

This article was originally published by The Citizen

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