A new financial institution was formed recently by 5 major global economic powers to set up the acceleration of development in their respective countries. The countries are Brazil, Russia, India, China, and South Africa. Russia and China are super powers of the world while India wield considerable power in the south asianregion. South Africa and Brazil dominate the African & south American regions economically. All five countries possess large raw material bases, oilfields, skilledmanpower,advancedtechnology,militarymight,strongcurrencies,literate populations and large foreign reserves. Together, these countries could form a solid economic alliance in pursuit of their personal goals and regional dominance. The BRICS Development Bank was recently named as New Development Bank with the hope of enrolling more member countries and also to broadbase their activities.
The NDB is looking forward to accelerate the growth of PPP concept and projects (Public Private Partnership) in the economic advancement of their member countries on a larger scale., through which Sri Lanka could also gain a lead in their PPP drive, even though Sri Lanka is not a member of BRICS movement. Sri Lanka will be able to receive the much needed guidance, leadership and the training required for this exercise. The NDB wishes to assist both public and private projects in their respective countries through loans, guarantees, equity participation and in many other supportive roles to foster rapid economic growth, infrastructure development, employment creation, crime reduction and poverty alleviation. Technological advancement is another area through which the NDB countries hope to surpass prevailing world technologies for optimum utilization of their reserves. Neighbouring countries like Sri Lanka will reap the benefits of such technological and other developments to their own advantage. So it would be in the best interest of Sri Lanka to foster a stable and fruitful alliance, mutual understanding and a strong relationship with NDB countries and the BRICS movement itself as all 5 countries enjoy a healthy relationship with Sri Lanka.
When we talk about the capital base of NDB, the initial authorized capital stand at us$ 100 billion consisting of 1 million shares of us$ 100,000 each. Of this amount, US$ 50 billion will be accumulated initially. Out of this us$ 50 billion, US$ 10 billion will be paid up capital while the balance us$40 billion will be treated as callable capital. The initial subscribed capital was equally distributed among the founding member countries. Voting power at NDB will be initially based on subscribed capital. It has been decided that each member country will have equal subscribed capital and equal voting rights.
The headquarters of the bank is located in shanghai and an Indian banking expert has been installed as head of management. Sri Lanka could well request the member countries to open up a regional office in Colombo for upliftment of its economic ratings and to woo foreign investors from NDB member countries to invest in Sri Lanka with a long term perspective in strategic projects with sizable quantities of investment. I am optimistic that the NDB members will consider this proposal favourably in this hour of need to set up at least a liason office in Sri Lanka.
NDB will allow new members to join if they are members of United Nations. However, the bank member country share of total capital will be maintained at the level of 55%.This perception has been carefully planned by the founder members with a stable future in mind for the founder members. No existing member country will be able to raise their share holding percentage from the initial level without the consent of other four member countries. It has been decided that the bank’s primary focus of lending will be for infrastructure development and other economically sustainable development projects permitting an authorized lending of upto US$ 34 billion annually.
The primary objectives of NDB are enumerated below.
1. Promotion of infrastructure and sustainable economic development projects to create a significant rapid economic development impact in member countries.
2. Creation of an extensive and exclusive network of global partnerships with other multilateral development institutes and national development banks.
3. Building of balanced project portfolios at all times giving due respect to their geographical locations, financing requirements, debt servicing abilities and other factors.
4. Employment of good governance measures at all times and minimizing of bad loans and also to ensure the monies advanced to member countries are well spent to boost their economies.
In addition, the long term stability & liquidity of the bank will always be a prime concern to the members. It is left to be seen who would be the next member country to join the NDB. With the economic & military might of China, Russia and India,the new members would be also assured of defence cooperation as and when required & requested from the bank member countries. Sri Lanka is required to engage in many brainstorming sessions to consider the option of joining NDB even with a smaller capital input sooner than later. Sri Lanka could do so by raising 10 year bonds from the local private sector. Any firm proposal from Sri Lanka to join the NDB as a member will find strong support from member countries as Sri Lanka is located strategically at the middle of the world and would be crucial to all existing member countries both in terms of defence and regional economic cooperation.
Right now each member country holds an equity share of us$ 10 billion.20% of which is paid up while the rest is callable. Priority projects within the purview of NDB would be developing renewable energy sources, promotion of environment protection followed by railways/highways in future to suit multimodal transport systems for the movement of cargo and a vast majority of their populations. Raising of funds will also take the form of issuance of development bonds from to time.
The bank became the first international financial instituition which issued a green financial bond in China onshore bond markets. The proceeds will be utilized for sustainable and economically viable development projects & essential infrastructure development in member states.
Bank treats other international financial institutions including IMF & World Bank as partners rather than business competitors and they are welcome to join in the efforts of NDB. In July 2016,NDB signed a memorandum of understanding on strategic cooperation with Asian Development Bank. The parties agreed to work together through cofinancing and knowledge exchanges in many areas.
The first regional office will be based in Johannesburg, South Africa and the legal status of NDB would continue as a treaty. The treaty was signed in July 2014 & the treaty became effective in July 2015.The initial discussions for formation of BRICS took place on the sidelines of many international economic and financial summits held in different parts of the globe and the discussions took place between heads of state and finance ministersof respective countries.
AIIB(Asian Infrastructural Investment Bank) and NDB may compete with each other in certain geographical locations. In reality this may not be so with the strong backing extended to AIIB by China and also due to the fact that BRICS countries will be the only concern of NDB.
Famous global economist Joseph Stiglitz who visited Sri Lanka in January 2016 for the Sri Lanka Economic Summit held in Colombo along with top international investor George Soros has strong belief that NDB would become stronger with the passage of time in terms of global economic & political strength. Funds disbursed by NDB so far had been for the energy sector, viz, renewable energy (wind,solar,etc), hydropower,etc. NDB is hoping to raise fresh funds initially within China itself by raising bonds from time to time. Later the NDB will venture into overseas sources and raise funds for disbursement to member countries. They will easily achieve this task on the combined strength of NDB asset base and reserves coupled with the economic might of member countries. The donors will have ample security offered to them.
BRICS Contingency Reserve Arrangement
This refers to a methodology to support the strength of currencies of member countries due to short term balance of payment problems. This arrangement came into effect in July 2015.The objective of this reserve is to provide protection against global liquidity pressures. This arrangement sounds similar to the objectives of IMF (international monetary fund) of supporting currency stabilization in countries. It will be the terms of NDB & IMF that would lure the borrowing countries to search for assistance to sort out their currency problems.
The recent summit held in Goa, India was the 8th BRICS summit. China and Russia signed many agreements in diverse fields at this summit.For the summit,there were special invitees & also the BIMSTEC member countries,namely,India,Srilanka,Bangladesh,Nepal,Thailand,Bhutan and Myanmar. There was a film festival showing 4 films each from a member country. This augurs well for the film industry of all BRICS nations. Another promotional aspect was the holding of a trade fair of 5 member countries. The businessmen & traders got themselves acquainted with a vast product range offered by the 5 countries. An under 17 football tournament was also held between the 5 member countries.
The government of Sri Lanka has the solid option of raising a substantial quantity of foreign currency either on its own or through the private sector and become a member of BRICS movement. By becoming a member, Sri Lanka would further enhance their economic standing in the Asian region. Sri Lanka will be able to solve their most persistent problem of energy generation, at lower costs, making it promising for all business enterprises, public sector instituitions and the general public at large. Sri Lanka will also be able to obtain syndicated loan packages to develop highways & other infrastructure also paving the way for rural poverty alleviation, enhancement of per capita income & reduction of unemployment levels. As Sri Lanka has not gained much by becoming a member of SAARC & BIMSTEC and participation in conferences organized by these two organisations became only a decorating exercise for Sri Lanka rather than sourcing of new avenues for economic development. The SAARC was initiated way back in 1985 and the progress achieved by the organization has been painfully low. There is disunity among SAARC members especially between India and Pakistan.By enabling saarcmember country nationals to enter Sri Lanka in large numbers, we have made our country,a hub for narcotics, foreign currency/gold and human trafficking. When the nationals of saarc member countries are caught for various above crimes and get sentences from our legal systems, the heads of state of the countries of convicted parties get themselves released through their relationships with our country heads. Thisa pathetic situation and should be done away with forthwith for the benefit of our country. Visa on arrival facility should be extended only to foreign visitors coming to Sri Lanka through accredited travel agents in Sri Lanka and the travel agents be held responsible for any wrongful act of any of their tour party members. A bank guarantee be obtained from the travel agents every year by tourism authorities. all FIT(free independent travellers) be requested to obtain a visit visa prior to their arrival in Sri Lanka.
This practice wil be beneficial to us from next April (2017) as we are doing away with minimum room tariff for 5 star hotels in the country. There is a strong possibility that a large influx of visitors from saarc and African countries to visit Sri Lanka not for leisure/holiday but for other shady practices. By joining BIMSTEC also we cannot expect any tangible benefits. Besides the visitors from saarc and bimstec countries are low spenders.
We should seriously consider ourselves in forming fruitful alliances with regional,product and service based countries. One such alliance would be the formation of”Australasia circle” aligning ourselves with countries like Australia, NewZealand, Singapore, Indonesia, Malaysia, Vietnam and Thailand.
A second option would be to form the OTEC(organization of tea exporting countries)with the headquarters in Sri Lanka.This will ensure higher prices for our tea and the preservation of the goodwill of brand name “Ceylon tea”,a brand existing for centuries.
The housing of the Asian Cricket Council in Colombo is a good move on the part of Sri Lanka cricket as we have reached world standards by winning 2 world cups and many Asian cricket teams & officials will visit Sri Lanka for administrative and cricketing reasons. This is a way of MICE tourism promotion.
We must join organisations according to our strengths and objectives and not for decorative purposes.
Forming and housing ORPC (organization of rice producing countries) in Sri Lanka is another option with long termbenefits as for centuries we have been producing rice and our people are used to eat rice, sometimes for all 3 meals. The benefits would be the establishment of buffer stocks, technological advances, price stability and a lower level of cost of living for our public.
Another alliance beneficial to Sri Lanka would be the establishment of a “World culture club” consisting of countries with rich and diverse culture. This would definitely assist our country in our tourism promotion drive. The countries could include a few countries in Asia like India, Sri Lanka, Nepal, Thailand, Japan and a few in Europe like France, Germany, Netherlands, United Kingdom and Russia.Srilanka possesses many world famous cultural spots like Adams Peak (sripada),world’s end,Temple of tooth relic(DaladaMaligawa),Dutch fort in galle, Sigiriya and many more landmark sites. This alliance will generate cultural tours and will bring in quality tourists in the long staying/high spending category. We must always remember that Sri Lanka survived as a country mainly due to the preservation of our culture, cultural practices and preservation of cultural sites.
From the above conclusions, we can devise the alternatives available to our country in forging ahead like the BRICS movement. We should extend an invitation to the 5 founding BRICS members to host a few progress evaluation meetings of NDB at a neutral location like Sri Lanka ideally in a scenic place like Kandy or Nuwaraeliya. We should also seek an observer status in the progress of BRICS movement with the objective of joining the movement and the NDB later.
Sri Lanka is required to create a policy of strong financial succession after every election irrespective of political party regime changes to reap the maximum benefits for our general public in the next few decades. As a nation we must forge ahead in all fronts. The will is lacking among the politicians. They must realize that we must move in par with our neighbours and other developing countries in the world and cannot lag behind. We have large resource bases which we are not effectively utilizing. Take for example the case of Bangladesh. They got their independence in 1971 and were not a prosperous country for some time. But they have now accumulated foreign reserves of nearly us$ 30 billion and the people of Bangladesh are enjoying higher living standards despite at the receiving end of regular natural disasters. This is commendable in the wake of their independence,23 years later than our independence. We were given a developed country by the british unlike Bangladesh which was earlier the East Pakistan and India had to intervene and create Bangladesh.
In our case,every successive government blamed the former government for economic and financial blunders and govern the country for their term of office to suit their political agenda. We cannot go on like this. They must remember that strengthening the country is more important than strengthening their respective parties and their personal wealth positions. They also created divisions among the people of this country to come into power. The quality of politicians and political parties is sliding downwards every year. The blue chip corporate conglomerates, professional associations, chambers of commerce, senior citizens and cricketers who brought fame and glory to our country are required to meet regularly and advise the political hierarchy strongly on policy changes, good governance measures required and financial disciplines to move our country into the developed status. If not we will have to play the second, third or fourth fiddle to other countries despite been called as a paradise state.
The writer is a senior financial expert and remembers the standards of our country in the late fiftees and early sixtees which included trolley buses running with electricity, country grown apples, high quality food/beverages in hotels and restaurants, ease of travel and living without any fear. The writer was questioned by a corporate magnate of Singapore with a smile in Singapore about two decades back as to what happened to Ceylon and the much talked about “Colombo plan” to which I had no answer. The writer could be reached via [email protected]
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