In a few weeks, Brics heads of state will gather in South Africa for the 15th Brics summit. July 2023 marks the eighth anniversary of the New Development Bank (NDB), the multilateral development corporation established by the Brics countries (Brazil, Russia India, China and South Africa). The NDB is the most visible expression of the aspiration of Brics to give greater voice to emerging markets and developing countries in the global financial architecture.
The core purpose of the bank is to mobilise resources for infrastructure and sustainable development in Brics countries and beyond. Unlike its established peer multilateral development banks (MDBs), which have non-borrowing members from the industrialised world, the NDB is owned and controlled exclusively by developing countries. In most other respects, the bank embedded the tried and tested business model of MDBs and began its journey to finance sustainable infrastructure projects. The bank was expressly set up, as captured in its Articles of Agreement, "to complement" existing development banks.
MDBs are unique as they are able, on the back of very high credit ratings, to leverage capital and raise considerable amounts of additional resources through the issuance of debt in global capital markets. This basic premise and business model behind MDBs remains as sound as it was when the Bretton Woods institutions were created nearly eight decades ago.
The creation of the NDB in 2015 as the newest multilateral bank coincided with material changes in the development finance landscape. In the same year, the international community formulated the 2030 Agenda for sustainable development and the 17 Sustainable Development Goals (SDGs) came to life. A few months later, the first legally binding treaty on climate change, the landmark Paris Accord, was signed. Furthermore, the Financing for Development Summit held in Addis Ababa in 2015 underscored the importance of the private sector in increasing available financing for sustainable infrastructure and climate finance.
As a result, MBDs were mandated by shareholders to deepen their focus on the climate agenda. They were further directed to change course from their traditional business model of direct lending to become more catalytic and find new ways to unlock and mobilise larger pools of private capital for development.
From its humble beginnings on a single floor of rented space in Shanghai, the bank has since moved into its newly furbished 30-storey permanent headquarters. The approved loan book stands at $35bn, representing 99 infrastructure projects
In essence, MDBs were called upon to reinvent themselves and rethink their mandates, including the core operational model and financing toolkit, to become more effective and efficient. For some time, the conditions have been ripe for more fundamental reform of the MDB system. The core drivers of the reform process revolve around three interconnected goals — making better use of existing capital, finding ways to generate more capital and more effectively mobilising private sector finance.
The NDB, as a new kid on the block, had a distinct last-mover advantage with the ability to incorporate elements of these reforms in its business model. The bank started with licence from its shareholders to tinker, innovate and experiment with what works rather than merely replicating existing models of development. The mix of ideas and buzzwords in 2015 was about deepening sustainability, openness to innovation, a greater focus on local currency financing and speed of execution.
It therefore set out to simplify and whittle down operating procedures which contribute to the slow pace of delivery of large infrastructure projects. Second, the NDB started its capital markets activity in the RMB (Renminbi) local currency market by issuing its first bond in a Green format in July 2016. Since then it has established a RMB40bn local-currency Panda bond programme and successfully issued more than RMB30bn in bonds. Today, the bank has a target of lending up to 30% in local currency on an annual basis. Third, in its Five Year Strategy 2022-2026, it hardcoded a 40% target of annual lending volumes for climate finance, elevating the climate agenda as the number one institutional priority.
Headquartered in Shanghai, the institution was established with$50bn (now about R906.6bn) subscribed capital, of which $10bn was injected as paid-in capital in equal contributions from the five founding members. The bank evolved from a complete start-up to obtain a AA+ international credit rating from Standard & Poor and Fitch within three years. This propelled the institution to become one of the highest-rated banks (without developed country shareholders) in all emerging markets. The bank grew from its start-up phase, followed by a rapid growth phase, and has now firmly graduated to a steady state with a broadly similar operating model as its more established peers.
Fast forward to 2023, from its humble beginnings on a single floor of rented space in Shanghai, the bank has since moved into its newly furbished 30-storey permanent headquarters. The approved loan book stands at $35bn, representing 99 infrastructure projects. Within weeks after the outbreak of the pandemic, it established a $10bn Covid-19 emergency response programme, which played a vital role in assisting its member countries to fight the pandemic and steer economic recovery.
The New Development Bank has come of age. It has successfully navigated the challenges of 2022 when geopolitical factors, specifically sanctions imposed on Russia, led to a one-notch downgrade of AA+ to AA and a negative outlook by Fitch Rating Agency. In May 2023, the negative outlook was removed and a stable one restored. Furthermore, this year, Standard & Poor affirmed the bank’s rating at AA+ with a stable outlook.
Finally, in 2021, Egypt, Bangladesh and the United Arab Emirates became new members of the bank, expanding the emerging markets footprint of the institution. The stage is now firmly set for more countries to join and for the bank to cement its role as a major provider of finance to fast-track the transition to net zero in emerging markets.
• Leslie Maasdorp is vice-president and CFO of the NDB. He was a member of the founding management team in 2015
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