The government cannot allow its investment programme to be derailed by a simple lack of funding, writes Anthony Butler
AS THE Durban summit of the Brazil, Russia, India, China and South Africa (Brics) grouping of countries draws closer, citizens will reflect once again on the question posed in 2011 by Jim O’Neill, the Goldman Sachs banker who coined the Bric acronym. O’Neill observed that South Africa has a small population and a sluggish economy. How, then, can it merit inclusion in an emerging giants’ club?
O’Neill’s inquiry was met in South Africa by a petulant wave of patriotic indignation, but it has not yet been satisfactorily answered. One place to start is from a recognition that the current Brics, or “Bric5”, will soon expand. Economically dynamic and populous states such as Mexico, Indonesia, Nigeria and Turkey are jostling for admission. “Bric5” will become Bric7 then Bric10 in order to represent the collective interests of all emerging powers.
Why, then, did South Africa come first? Prodigious feats of diplomacy from the Department for International Relations and Co-operation are unlikely to have been decisive. The decision to invite South Africa into Brics originated in Beijing. Decades of frosty relations between the African National Congress (ANC) and the Chinese Communist Party have thawed now that Sino-sceptic former president Thabo Mbeki has retired to his vast family farm in South Sudan. Deputy President Kgalema Motlanthe has championed a new relationship between the two glorious liberation movements. China satisfies a thirst for modernisation, an antipathy towards the colonial powers and a gnawing unease about market capitalism.
China, above all, has capital and the ability to steer it through state-controlled banks. Indeed the centrepiece of the summit will be the launch of a Brics development bank. Africa suffers from huge infrastructure funding gaps, to the tune of $90bn a year if the World Bank is to be believed. But the Brics development bank is likely to be a specialised institution, providing finance only for projects where an exceptional tolerance for risk is required.
One field in which Brics leads the world is nuclear power. Fifty of the 66 nuclear reactors at present under construction are in Brics states.
South Africa’s R1-trillion procurement from a Chinese-French consortium, steered by Motlanthe, will reach a “point of no return” by June, according to Department of Energy director-general Nelisiwe Magubane. In an interesting coincidence, the energy minister has promised a “nuclear determination” by March. Sceptics in the Treasury, the National Planning Commission and the Department of Science and Technology argue there is simply no fiscal space for such a project.
In South Africa’s abortive nuclear spending under Mbeki, moreover, the Treasury promised lenders a sovereign guarantee, but such a transfer of risk would no longer be acceptable to the rating agencies.
At a meeting in Vienna at the headquarters of the International Atomic Energy Agency (IAEA) last week, however, South African officials were briefed by IAEA officials on alternative financing options for the huge nuclear spending. Since the Three Mile Island disaster in 1978, when underinsured banks lost billions of dollars, private lenders have steered clear of the sector’s uncontrollable and uninsurable risks. A Brics bank, however, could facilitate “public corporate” models of financing.
The Kudankulam nuclear plant in India, recently built by Russian engineers, followed just such an alternative financing route. Moscow facilitated “soft-term” 20-year financing at fixed and low interest rates, and took on project risk itself. For this reason, no sovereign guarantee was required from the Indian finance ministry.
If, at the Durban summit, President Jacob Zuma announces that the financing hurdle to our patriotic nuclear programme has been overcome by our Brics partners, will the dissenting arguments of a handful of sceptical ministers and consultants really stand in his way?
As one of the ANC’s most pro-Chinese ministers, Malusi Gigaba, observed this week in Parliament, the government cannot allow its investment programme to be derailed by a simple lack of funding.
by Anthony Butler
Feb 22, 2013
• Butler teaches politics at the University of Cape Town