DEVELOPMENT BANKS
IN THE BRICS COUNTRIES
BRICS Policy Center
Development Banks in the BRICS Countries Production: Instituto Brasileiro de Análises Sociais e Econômicas (IBASE) / BRICS Policy Center (BPC) Authors: Iderley Colombini Neto, Geovana Zoccal and Manuela Trindade Viana Coordinators: Sergio Veloso and Maria Elena Rodriguez Layout Artist: Rafael Barreta Boza Translator: Catalina Estrada and Peter Lenny Support: OXFAM / Ford Fundation Instituto Brasileiro de Análises Sociais e Econômicas (IBASE) Avenida Rio Branco 124, 8º andar, Centro, RJ – TEL: 2509-0660 / CEP: 20040-001 www.ibase.br BRICS Policy Center (BPC) Rua Dona Mariana 63, Botafogo, RJ – TEL: (21) 2535-0447 / CEP: 22280-02 www.bricspolicycenter.org
DEVELOPMENT BANKS IN THE BRICS COUNTRIES BRICS Policy Center
Introduction During the last decades, the world has gone through important economic changes, which are still unprecedented. The financial crisis of 2008 is just one of its aspects. It also became prominent the appearance in the political and economic scenario of the so-called emerging countries that maintained a high and continuous growth, with a greater relevancy at world geopolitics. The group of the BRICS countries can be considered as one of the big symbols of this new setting. If the group had had a timid beginning, during the last years the annual summits have been an environment for economic and political reaffirmation, with new cooperation agreements and strong intentions of asserting a place in world financial architecture, as it is revealed by the announcement of the creation of a joint Development Bank of the BRICS. Nevertheless, despite the importance of such an announcement, there are still lots of points to define, not only about technical issues, but mainly regarding the guidelines and aims of the bank. How to start thinking about an inclusive proposal that shall consider the necessities of the regions and the countries, that shall ensure a more social model of development, that shall strengthen and deepen South-South cooperation? From our point of view, we have to start from the national experiences of the National Development Banks and think of a wider proposal, which shall translate local implications and, mainly, the needs of the still developing countries. All BRICS countries have Development Banks, though they have different specificities and sizes, all of them have experience in defining development policies, creating strategic lines of credit, project funding and namely a long-run economic projection of the country. Those Banks have gained new significance and importance during the last decade, having a much more active and relevant role for both local and regional economies. They have specific guidelines and policies which already correspond to a certain development paradigm. This may help us reflect about the course that has to be taken into consideration in the creation of a new Bank. It is from that perspective that this study aims to comprehend the specificities of the National Development Banks and to make an analysis of the experiences and strategies in each BRICS country. The intent is to analyze how these Banks work – their history, objectives, structure and operations –, how and who they finance, in what proportions and with which funds they do it; in order to understand which is the current conception of development in each emerging country. We also propose to understand and dig for the best practices that could give the grounds to the proposal of a BRICS Bank, contributing for the debate on its institutionalization and its possible unfolding.
Economic Growth and Development Banks
The term “Development Bank” itself gained renown in the post-war years, mainly in underdeveloped countries, which originated a series of theories and policies. The definition of this concept has a major debate, due not only to theoretical and ideological divergences, but also to its own normative or analytic obliquity to be followed. These Banks arise, generally speaking, as a willfulness of the countries to get around the aspects that hinder development. This is why there are Public Banks, that is to say, created and coordinated by the State. However, they are different from Commercial Public Banks, which are characterized by granting loans and bank deposits. As the name itself suggests, they are Public Banks that have the function of leading the country to development, through development loans and not just commercial loans. But, what is development and how can it be reached? This question also arises a long and exasperated debate. Strictly regarding the Banks, we can represent those diverging opinions by presenting the main or possible lines of action of a Development Bank: support for small and medium businesses, combating poverty and social inclusion, improvement of health and education systems, long-term loans for large enterprises and infrastructure works, capitals market, financing of innovation, etc. The difference in the policies implemented by the Banks lies in the conception of development adopted. At present, as we will see in this paper, the notion of development adopted by these Banks is closely connected to economic growth and the importance of seeking for alternatives to investments made by free market. These will have an impact in the way of funding and acting of the Banks. Despite the existing differences and singularities, the current role of these banks and its areas of activity are very similar. All Development Banks countries had a strong growth during the last decade, having a great participation in the economic growth process, through investing in the creation of large export enterprises and, especially, in promoting infrastructure, highlighting the energy and highway sector. In the Brazilian case, the National Bank of Social and Economic Development (BNDES in Portuguese) was created in 1952 to support the development policies of the country and the industrialization process. In the ‘90s it served almost exclusively for the privatization of national companies, but over the 2000s became one of the greatest tools of government promotion for large industries and internationalization of its businesses, from a disbursement of US$ 16,8 billion in 2004 to US$ 65,8 billion in 2012 (with a peak of US$ 70,7 billion in 2010, an increase of 320% in 6 years). In 2012, large enterprises received 58% of disbursements; and infrastructure, 34% (according to BNDES 2012 reports), mainly electricity and transport connected to agro-industry production.
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BRICS Policy Center
Russia is not out of tune. Its Vnesheconombank (VEB) was reclassified in 1988 to perform international transactions of the USSR during the process of political and economic reform in the transition to capitalism in the ‘90s. However, in recent years it has become one of the pillars of the Russian government strategic investment, especially in infrastructure and large export-oriented enterprises. In 2002 it was restructured to reinforce its characteristic of a state financial institution. In 2007 this bank was reclassified from “Strategic Economic Affairs” to “Development Bank”, influenced by Brazilian BNDES, from a modest disbursement of US$ 4 billion in 2004 to US$ 16 billion in 2011 (an increase of 300% in 7 years). In 2012, infrastructure received 45% of disbursements, and 68% of the national projects funded by the Bank were oriented towards the agro-industrial sector (according to VEB 2012 reports). As expected, the Chinese case also gains prominence. In 1994 the Chinese State Council creates a set of Policy State Banks, differentiating them from the four big Chinese Commercial Banks. Among those new Development Banks, the ones that stand out are: the Chinese Development Bank (CDB), the Agricultural Development Bank of China (ADBC) and the Exim Bank of China. While the last two remained timid until 2002, the CDB has performed disbursements over US$ 100 billion in 1999, reaching in 2012 the value of US$ 1.03 trillion. As shown in the previous cases, the main sectors of activity are infrastructure (56% in 2012) and strategic sectors mainly for export (such as 17% for telecommunication). Even though South Africa has a small development bank compared to the other countries of the group (the Development Bank of Southern Africa – DBSA), it has shown a strong growth during the last decade in similar investment areas. The DBSA was created in 1983 aiming to heal the lack of loans for the population and for small entrepreneurs, as well as to develop the country’s infrastructure. However, as we can see in the Bank’s Annual Report, its objective today is to finance, coordinate and implement big projects on infrastructure and export production. In 2006, the bank’s disbursement was US$ 310 million, increasing to US$ 810 million in 2012, 161% growth in 6 years. In 2012, energy received 49% of the disbursement; and mining, 31%. During the postwar, India created a very fragmented Development Banks system in which the same banks perform commercial and development funding. In the end of the ‘90s, India chose not to develop those institutions strongly, which made their Development Banks invest in development, but still acting strongly as Commercial Banks. Nonetheless, the existing Indian Development Banks, even being hybrid, are very important to Indian economy, such as the Industrial Development Bank of India (IDBI), which only in 2012 performed US$ 70 billion operations.
Funding Sources of Development Banks
The Development Banks of the BRICS countries raise funds in different ways. It is important to note the implications that the different forms of the banks funds have on the economy. As it was seen in 2008, credit and financial markets have uncertainties that can lead to a financial crisis, leading to a period of investment reductions. Therefore, public banks should function as an anti-cyclical mechanism, against possible fluctuations and market crises. In the specific case of Development Banks, they should continue with certain policies even in a fragility period. While private banks raise in the private market being subject to variations and uncertainties, public banks have an important portion of State Funds, which would guarantee its role in the economy. Thus, the Development Banks would ensure economic policy funding, while the other Public Banks will ensure commercial funding. However, as we can see in the BRICS countries, not all banks raise funds by the same means. Brazilian BNDES and Russian Vnsheconombank (VEB) have very similar funding sources, with an important participation of Pension Funds and through government bonds. Currently, about 52,6% of BNDES funds come from the 1 Treasury, and over 27,2% to the worker’s relief fund (Fundo de Amparo ao Trabalhador – FAT ). The Russian Bank, Vnsheconombank, in 2011 had 73% of its funds coming from its Pension Funds, and the rest came from bond emissions (7%) and from other banks (20%). But the funding of the other countries of the group are much more dependent from private sectors, having a great funding in capitals market, such as the Chinese Development Bank which raised, only in 2012, US$ 197 billion by emitting bonds. The South African Bank funding comes from domestic and foreign markets, in 2012 obtained 70% through domestic security markets. Indian Development Banks follow a similar structure, the IDBI has 43% of its funding from bond emissions and 34% from short-term bank loans. Currently, international capital flows for emerging countries are very elevated, but the dependence on this type of funding source can risk the main functions of the bank: the continuity of investing even in crisis. In 2013, that risk became evident with North American policies on dollar valuation and increase of the interest fee, which affected emerging economies, such as Brazil and India who had strong exchange rate devaluation, resulting in the reductions of foreign currency-exchange reserves. 1 Since 1988 Brazilian constitution, 40% of the worker’s relief fund (FAT) are to be destined to BNDES for application in economic development
programs.
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BRICS Policy Center
International Operations An important characteristic of these Banks is its international operations, increasing its foreign investment rate in both their neighbor countries and distant regions, ensuring a bigger influence area. The bulk of the foreign financial operations follow a very similar model to the one the Banks perform locally, highlighting investments in big infrastructure works and large export enterprises. China is the main example of this process. The biggest part of international loans in China is accomplished by the CDB and by the Exim Bank of China. Those two banks follow different orientations. The CDB’s main strategic aim is to deal with macroeconomic policies, established in the five-year plans. While the Exim is orientated to promoting Chinese imports and exports. Despite certain differences in its aims, in both Banks international operations are crucial. In 2012, the CDB performed international funding of US$ 224.5 billion, especially in agriculture and infrastructure sectors, within Asian region and also being increasingly stronger in Africa and Latin America. The Exim Bank, only in the area of export performed disbursements of US$ 35 billion in 2012. The available data for the international investments of these Banks are scarce and imprecise, mainly for descriptive information about those investments. But according to estimative information, since 2005 the CDB was responsible for 80% of Latin America funding, whereas Exim had 10%. The BNDES in 2012 invested only in infrastructure US$ 650 million in Africa and US$ 800 million in Latin America. The main part of the works is destined for productive infrastructure and for natural resources production. The Russian Bank has an analogical insertion, having important presence in Eastern Europe and North Asia, but has increased its participation in Africa and Latin America, with international funding of US$ 2 billion, mainly in energetic and transport infrastructure, besides industry promotion for export, with considerable weight in natural resources-based products. Even with its relative small size, South African Development Bank has an important role in Southern Africa, performing investments of US$ 340 million, mainly in infrastructure, 56% in highways (according to DBSA Annual Report 2012). The Indian Development Banks also have remarkable international operations, which can be seen in both the IDBI and the Exim Bank. The latter, oriented to Indian international commerce, increased its disbursement from US$ 1,1 billion in 2013 to US$ 6,5 billion in 2012, mainly focused on natural resources production.
Development Model.
These banks present a similar approach regarding both international and national investments. Nowadays, National Development Banks present a notion of development closely connected to economic growth, choosing long-term loans policies for large enterprises and for infrastructure works linked to production and/or export. There are other possible practices to be carried out by the Banks, but they are relegated to a secondary position. Areas such as support for small and medium businesses, combating poverty and social inclusion, improvement of health and education systems represent a minor role. Contrary to sectors with industry and infrastructure, sectors of social and distributive nature do not have autonomous lines in banks, they depend on punctual policies and circumstances. In spite of having specific characteristics in each country, these banks show a common tendency, connected mainly to a certain type of economic development.
Development Bank of the BRICS group
In the Durban Summit in South Africa in March 2013, the group of the BRICS countries announced the creation of a joint Development Bank. Despite the importance of such an announcement, there has been little progress regarding its configuration, its structure and how it will operate. As we can see in this paper, BRICS countries already have Development Banks, with a vast experience in financing the development of these countries, and differentiated development lines. But, which would be the line of action of this new Bank and its attitude towards the other developing countries not belonging to the group? Would it be mirrored in each country’s national practices, following the same lines of action? Or would it seek for other development spheres, today relegated to a secondary position? As we are talking about a joint bank, its capacity of putting together joint demands and necessities is still uncertain. Would this new Bank emerge as a fundamental platform to support the emerging economic and political world agenda, improving the integration and cohesion among its members? It is also important for this debate that the Bank would not limit its agenda to merely economic issues, in order to influence in the global dialogue about the urgent need of creating a more sustainable and just world order. This would mean to deal with fundamental issues that affect the planet, such as climate change, food safety, citizen’s safety, social inclusion and widening sustainable agriculture borders. 3
DEVELOPMENT BANKS IN THE BRICS COUNTRIES #1 | BRAZIL |BNDES
BRICS Policy Center
Nature and Purpose
Capital Structure
• Public enterprise with legal personality in private law and its own assets (Art. 1 of the Bank’s articles of association).
• It supports programmes, projects, works and services relating to Brazil’s economic and social development (Arts. 3 and 4). • The BNDES System is subject to supervision by the Ministry of Development, Industry and Foreign Trade, and it comprises four enterprises: BNDES, FINAME, BNDESPAR and BNDES Limited.
• It currently has offices at four sites in Brazil (Rio de Janeiro, São Paulo, Brasília and Recife) and two abroad (Montevideo and London).
Where do the funds come from?
52,6%
• Since 2008 the National Treasury has also injected funds into the bank in the form of government bonds with costs tied to the official long-term interest rate (Taxa de Juros de Longo Prazo, TJLP).
• Since 2010, the National Treasury is the BNDES’ main creditor, responding for 52.6% of its total liabilities at 31 December 2012.
7,2%
2012 27,2%
3,3% 6,4%
FAT/PIS-Pasep
National Treasury
Other Government Sources
Foreign Funding
Other Liabilities Source: BNDES Annual Report (2012)
Net Assets
Funding Sources (in millions of dollars)
In the BNDES’ capital structure, the government is the main source of funding.
• Under the 1988 Constitution, 40% of the workers’ relief fund (Fundo de Amparo ao Trabalhador, FAT) are to be destined to the BNDES for application in economic development programmes.
3,3%
FAT/PIS-Pasep
61.356
64.066
18.146
2008
National Treasury
68.498 60.569
2009
106.284
2010
74.737
130.525
157.937
81.755
2011
2012
Source: elaborated by the authors based on the BNDES Annual Report (2012)
BNDESPAR - How does it work?
Wholly-owned subsidiary, BNDES Participações S.A. – BNDESPAR supports publicly listed or privately held Brazilian firms that may join the capitals market, by subscribing shares, convertible or exchangeable debentures, investment fund quotas and other securities.
• The portfolio of debentures, which comprises simple and convertible/exchangeable debentures, totalled US$ 7,57 million in 2012.
• The portfolio of equity participations comprises mostly investments in affiliated companies, in which the BNDES has the power to influence financial and operational decision making; and in non-affiliated companies, where it has no such influence. • The equity participations portfolio, net of provision for loss, totalled, US$ 39,644 million in 2012, of which 84.6% represented investments in non-affiliate companies and 15.4% in affiliates. The Portfolio Of Equity Participations By Sector
Telecommunications
1,7%
Food
4,9%
Paper and cellulose
6,6%
Electricity
10,9%
Others
8,7%
Oil and gas
47,4%
Debenture Portfolio By Sector Others
Electricity/Oil and gas
12,5%
Oil and Gas
15,2%
6,0%
Mining
Consumer goods
14,3%
9,9%
Metallurgy Mining
19,8%
9,9%
Food
10,3%
Source: elaborated by the authors based on the BNDES Annual Report (2012)
Telecommunications Services
12,0%
12,6%
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#1 | BRAZIL | BNDES
BRICS Policy Center
BNDES - How does it work? Disbursement (in billions of dollars)
Modalities
70,7 58,6
57,7
Direct
65,8
• Operation performed with the BNDES directly or through nominee (requires submission of a Prior Consultation).
38,7
16,8
2004
19,7
21,9
Indirect
27,2
2005 2006 2007
2008 2009
• Operation performed through an accredited financial institution, which may be: ° Automatic ° Non-automatic (requiring submission of a Prior Consultation) ° BNDES Card
2010 2011 2012
Source: BNDES transparente
Disbursement Modality per Line of Operation (in millions of dollars)
Direct Mode BNDES Finem (for ventures worth R$ 10 million or more)
BNDES-Exim (for production and sale of Brazilian goods and services for export)
2011
2012
31.358,4
22.942,1
30.202,2
15.790,8
18.991,2
26.291,4
85,5
114,0
154,2
1.956,2
1.743,6
BNDES Non-reimbursable BNDES Capitals Market
Indirect Mode
BNDES Finame (for production and procurement of new Brazilian-made plant and equipment) BNDES Finem (for ventures worth R$ 10 million or more) BNDES Finame Agricultural
13.738,4
35.384,7
1.880,5
35.314,4
19.638,7
19.539,1
15.406,0
5.630,9
4.734,7
6.897,2
2.635,6
192,6
252,5
BNDES Card (for Brazilian-controlled micro, small and medium businesses)
3.181,1
1.811,8
Total
70.737,5
58.326,8
6
2.829,6 2.754,4 68,0
4.008,2
65.516,7
Net Profits (in millions of dollars) 4.163
Part of the BNDES profits is oriented to nonrefundable funds, such as the Amazon Fund, BNDES Atlantic Forest, Technology Fund (BNDES Funtec) and Social Fund. However, in 2012, the non-refundable BNDES corresponded to US$ 154.26 millions, in contrast to the amounts of profit and disbursement, which accounted, respectively, for US$ 3.44 billion and US$ 65.52 billion.
3.350,8
2.825,0
6.521,2
BNDES Leasing (for leasing companies for procurement of plant and equipment)
1.932,4
2.276,3
2.251,7
BNDES-Exim (for production and sale of Brazilian goods and services for export)
1.824,1
39.379,0
3.271,8
BNDES Automatic
Did you know…?
2010
2.659
3.071
3.780
3.436
2.828 2.231
1.344 435 2003
629
2004
2005
2006
Source: BNDES transparente
2007
2008
2009
2010
2011
2012
#1 | BRAZIL | BNDES
BRICS Policy Center
Disbursements by Sector (2012)
Industry Disbursement 2012 (in billions of dollars)
Industry
Trade/Services
28%
Industry
31%
20,0
Food and Beverage
2,5
Extractive
0,7
1,7
Paper and Cellulose
2,9
Transport
2,3
Mechanical
1,6
Basic metallurgy
3,5
Chem. and Petrochem.
1,1
Textile and Garment
Agriculture and Livestock
7%
3,2
Others
Infrastructure Disbursement 2012
Infrastructure
34%
(in billions of dollars)
22,2
Infrastructure
7,9
Electricity
11,0
Transport
Source: elaborated by the authors based on the BNDES Annual Report (2012)
What does the BNDES understand by:
2,0
Telecommunications Others
Disbursement by Company Size
• Microenterprise: gross operating revenue of USD 1 million or less.
Large
58%
Micro
Small
9%
• Medium enterprise: greater than USD 6,72 million up to USD 37,8 million.
Medium
10%
• Large medium enterprise: greater than USD 37,8 million up to USD 126 million.
Social Development Disbursement (in millions of dollars) - 2012
Health
Education
Productive Inclusion Public Management
Urban and Regional Development Corporate Social Responsibility Others Total
555 217 56 42
2300 78
3934
7182
Source: elaborated by the authors based on the BNDES Annual Report (2012)
(2012)
17%
• Small enterprise: greater than USD 1 million up to USD 6,72 million.
• Large enterprise: greater than USD 126 million.
1,2
Large Medium
6%
Source: elaborated by the authors based on the BNDES Annual Report (2012)
Green Economy and Climate Change Disbursement (in millions of dollars) - 2012 Renewable energy and energy efficiency
2,5
Public passenger transport
0,6
Hydroelectric plants (larger than 30 MW) Cargo transport
Water and waste water management Solid waste management Forests
Agricultural development
Risk management and climate adaptation Others Total
2,9 1,0 0,6 0,1 0,2 0,1 0,2
0,04 8,7
Source: elaborated by the authors based on the BNDES Annual Report (2012)
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#1 | BRAZIL | BNDES
BRICS Policy Center
Number of Operations in 2012 by Region
Disbursement by Region (in billions of dollars) 50 45
51.486
40 35
138.451
30 25 20 15 10
100.104
5 0
427.210
2010
South
2011
Northeast
311.189 Source: BNDES transparente
Source: BNDES transparente
Southeast
North
2012
Midwest
BNDES Abroad - How does it work? • The bank was able to engage in financing for foreign direct investment projects only in 2002, when its articles of association were altered. But only after 2005, when Foreign Direct Investment financing standards were approved, has the bank become one of the major agents in the process of foreign direct investment for the internationalisation of Brazilian corporations. Such operations of FDI are classified in the category of PostShipment. • BNDES support for Brazilian goods and service exports can be pursued through two of the bank’s existing programmes: BNDES Exim Pre-Shipment consists in support for production of goods and services for export, while BNDES Exim Post-Shipment supports the sale of Brazilian goods and services abroad.
BNDES Post-Shipment Disbursements By Destination (1998-2013)
Canada
Ireland
United States
Mexico
United Kingdom
Spain Cuba
Cayman Islands
Italy
Poland
China
Venezuela
Peru Chile
Angola
Paraguay
BNDES Exim Post-Shipment in Infrastructure (in millions of dollars) 1.200 1.000 800
Bolivia
600 400
Uruguay
200 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Argentina
Source: elaborated by the authors based on BNDES transparente
Produced by:
8
Support: BRICS Policy Center
Japan
Dominican Republic
El Salvador
Ecuador
France
Holland
Infrastructure Works - Africa
Infrastructure Works - Latin America
DEVELOPMENT BANKS IN THE BRICS COUNTRIES #2 | RUSSIA | VEB
BRICS Policy Center
Total Assets
Nature and Purpose • The “Bank for Development and Foreign Economic Affairs” (Vnesheconombank, VEB) and its activities are regulated by the Federal Development Bank Law (Federal Law No. 82-FZ, 17 May 2007).
• The VEB’s mains goals are: to diversify the Russian economy; to improve competitiveness and encourage investment activities; to invest and offer consultancy to projects to develop infrastructure and innovation in Russia and abroad; to promote Russian commodity and service exports; and to support small and medium industries. • It has six representation offices in the Russian Federation (St. Petersburg, Khabarovsk, Ekaterinburg, Pyatigorsk, Krasnoyarsk and Rostov-on-Don) and ten abroad (London, New Delhi, Mumbai, Milan, Beijing, New York, Frankfurt, Paris, Johannesburg and Zurich).
Funding Sources
(in billions of dollars)
80 60 40 20 0
2004
2005
2006
2007
2008
2009
2010
2011
Source: The authors with data from the Vnesheconombank Annual Report (2011)
Where do the funds come from? • During the dissolution of the USSR, banking was concentrated in imported goods purchasing, performed with financing from European countries.
20
• In 2002, the VEB was restructured, and appointed to invest pension fund in securities denominated in foreign currency.
15 10 5 0
(in billions of dollars)
2009
Funds from Other Banks
2010
Pension Funds
2011
Funds with Bonds
Source: The authors with data from the Vnesheconombank Annual Report (2011)
• In 2007, the VEB was recast as “Bank for Development and Foreign Economic Affairs”. Its authorised capital thus came to be a pool of funds from the former USSR, federal government-owned shares in the Russian Development Bank and the Roseximbank, as well as assets to be transferred by the Russian government itself.
• In 2010, the VEB set up the Russian Direct Investment Fund in order to raise capital abroad for the Russian economy. The main aim of the fund is to raise longterm foreign investments in Russia’s high-tech sectors.
VEB - How does it work? VEB-Capital North Caucasus Development Corporation Created to participate in implementing industrial and infrastructure projects in the District’s territory.
Involved in managing Vnesheconombank Group assets, including real property.
Foreign Vnesheconombank subsidiary banks (BelVEB, Belarus; and Prominvestbank, Ukraine). It support exports of Russian products and implementation of large joint investment projects by these countries.
OJSC SME Bank
Roseximbank
Agent for VEB in implementing the Program of Supporting Small and Medium-Sized Enterprises.
Agent for the Russian Government in extending guarantees to exporters and arranging syndicated loans for importers of Russian products.
GLOBEX Bank
It provides credit support to the real economy and small and mediumsized enterprises, tending to function as a universal bank.
VEB Subsidiaries
VEB-Leasing Renders assistance to small and medium enterprises in funding the purchase of automotive transport and special equipment. The company has opened 78 regional subdivisions in Russia’s largest cities.
VEB-Engineering Set up in the Vnesheconombank Group as a centre of competence in expert examination of technological engineering solutions, monitoring and management of national investment projects.
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#2 | RUSSIA | VEB
BRICS Policy Center
Loans to SMEs through Regional Subsidiaries (in millions of dollars) - 2010/11 District Subsidiaries
2010
2011
Far East Federal District
28,84
102,53
Northeast Federal District
128,16
243,50
Siberia Federal District
112,14
Central Federal District
31,40
Privolzhsky Federal District
27,55
North Caucasus Federal District
506,23
28,84
Urals Federal District
Vnesheconombank’s SME operations occur largely through its subsidiaries: the bank’s penetration throughout Russian territory is considerable, and has grown greatly in recent years.
115,34 224,28
83,30
South Federal District
Did you know…?
173,02 724,10
128,16
272,34
Source: The authors with data from the Vnesheconombank Annual Report (2011)
Development Credit Disbursements
What is the developing disbursement?
(in billions of dollars)
VEB’s loans portfolio to non-bank lending institutions, to executive public agencies and to municipalities for investments in projects and for export support. It does not include the purchase and participation in shares or bonds, nor the expenses related to the former USSR’s final stage, in which the implementation of marketoriented reforms in the economy predominated (which included reforms in the areas of trade and finance).
20 15 10 5 0
2007
2008
2009
2010
2011
Source: The authors with data from the Vnesheconombank Annual Report (2011)
VEB Capital – How does it work?
VEB Capital is engaged in managing the assets of the Vnesheconombank Group, including real property assets, although greater importance is given to operations with financial assets.
• The VEB’s loan portfolio includes roubles, dollars and Swiss francs, in addition to debt securities denominated on national and foreign capitals markets.
Equity investments
Securities Portfolio by Instruments (2012)
(in billions of dollars)
11%
8 6
36%
4
3% Shares and Depository Receipts
2 0
2004
2005
2006
2007
2008
2009
2010
2011
Source: The authors with data from the Vnesheconombank Annual Report (2011)
10
50%
Russian Federation Debt Securities
Corporate Debt Securities Of The Russian Federation Residents (Bonds, Eurobonds and Promissory Notes) Other Debt Securities (Foreign Issuers’ Bonds and Credit Notes “Linked” To Corporate and Sovereign Risk)
Source: The authors with data from the Vnesheconombank Annual Report (2011)
#2 | RUSSIA | VEB
BRICS Policy Center
Infrastructure (in millions of dollars)
Improving the Energy Efficiency
Energy Infrastructure
3.554,91
Tourism Infrastructure
2.599,95
Transport Infrastructure Engeneering
Aircraft Construction And Space-Rocket Complex Shipbulding
The disbursement aimed at improving the energy efficiency was oriented to the creation of industrial grade foam glass Neoprom, in Vladimir. The foam glass Neoprom is a thermal insulation material used as a heat protection in industries, as well as a protection from chemically aggressive environments. The technology of production of foamed glass has a Russian patent and it is the only domestic insulation material.
2.928,30 505,18 250,00 230,00 125,4
Infrastructure Utilities
221,25
Other
10.415,00
Total
Disbursements by Sector Improving the Energy Efficiency
68%
1%
Infrastructure 45%
Development of Innovation 2%
of the national projects financed by VEB are oriented to agriculture
Other 4% Support for Exports 8% National Projects
Improving Natural Resources Efficiency
12%
28%
Source: The authors with data from the Vnesheconombank Annual Report (2011)
Support for Export per Recipiente Country
Improving Natural Resources Efficiency
(em milhões de dólares)
Bosnia and Herzegovina Republic of Kazakhstan CFA, Moscow
Republic of Armenia
Source: The authors, http://veb.prognoz.ru/
1430 360
Of the US$ 6,609.47 million spent on projects to improve natural resource, US$ 3,401.78 million were directed to a wood processing project in the Lower Angara (Siberian Federal District).
163
29,25
Bosnia and Herzegovina To reconstruct and modernize a number of companies in the refining industry, VEB disbursed US$ 1,430 million to the Republika Srpska (one of the autonomous political entities of Bosnia and Herzegovina). Focused on the development of the market for highquality oil produced in the Balkans, Southern and Central Europe, the project was oriented towards the modernization of the production and implementation of a large-scale distribution network under management of Optima Groupa.
Republic of Kazakhstan
The construction of the third power unit GRE-2 (in Törtüy) was co-financed by the Eurasian Development Bank. The project aimed at implementing a 500MW power capacity to the Republic of Kazakhstan, which would develop high-tech manufacturing and engineering Russian companies that are export-oriented.
Innovation development (in millions of dollars)
Medical Equipment And Pharmaceuticals Engineering
Aircraft Construction And Space-Rocket Complex Strategic Technology And Computer Software Total
179,49
174,00 71,43
23,92
448,85
11
#2 | RUSSIA | VEB
BRICS Policy Center
Projects by Region
10 Projects
Total: US$ 2 billions
9 Projects
Total: US$ 4,9 billions
6 Projects
Total: US$ 1,4 billion
25 Projects
Total: US$ 5,1 billions
10 Projects
Total: US$ 4 billions 4 Projects
Total: US$ 492 millions
8 Projects
Total: US$ 717 millions
3 Projects
Total: US$ 2 billions
Major Projects By Region Far Eastern Federal District
Development of transport infrastructure towards Kuzbass, Far East. Value of the project: $ 194 million. Siberian Federal District
As part of the search strategy for the efficient use of natural resources, the main project in this area concerns the construction of Wood Industries in the Lower Angara, aimed at exporting processed wood and cellulose. Value of the project: $ 2.6 billion. Ural Federal District
Construction of Urengoyskaya Power Plant with generating capacity of 450 MW. Value of the project: U.S. $ 657 million. Northwestern Federal District
Construction of an automotive plant in Tikhvin, which is the first Russian industry to produce automobiles. Value of the project: $ 300 million. Central Federal District
Construction of Thermoelectric Molzhaninovka in Northern Moscow. Value of the project: $ 670 million. Volga Federal District
Creation of an automotive production line, with the aim of organizing an assembly plant in the territory of Primorye, in order to export to the Republic of Tatarstan. Value of the project: $ 154 million. Southern Federal District
Construction of ski resort “Rose Farm� in the city of Sochi, Krasnodar region, as part of the installations of the XXII Olympic Winter Games and XI Paralympic Winter Games in Sochi, to be held in 2014. Value of the project: U.S. $ 1.7 billion. North Caucasian Federal District
Construction of factory for the production of high quality glass (clear glass, colored and reflective, manufactured by thermoforming - technique used to melt tin) in the Republic of Dagestan. Project Value of the project: U.S. $ 218 million. Produced by:
12
Support: BRICS Policy Center
DEVELOPMENT BANKS IN THE BRICS COUNTRIES #3 | INDIA | IDBI, SIDBI, NABARD, EXIM
BRICS Policy Center
India’s Development Banks The Industrial Development Bank of Indian Small Industries Development Bank of India
Industry
Industrial Finance Corporation of India
Foreign Trade
Export-Import Bank of India
Agriculture
National Bank for Agriculture and Rural Development
Housing
National Housing Bank
The Industrial Development Bank of India (IDBI) Nature and Purpose •
Founded in 1964, it is today one of the main public banks in India, and the fourth largest in the general ranking.
• The IDBI underwent a deep restructuring in 2004, when it went from a financial institutions geared to industrial development to a commercial bank. However, the IDBI’s mandate maintained the financing to the Indian industry. As a public commercial bank, IDBI’s purpose is to provide short- and medium-term financing to the commerce, industry, service companies, individuals, and third parties in general. • The bank has 1,076 branches throughout India, in addition to an office in Dubai, and two others being opened in Singapore and Shanghai.
Total Value of Financial Activities
Net Profits
80
350
60
250
(in billions of dollars)
70
300
50
200
40
150
30
100
20 10 0
(in millions of dollars)
2009
2010
2011
Source: Developed by us based on the IDBI Annual Report (2012)
2012
50 0
2009
2010
2011
Source: Developed by us based on the IDBI Annual Report (2012)
2012
Where do the funds come from? • Because it has been a commercial bank since 2004, the IDBI raises funds through deposits and investment funds. In addition, the bank has specific governmental financing lines. • •
The IDBI also raises funds abroad through banks, bilateral agreements, short-term loans, and bond emissions. In 2012, the IDBI raised approximately US$ 4.03 million abroad.
13
#3 | INDIA | IDBI, SIDBI, NABARD, EXIM
BRICS Policy Center
Deposits Received
34,259.92
29,375.97
27,289.54
18,294.43
Funds in Foreign Currency (2012)
(in millions of dollars)
16%
43%
Bond Emissions
7%
Banks Abroad
Bilateral Agreements
Short-Term Bank Loans 2009 2010 2011 2012 Source: Developed by us based on the IDBI Annual Report (2012)
Source: Developed by us based on the IDBI Annual Report (2012)
34%
How does it work? • In addition to activities that are typical of a commercial bank, the IDBI has an operational line geared to financing industrial sectors. • In the last years, the bank has expanded its share in restoring direct retail credit to farmers involved in cultivation and related activities. To increase its reach in the Indian territory, the IDBI appointed 30 business facilitators and stimulates the creation of farmers’ clubs in villages where they have rural branches. •
The IDBI has cooperation arrangements with other development banks in India:
- IDBI-SIDBI: several Memoranda of Understanding geared to offer subsidized loan services to micro, small, and medium enterprises (MSMEs).
- IDBI-Exim: signed a Memorandum of Cooperation to co-finance, co-organize, and subsidize foreign currency loans to enterprises geared to exports, especially MSMEs.
Small Industries Development Bank of India (SIDBI) Nature and Purpose
• Created in 1990 by the IDBI, SIBDI is the main financial institution for promoting, financing, and developing MSMEs.
Where do the funds come from?
• The SIDBI raised US$ 4.4 billion in 2012 – an 8% growth in relation to 2011. The bank has both foreign and domestic funds. The latter represent around 90% of the total and are mostly originated in refinancing funds and bonds issued by SIDBI.
Funding Sources (2012) Refinancing Funds Fixed Deposits
SIDBI Capital
5% 3% 1%
Commercial Papers
IDBI
French Development Agency (AFD)
1%
Source: Developed by us based on the SIDBI Annual Report (2012)
14
24%
Punjab National Bank
4%
Nonguaranteed Bonds World Bank
Life Insurance Corporation of India
23%
Term Loans
Japan International 43% Cooperation Agency (JICA)
State Bank of India
20%
Baroda Bank Canara Bank
National Bank for Agriculture and Rural Development Bank of India
Central Bank of India
2.1% 2.1% 2.8% 3.3%
Oriental Bank of Commerce Union Bank of India Other 22 banks
19.2%
3.6% 3.7%
15.5%
4.4% 4.7%
14.4%
Source: Developed by us based on the SIDBI Annual Report (2012)
#3 | INDIA | IDBI, SIDBI, NABARD, EXIM
BRICS Policy Center
How does it work? • The SIDBI refinances banks and nonbanking financial companies (NBFC), in addition to providing training to small commercial banks, regional rural banks (RRBs), urban cooperative banks (UCBs), and district cooperative banks (DCBs). • Direct financing to MSMEs is also carried out through specific financial products, such as venture capital, sustainable financing, factoring, invoice discounting, and service sector financing.
• The SIDBI Venture Capital Ltd. was created in 1999. It provides assistance to specific industrial areas, focusing on biotechnology, pharmaceutical products, information technology (IT), and engineering. Funding from SIDBI Venture Capital is distributed through three funds: Fund for the IT Industry, Fund for MSMEs, and Fund for Innovation.
National Bank for Agriculture and Rural Development (NABARD) Nature and Purpose
•
The NABARD was created in 1982 to increase credit flows for agricultural and rural projects.
•
Headquartered in Mumbai, it has 30 regional offices and 395 development managers in districts.
• The bank’s operations seek to develop agriculture, small-scale industries, cottage and local industries, arts and crafts and other economic activities related to rural areas.
Where do the funds come from?
• Investments are focused on micro and small irrigation projects, equipment to save and store water, implementation and acquisition of small agricultural machinery, development of arable land, production in dry lands, seed production, animal husbandry, fishing, and nonconventional sources of energy. • The Rural Infrastructure Development Fund (RIDF) was implemented by the Indian government in 1995, with US$ 320 million to finance rural infrastructure projects. Its total capital reached US$ 16 billion in 2009-2010. •
It also operates through subsidiaries: NABCONS, ADFT, ABFL, and NABFINS.
• NABARD’s disbursements totaled US$ 4.65 billion in 2008. In the 2010-2011 period, this amount was US$ 2.16 billion.
Disbursements by Region
Disbursements by Sector
(in millions of dollars) 2010/11
(2010/11)
Farm Mechanization
931.47
Small Irrigation Projects Dairy Development
Plantation And Gardens
449.71
North
42.53
Northeast
224.85 South
East
308.58
Central
Source: Developed by us based on the NABARD Annual Report (2011)
West
1.3%
0.6%
6.8%
Small Grants Program (Sgp)/Animal Husbandry Agrarian Development 6.8%
200.58
5.2%
2.1% 1.7% 3%
25.6%
Swarnjayanti Gram Swarozgar Yojana Storage and Market
Fishing / Forestry / Caste Action 13% Nonagricultural Sector Self-Help Group Other
15%
18.9%
Source: Developed by us based on the NABARD Annual Report (2011)
15
#3 | INDIA | IDBI, SIDBI, NABARD, EXIM
BRICS Policy Center
Export-Import Bank of India (Eximbank of India) Nature and Purpose • Created in 1982, it is the main coordinating agent for institutions financing the export/import of goods and services. •
Its objective is to promote the country’s international trade.
• It is headquartered in Mumbai, and it has other nine domestic offices (Ahmedabad, Chandigarh, Bangalore, Chennai, Guwahati, Hyderabad, Kolkata, New Delhi, and Pune). Abroad, it operates in 8 countries through its London branch and other 7 offices (Singapore, Washington, Addis Ababa, Dakar, Dubai, Johannesburg, and Yangoz).
How does it work?
• It extends lines of credit to overseas financial institutions, foreign governments and agencies, enabling them to finance the import of Indian goods and services. In addition, it has partnerships with small and medium-sized Indian companies. •
It has a program for rural initiatives, with the aim of linking India’s rural industry to the global market.
• Throughout 2012, the bank supported 85 export-contract projects executed by 47 companies in 23 countries. In addition, it extended credit to buyers for 28 foreign companies, in order to facilitate exports to India.
Total Funds (in billions of dollars)
2.48
2.51
3.22
4.19
5.96
7.07
7.53
Disbursements (in billions of dollars)
8.76
10.18
12.17
1.11
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
1.82
2.40
3.53
4.62
4.34
5.31
5.50
5.92
6.50
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Developed by us based on the Exim Bank of India Annual Report (2013)
Source: Developed by us based on the Exim Bank of India Annual Report (2013)
Credit Exposure of the Five Largest Industrial Sectors Cars And Automobile Parts
Drugs And Pharmaceutical Products Textiles And Clothes
Promoting Capital Exports
Ferrous Metals And Metal Processing
0%
2%
4%
6%
8%
Source: Developed by us based on the Exim Bank of India Annual Report (2013)
Produced by:
16
Support: BRICS Policy Center
10%
12%
DEVELOPMENT BANKS IN THE BRICS COUNTRIES #4 | CHINA | CDB
BRICS Policy Center
Nature and Purpose
Total Assets
• The China Development Bank (CDB) was set up in 1994. That same year, another two public banks were set up: the Eximbank and the Agricultural Development Bank of China.
1400
• The CDB provides medium- to long-term financing facilities that assist in the development of the Chinese economy, with a focus on the following areas: national infrastructure, basic industry, regional development and urbanisation, mainly by financing small business, rural investment and environment initiatives.
• The CDB is a wholly state-owned bank under the responsibility of the State Council of the People’s Republic of China (PRC). • The bank has 38 branches (including its Hong Kong branch) and 3 overseas offices: 2 operating in Cairo and Moscow; and one being installed in Rio de Janeiro.
(in billions of dollars)
1200 1000 800 600 400 200 0
2008
2009
2010
2011
Source: The authors, from data in the CDB Annual Report (2012)
2012
Where do the funds come from?
Funding raised by the bank derives largely from issues of debt securities, Treasury bonds and the bank’s own bonds. In 2012, the bank launched a number of new bond products.
Debt Issued - Current Year
Debt Issued by Market Share - 2012
(in billions of dollars)
57.6
58.4
2004
2005
100.8
2006
109.61
99.2
2007
2008
107.68
2009
185.6
136.8
196.96
Medium-term Bonds Short-term Commercial Papers
Bank Bonds: Commercial Banks 2010
2011
2012
Bank Bonds: Agricultural Development Bank of China Bank bonds: Exim Bank of China Others
4%
12%
6%
31%
5%
3%
9%
10%
20%
Source: The authors from data in the CDB Annual Report (2012)
• The Ministry of Finance, a unit of the State Council, is the administrative and regulatory body responsible for management of fiscal revenues and expenditures. Its activities include fiscal and taxation policymaking and financial supervision.
(2012)
2%
48%
Ministry of Finance
CDB Bonds
Corporate Bonds
Source: The authors, from data in the CDB Annual Report (2012)
CDB Equity
Treasury Bonds
50%
Central Huijin Investment Ltd.
National Council for Social Security Fund
Source: The authors from data in the CDB Annual Report (2012)
• Huijin is a wholly State-owned limited liability company incorporated in accordance with the Company Law of the PRC. With the State Council’s authorisation, Huijin invests in key state-owned financial institutions, within the limits of its contributions and in compliance with applicable laws and regulations of the State. • The National Council for Social Security Fund is a government agency responsible for the management and operation of the National Social Security Fund. It is under the direct leadership and supervision of the State Council or the authorised department of the State Council
17
#4 | CHINA | CDB
BRICS Policy Center
CDB – How does it work? CDB Capital Co., Ltd. Founded in 2009, to support its business development in the four specialty areas of urban development, industrial investment, overseas investment and funds management. In 2012, its capital rose to US$7.6 billion. One of the main component funds of this subsidiary is the CDB Development Fund, which raised US$2.8 billion in 2012 alone. One of the main funds that is part of this subsidiary is the Development Fund, which collected US$2.8 billions only in 2012.
CDB Securities Co., Ltd. Established in 2010, its activities concern mergers and acquisitions, and securities underwriting, brokerage and asset management. It has a Social Capital of US$ 1.2 billion. In 2012, CDB Securities underwrote 62 securities, raising a total of US$ 42.4 billions.
CDB Subsidiaries
Village Banks
CDB Leasing Co., Ltd. Established in 2008 with registered capital of US$ 1.25 billion, engages in leasing in aviation, shipbuilding/shipping, commercial vehicles, engineering equipment, basic infrastructure and SMEs. Assets were US$ 22.5 billion in 2012.
China-Africa Development Fund Launched in 2007 to offer investment and advisory services to Chinese enterprises in Africa.
Loans (in billions of dollars)
593
464
2008
2009
722
2010
Operations concentrate on the rural economy in China, and served the national strategies in agricultural and rural development. At year-end 2012, total assets reached US$ 1.72 billion. Of the banks’ total loan portfolio of US$ 700 millions, plus US$ 500 million oriented to agriculture projects and US$ 400 millions lent to microbusinesses.
Net Profit (in billions of dollars)
884
1,027
3.3 2011
Source: The authors from data in the CDB Annual Report (2012)
2012
2008
5.1
2009
5.9
2010
7.3
2011
Source: The authors from data in the CDB Annual Report (2012)
10.1
2012
Loans by Region (2012) 16%
24%
40%
19%
Eastern China
Western China
Outside Mainland China Central China
Source: The authors from data in the CDB Annual Report (2012)
18
Increased investments in our regional portfolios were seen most clearly in central and western China, up to US$ 55.21 billion in 2012, and in northeast China, up to US$ 11.24 billion. The mais focus of the support was in Xinjiang and ethnically Tibetan regions. These investments aimed to reduce the unbalance in regional development.
#4 | CHINA | CDB
BRICS Policy Center
Loans by Industry
(2012)
Electric Power
Public Highways Railways
During 2012, loans to social housing projects grew 60%, reaching US$ 18.65 billions. Rural communities benefitted from US$ 25 billion to modernize agriculture and to improve rural infrastructure. SME sector received in that year US$ 42.32 billion from CDB. US$ 10.59 billion were set to the Ministry of Water Resources, and student loans worth US$ 1.92 billions over the year.
11%
32%
Petrochemical
17%
Coal
Telecommunication
Agriculture And Related Industries Public Infrastructure Other
21%
2% 1%
1%
7%
7%
Source: The authors, from data in the CDB Annual Report (2012)
Rural Development Loans
Besides the operations carried out by the Village Banks and partnerships between the CDB and the Agricultural Development Bank of China (ADBC), the CDB also has agricultural and rural projects with other partners (such as ministries and regional governments). In partnership with the Ministry of Water Resources, CDB’s loans to the agricultural resources, forest and water sectors reached US$ 22 billions, in 2012. In Guizhou Province, the Bank has developed together with the local government a project to promote the tea industry and its production, disbursing a total amount of US$ 10.2 millions.
(in billions of dollars)
51,6
2008
75,66
2009
92,38
97,21
2010
2011
Source: The authors from data in the CDB Annual Report (2012)
108,27
2012
Lending by Public Banks of China
(in billions of dollars)
640 560 480 400 320 240 160 80 0
1999
2000
2001
CDB
2002
2003
China Exim Bank
2004
2005
2006
2007
Agricultural Development Bank of China
2008
2009
Source: Sekine, Eiichi. The International Operations and Future Governance of China Development Bank. In: Nomura Journal of Capital Markets, Vol. 2, No. 2, Nov. 2010, p. 8.
19
#4 | CHINA | CDB
BRICS Policy Center
Export-Import Bank (Eximbank)
Agricultural Development Bank of China (ADBC)
Nature and Purpose
Nature and Purpose
• The Export-Import Bank (Eximbank) of China, founded in 1994, operates under direct leadership by the State Council.
• The Agricultural Development Bank of China (ADBC) is a state agricultural policy bank founded by State Council Circular No. 25, of 1994, and under direct administration by the State Council. The bank’s operations are regulated by the China Banking Regulatory Commission.
• Its operations are directed to supporting exportation and importation of Chinese mechanical and electronic products, equipment and new- and high-tech products.
• It has head offices in Beijing, 21 national branches and 3 overseas representation offices (Southern and Eastern Africa, Paris and St. Petersburg).
Disbursement (in billions of dollars) 40 35 30 25 20 15 10 5 0
• The ADBC has offices in Beijing, and branches and sub-branches around China.
Disbursement (in billions of dollars) 400 350 2008
2009
2010
Export-seller’s credit
2011
2012
Export-buyer’s credit
Source: The authors, based on China Eximbank Annual Report (2012)
Agricultural Products Export Equipment Exports Ship Exports Others
200 150 100 50
2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: The authors, based on ADBC Annual Report (2012)
(in billions of dollars) - 2012
15%
4%
7%
7%
11%
Other Rural Infrastructure Constructions
Water Conservation
New Countryside Construction
1%
Sugar Reserves
15%
Source: The authors, based on China Eximbank Annual Report (2012)
Produced by:
250
Main Lines of Disbursement
New and High-Tech Products General Mechanical and Electronic Products Overseas Project Contracting Overseas Investment
300
0
Disbursement of Export Seller’ Credit by Sector (2012)
20
• The ADBC’s purpose is to foster development of agriculture and rural areas by: raising funds for agricultural policy enterprises; support agricultural policy credit enterprises specified by the central government; and foster commercial agriculturerelated enterprises.
35%
Agricultural Input (including fertilizer reserves)
Purchase Of National Cotton Reserves Purchase Of Grain And Edible Oil
7.5 3.4
4.1
13.4
Source: The authors, based on ADBC Annual Report (2012)
Support: BRICS Policy Center
6.8 27.3
54.5
DEVELOPMENT BANKS IN THE BRICS COUNTRIES #5 | SOUTH AFRICA | DBSA
BRICS Policy Center
Nature and Purpose
Total Assets (in millions of dollars) - 2012
• The Development Bank of Southern Africa (DBSA) has been operating since 1983. The composition and conduct of the DBSA board are governed by the Development Bank of Southern Africa Act, No. 13 of 1997; by the Public Finance Management Act No. 1 of 1999; and by the Companies Act, No. 71 of 2008. • Note that, not being a deposit-taking institution, the DBSA’s operations are not subject to the Banks Act, nor to the Basel Accords. • The DBSA is wholly owned by the South African government and reports to the Minister of Finance.
3352
4072
4543
4779
2010
2011
5277
• The bank’s investments are concentrated in “socioeconomic infrastructure”, both in South Africa and in Southern Africa.
Source: Elaborated by the authors based on the DBSA Annual Report (2012)
Funding Sources (2012)
Where do the funds come from?
• Currently, the DBSA has only an office in Midrand (in the City of Johannesburg Metropolitan Municipality).
8%
11%
1%
6%
70%
Domestic Securities Market
Bilateral Agreements
Commercial Banks
Others
Supranational Agreements
Source: Elaborated by the authors based on the DBSA Annual Report (2012)
2012
• In 2002, the DBSA set up the Agency Management Services Unit in order to improve its capacity to implement and manage programmes in the country and Southern Africa. In 2012, the unit attracted 10 new agencies, with US$ 54 million in new funds. Currently, the DBSA manages 38 agencies with US$ 160 million cumulative funds under management.
• From 1997 to 2012, the African Development Bank (AfDB) granted the DBSA five lines of credit to finance infrastructure projects in South Africa and the Southern Africa region.
African Development Bank (AfDB) Lines of Credit (in millions of dollars)
Funds Under DBSA Management 180 160 140
40
300
35 30
120 100
25 20
80
15
60
10
40 20 0
2009
• The DBSA is a self-funded institution with funds stemming from domestic and international capital markets and from bilateral and multilateral institutions. The bank has access to US$ 484 million in callable capital as part of its capital structure.
4%
Foreign Lines Of Credit
2008
2008
2009
US$ Million
2010
2011
Number Of Agencies
2012
Source: Elaborated by the authors based on data from the AfDB (2012)
5 0
85
1997
70 1999
100
100
2003
2006
2011
Source: Elaborated by the authors based on data from the AfDB (2012)
21
#5 | SOUTH AFRICA | DBSA
BRICS Policy Center
DBSA – How does it work? • The DBSA is divided into four clusters: three are tasked with originating and packaging viable infrastructure projects for financing and provision of technical assistance; the fourth is responsible for coordinating activities relating to divisional portfolio planning, risk monitoring and reporting. • The South Africa Operations Division (SA Ops) focuses on integration in the private and public sector markets, concentrating on infrastructure projects, which are carried out primarily through municipalities.
• The Investment Operations Division encompasses mainly private sector firms, state-owned enterprises and public-private partnerships. • The International Division is responsible for DBSA operations across the whole African continent and for the African Development Bank (AfDB) funds.
Composition of Operations by Type of Entity (2012)
13%
5%
Did you know…?
4%
In South Africa, the local government is organized in municipalities of three kinds. According to the Municipal Structures Act (1998), the largest metropolitan areas are governed by metropolitan municipalities (Category A), and the remaining part of the country is divided into district municipalities (Category C), each of which is constituted by several local municipalities (Category B). In May 2011, there were 8 metropolitan municipalities, 44 district municipalities and 226 local municipalities in South Africa. The Greater Johannesburg Metropolitan Area, for instance, is circumscribed by three municipalities: the Johannesburg Metropolitan Municipality, the Ekurhuleni Metropolitan Municipality and the West Rand District Municipality.
24%
54%
State-Owned And Other Public Enterprises Secondary Municipalities
Metropolitan Regions
Under-Resourced Municipalities
Non-Government And Private Sector Intermediaries
Source: Elaborated by the authors based on the DBSA Annual Report (2012)
DBSA Support For Socio-Economic Infrastructure Projects
Intermediaries
Municipalities
Provinces
Provincial Entities
Educational Institutions
The Division Provides Investiment Support Through Intermediaries
Sectors/Areas of Support
Current Portfolio Composition
• Energy • Water • Sanitation • Drainage • Operation and Maintenance 82%
Source: DBSA Annual Report – 2012 (p. 33)
22
• Education • Energy • Roads • Housing • Health
• Water • Agriculture
18%
• Education
Project Development and Preparation The Division Supports Project Planning and Preparation Interventions Planning, Advisory Services, Project Resources Mobilisation, Management and Monitoring
#5 | SOUTH AFRICA | DBSA
BRICS Policy Center
Disbursements
Investment in Development Activities
(in millions of dollars)
930,6 616
2007/08
(in millions of dollars)
825,7
833,6
803,4 2554
2008/09
2009/10
2010/11
2011/12
2008
Source: Elaborated by the authors based on the DBSA Annual Report (2012)
3643
3226
2009
2010
4166
2011
4480
2012
Source: Elaborated by the authors based on the DBSA Annual Report (2012)
The disbursements are DBSA expenditures in project financing operations; the bank’s investments also include DBSA capital assets.
Disbursements by Sector (2011/12)
Housing Impact Fund for South Africa According to the DBSA, the mass infrastructure is a major obstacle to development, especially at the level of municipalities. The housing sector is the second sector in terms of financing from the DBSA. Launched in the second half of 2010, the Old Mutual Housing Impact Fund had, until the beginning of 2012, $ 1.17 billion in projects approved. Of this amount, $ 110 million was financed by DBSA.
14%
Renewable Energy Independent Power Producers Programme
4% 2%
31%
Energy Mining
49%
Housing
Funds
IT and Communication
Source: Elaborated by the authors based on the DBSA Annual Report (2012)
The National Treasury and the DBSA support the Department of Energy in promoting private sector investment in energy generation, with special attention to renewable sources. Through the Renewable Energy Independent Power Producers Programme (REIPPP), the DBSA has supported 12 projects in 2011, in the first phase of the program, with a share estimated at $ 1.3 billion. The 2011/12 report underlines the potential for investments of $ 1.1 billion in the second phase of the REIPPP. The private sector makes up 87.5% of total loans approved by DBSA; the REIPPP covers 53% of that amount.
2.984 technical infrastructure projects approved in 2010/2011 2.244 technical infrastructure projects approved in 2011/2012 = US$ 1,38 bilhĂŁo AMONG WHICH
511 in water and sanitation 162 in roads 141 in operations and maintenance
23
#5 | SOUTH AFRICA | DBSA
BRICS Policy Center
DBSA Abroad - How does it work? • DBSA operations outside South Africa are undertaken by the bank’s International Division. It is noteworthy that the division’s mandate provides for operations on the African continent only.
International Disbursements by Sector (2011/12)
• The main areas of DBSA International Division operations include technical assistance in finance project preparation, in addition to direct disbursements and lines of credit.
5%
1% 1% 2%
13%
• The DBSA International Division also extends lines of credit to other financial institutions. In 2011, a US$ 150-million line of credit was approved for the African Investment Bank, for a special loans programme for small and medium enterprises in Angola. The programme aims to facilitate diversification of the predominantly oil-based economy. • The DBSA also disbursed US$ 75 million to PTA Bank, the trade and development finance institution of the Common Market for East and Southern Africa. Other development banks supported by the DBSA are the Development Bank of Zambia, the Infrastructure Development Bank of Zimbabwe, the Tanzania Investment Bank and the East African Development Bank.
5%
56% 17% Roads
Funds
Health
Financial services
IT and Communication Agribusiness
Transport
Source: Elaborated by the authors based on the DBSA Annual Report (2012)
International Disbursements by Country
(2011/12)
Zambia
Zimbabwe
The International Division has disbursed US$ 170 million to Zambia during 2011/12. The amount was invested in the recovery of five priority roads along the NorthSouth Corridor, managed by the National Road Fund Agency of Zambia. Three of these roads are part of the Trans-African Highway route running from Cape Town to the DRC’s Katanga Province and to Kinshasa.
In the program developed in cooperation with the Zimbabwe National Road Administration (ZINARA), the DBSA has disbursed US$ 206 million during 2011/12. More than 25% of this amount was invested in the recovery of roads, especially on the Harare-Plumtree and Harare-Mutare road links.
50%
Zambia
15%
Zimbabwe
Mauritius
4%
1%
Namibia
Lesotho
27%
3%
South Africa
Source: Elaborated by the authors based on the DBSA Annual Report (2012)
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24
Energy
Support: BRICS Policy Center
Produced by:
Support:
BRICS Policy Center
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