New Development Bank grants SA $1bn emergency loan, looks to expand membership

The New Development Bank has granted South Africa a $1 billion emergency loan to support the country's economic recovery from the Covid-19 pandemic. Despite South Africa's challenging financial situation, Monale Ratsoma, the Director General of the New Development Bank, emphasized that the decision to extend the loan was not difficult at all. The bank was established based on the mandate from the five member countries who have invested capital to resource the bank. The aim is for the capital invested by member countries to be utilized in programs that contribute to the development of economies economically. This approach allows for the expectation that a country's investment will be returned in multiples in the form of economic development assistance. Ratsoma further explained that there is still scope for South Africa to borrow from the New Development Bank, citing the over $5 billion already committed to South Africa over the past few years. The bank leverages its balance sheet to borrow at very cheap rates from capital markets and then on-lend to member countries at concessional rates. This means that the funds provided by the bank are significantly cheaper for governments than if they were to borrow from the market directly, offering favorable terms for economic development programs. While the focus has primarily been on supporting the South African government, the bank is now looking to extend its lending to state-owned entities and the private sector. The New Development Bank operates differently from traditional multilateral development institutions with a focus on leaning towards country systems and environmental standards when designing loan programs. Ratsoma highlighted that the bank takes an adaptable approach to interpreting how countries have designed their own regulations, ensuring that procurement processes are competitive and transparent, regardless of the country's approach. This flexible approach has proven successful so far, particularly in the case of South Africa. Looking ahead, Ratsoma discussed the bank's plans for lending to the rest of the continent and the capitalization of the bank. He mentioned that while the initial capital of the bank was set at $50 billion, much of it has already been paid in by member countries. The bank is now working towards reaching $100 billion in capital through additional contributions and the addition of new members. With discussions already underway to open up membership to new countries in Africa, the New Development Bank aims to expand its balance sheet and increase its ability to provide loans for development projects across the continent. In conclusion, the New Development Bank's grant of a $1 billion emergency loan to support South Africa's economic recovery reflects the bank's commitment to assisting member countries in times of need. The bank's unique approach to lending and focus on country-specific systems and environmental standards set it apart from traditional development institutions, offering more flexible and favorable terms for borrowing. As the bank looks to expand its membership and increase its capital, its ability to support economic development projects across Africa is set to grow, bringing much-needed financial assistance to countries facing challenging economic conditions.