Currency is not the problem….Policy is the problem Mr Politician

There has been a raging debate on whether Zimbabwe should trash the United States dollar and adopt the South African rand as a measure to stabilise the ailing economy. This is a dangerous diagnosis considering the fact that there is no underlying reason or rationale for such course of action. No matter how much policy makers or economic commentators spend their energies debating on a currency to adopt the reality is that they are way offside and ignorant of the real issues which have stalled economic progress in Zimbabwe. The truth of the matter is that Zimbabwe’s economic policies are not globally competitive and robust to ensure the much needed growth and development. This is the problem with most African states they tend to major on the minor and major on the minor.

Ditching the United States dollar will not change the course of Zimbabwe’s economic direction by an inch but a new thinking in policy formulation and implementation will definitely result in the realisation of economic gains. Zimbabwe will not be granted billions of Rands by simply joining the Rand Monetary Union and neither will the economy flourish by adopting any form of currency and that means even adopting our own, whether we call it Ibwe, Pound or Dollar. South Africa will not accept the country into the Rand community due to policy inconsistencies and an uncertain economic future the country is heading to as this will also have an adverse effect on other countries in the community.

Money is always chasing production. This is the reason why China has got the largest foreign reserves in the world. China’s economy has been able to attract pounds, euros, dollars, pesos and francs amongst a host of currencies. The level of economic activity and trade which has come out of China has allowed a steady flow of capital which has further strengthened its economic growth and development. Liquidity or money is a function of production and investment, two qualities which are currently absent in the economic set up Zimbabwe finds itself in today. To quench the liquidity thirst the Zimbabwean economy is facing there is need for a radical policy shift which is able to propel the economy to greater heights and create the much needed employment, growth and development.

With all due rationale the US dollar has done no harm but much good to Zimbabwe’s economy and not any form of currency can avert the economic crisis which the country is sitting on. Only the right economic policy and strategy will deliver economic prosperity to Zimbabwe. Instead of wasting valuable time on a non-productive debate about ditching the United States dollar policy makers should be working overtime on making Zimbabwe an attractive investment destination which can pull some sustainable and profitable projects. There should be more emphasis on how to make the over hypnotised ZimAsset work and improved effort and action from the government.

Even if we chose to adopt the fanciest currency in the world the status-quo remains as long as the country is not able to churn out new production which can move the economy forward. Liquidity is a function of production and investment and unless we rectify the two factors any form of debate about currencies to adopt and ditch is mere noise and futile. After all we thought Zimbabwe adopted the multi-currency system not just the United States dollar.   

Mobile money innovation for financial inclusion

Zimbabwe’s mobile telecoms companies are changing the way banking should be done and they are making banks burn in the heat out of their innovation. The landscape of banking has surely changed as they keep introducing products that will make almost each Zimbabwean have a mobile money account. Telecel and Econet should be applauded for being the biggest engineers towards the quest for financial inclusion in Africa and Zimbabwe. They both have mobile money wallets which have been received well in Zimbabwe and the informal sector has taken advantage of this convenient product. Mobile money uptake in Africa has been slow with the pioneers M-Pesa enjoying brisk business in Kenya and so has Econet and Telecel. This kind of financial innovation should be spread across Africa and countries that have not caught wind of this should take leaf from the companies that have made it like M-Pesa Econet Telecel and Vodacom among others.

Telecel was the first mobile operator to introduce a debit card which could work on any POS device and ATM as long as it is Zimswitch compliant and this made banking easy. It partnered with other banks so that cash can be transferred from bank to mobile wallet or from mobile wallet to bank which is financial innovation at its best. This has also enabled clients to take advantage of channels such as Internet banking, ATMs and Mobile money wallets from their banks to transact with Telecash. The card is meant to cater for shopping bill payments as long as they are POS devices that are Zimswitch compliant which means it can do the same functions like a bank debit card.

Ecocash also has not lagged behind but it’s also appreciating competition from Telecel as it has set the bar high by introducing a Ecocash Mastercard Debit card. This means that the MasterCard will be linked to a mobile wallet account making it a first in Africa. The card will cater for both local and international transactions, thereby allowing access to anyone with a Ecocash account to be able pay for goods even via the internet using the MasterCard. The card also helps Zimbabweans who travel across borders in having paperless money as they will be making use of the card, bringing safety and security to them.

We have seen that M-Pesa has introduced BitPesa for Bitcoins which is the latest innovation in the market world and with Econet having a MasterCard linked to the Mobile wallet we await to see the next move from Telecel as they are also a force to reckon with in financial inclusion and innovation. Support should be given to these innovators as this will complete the cycle of financial inclusion in Africa.  

Zimbabwe's failure to attract foreign Investment

The Zimbabwean economy is reeling from an economic collapse as funds are drying up with no investors wanting to commit themselves in investing in the resourceful country. Efforts are being made to attract investors but all of which have come to account for nought. The Finance Minister has made trips to China the U.K and now he is in Russia with the minister of Mines to try and lure investors from that country. With the current investment situation the minister’s trips will only be viewed merely as shopping and tourism trips rather than business trips. The way we have been dealing with other foreign companies that want to invest in Zimbabwe has an effect in the way we attract foreigners and currently we have been faring badly in the way we have dealt with major deals.

In 2008 the Indigenisation act was signed into law by the president which was a move that deterred foreign investors in investing in the country and this came at a time the country was in an economic crisis. Views were thrown around regarding the act with even foreign companies operating in Zimbabwe feeling the heat as their operations were also at threat due to the act. Few investors were willing to come into the country with many of them citing lack of security in property rights due to the act. In the heat of the moment more government parastatals were failing in operations with some of them closing down, even private companies were scaling down on operations with some of them moving the greater part of operations to other countries.

Despite those challenges investors were seeking a way to find an alternative way with the government as some negotiated for a different policy altogether but with a mind to develop the country. In that time Essar proposed a deal to the government to buy the ailing steel giant Zisco-Steel which was a relief to the government. The deal was signed and commissioned in 2011 by the Minister of Industry and Commerce Professor Welshman Ncube with the initial agreement being made in 2010 where Essar was supposed to hold 54% shareholding with Government holding 36% and minority shareholders with 10%. This signalled a new and brighter beginning in Zimbabwe as investors saw this moment as warming up to foreign investors by the government. But fast forward to present time 2014 July still the company has started operations due to many restraints that have been brought about.

The Indian ambassador once noted that some individuals had a vested interest in the deal as they scuppered the progress, which highlights that the ministers involved directly or indirectly wanted or still want to pursue their own self-interests first over  national interest .to make matters worse the deal was signed and commissioned by the President of the Mr Mugabe in a ceremony that was attended by senior government officials and interested parties and if the president signs you expect everything to fall into place thereafter but that’s not the case. Even after the president signed and commissioned the deal the then Minister of Mines objected the deal citing that the money to be paid for the resources was well below the true value worthiness of the minerals and this stalled progress. Efforts were put in place but nothing came to fruition and even the now new Minister of Mines has not put an end to the discord. One thing that we must be aware of as a country is that these major deals come as a huge test which the global market examines the way we deal with investments and as it is despite assurances of the deal still being alive we have failed.

The banking sector has been suffering from liquidity problems and in their practice they have also attracted investors with Banc ABC viewed as the biggest winners for investors as they the Atlas Mara investment company taking over the reins. The deal is still in progress for Banc ABC Zimbabwe but sections within the sector are saying that the deal’s progress is now being affected by issue of Indigenisation which was dealt with when an agreement was signed with the Minister of Finance present. If this is true then surely it will be another nail to the coffin of the economy as it shows that government within itself is pulling in different directions thereby bringing discord to the economy. Also Tetrad Investment Bank has had a buyout deal with a Russian Consortium but it has been dragging for a while hampering the operations of the once vibrant and promising brand. This deal will surely be a barometer for the Russian Investors which the government is trying to lure to the country. If the Tetrad deal is not dealt with amicably and swiftly then the ministers should just forget about investors from that country.   

We now have the Zimbabwe Investment Authority which is the first port of call for any foreign investors and it is said to be a one stop shop with processing of papers in just five days which is good for business. But investors have complained about the paper work they have to fill in and the many offices they have to visit. Hopefully the Z.I.A will be able address all of the problems investors might be facing.

In short government must put an end to the discord in the Indigenisation act, come out with an investor friendly policy that will attract more foreign investment and boost growth. The President’s powers should not be undermined once he signs a deal as this will make stakeholders as the question of who is running the country, because the President usually signs after all of his ministers have agreed. The process of facilitating any investment opportunities to foreigners should be stringent but less rigid in processing as this slows down projects. These current pending deals should be finalised and approved by all interested parties in the government if we still want foreign investment.    

Revenue streams running dry for the Zimbabwe

Zimbabwe is in a dire economic situation which, with all due fairness is surmountable only if rationality is allowed to prevail. Of recent there has been pressure on Zimbabwe Revenue Authority (ZIMRA) to step up its revenue collection efforts since the government coffers continue to dwindle. The government has no extra funds and is operating on a cash budget where, whatever little is collected is used for recurrent and immediate government expenses thereby shutting out any investment in long term projects. In other words the whole country has landed on the shoulders ZIMRA and failure on its part is tantamount to national bankruptcy whose consequences are unimaginable. 

For instance, bankruptcy on the part of government means the government can’t pay its workers or certain national projects, those dependent on government workers can’t enjoy that dependence anymore, and the private sector whose customer base is largely made up of civil servants can’t breathe either. The cycle ripples itself and everyone bears the ugly consequences directly. This is the dilemma which Zimbabwe is trying to avert and instead of looking at the bigger picture, policy makers have remained entrenched in their myopic view of the economy to an extent that they continue to pile pressure on an entity like ZIMRA whose operations have been scuttled by failed economic policy too.

The bigger picture is that the traditional and usually reliable revenue streams have failed to satisfy the taxman due to bad economic policy. Corporate tax, Pay As You Earn (P.A.Y.E) and Value Added Tax (V.A.T) are undoubtedly some of the major sources for government income. In Zimbabwe these major streams have failed to satisfy government recurring expenditure.

When company closures are the order of the day and constrained returns continue to strangle the few existing corporates one can only wonder if meaningful corporate tax can be collected by the taxman. Company closures inevitably result in the laying off of workers and subsequently lead to a rise in the unemployment. High unemployment levels cannot satisfy a taxman whose hopes are pinned on P.A.Y.E. High unemployment levels also translate to low buying power on the part of consumers which ultimately means that not any meaningful V.A.T can be drawn from the market. The vicious cycle continues to replicate itself.

This is the truth that ZIMRA faces. Industry is down and no meaningful corporate tax can be drained from it. The demise of industry has resulted in massive unemployment and this leaves little room for meaningful revenue from personal income tax. This massive unemployment has left most Zimbabweans with less buying power and this has affected V.A.T collections in a way. In essence ZIMRA is left with narrow avenues for sustainable revenue collection and of late there have been suggestions that the taxman should devise ways of tapping into the informal sector. 

A closer analysis into this idea clearly renders it futile. The informal sector is thriving not because of an underlying growth in the conventional or formal economy but out of desperation instead. Most Zimbabweans have turned out to informal trading because it has become a major form of sustaining livelihoods in an environment where more than eighty percent of the working population are unemployed. It is technically and economically difficult for ZIMRA to tap into the informal market. Above all the tax revenue which they anticipate from this market will definitely not be sufficient to their needs because the informal economy is also catching the virus which is killing the formal economy. The contagion effect is playing out here.

In light of these developments the real question is centred on whether ZIMRA can do the unimaginable and draw water out of a stone. One sad thing about economics is that miracles are very much non existent. Instead of focusing energies on how to tap into the informal economy and milk out some tax revenue, ZIMRA should first look at its own systems. Most revenue leakages are a result of massive corruption among the rank and file of its human capital. A serious organisation faced with serious challenges should clearly look into such issues. ZIMRA should ensure that revenue leakages are dealt with and then think of other strategies to tap revenue. However, the ultimate solution lies with the policy makers (government) themselves. The Zimbabwean challenge of dwindling state coffers does not need innovation on the part of ZIMRA or solicited advice from the IMF or economists. The solution lies in our policymakers who are not taking heed to the incessant calls on the need for them to think and act rationally.

Here is what a rational government does when faced with a growing challenge of a dry tax base and dwindling revenues: Promote private sector capital (both local and foreign) which in turn results in a rise in employment and ripples out creating new capital and employment in the process. Simple as it is, the taxman does not need to “draw water out of a stone.” What the taxman can only do is go and pounce on the new capital being created and raise the fury out of the rising employed population by demanding his P.A.Y.E.

The onus is on the government of Zimbabwe to actively promote private and public capital regardless of roots (i.e whether domestic and foreign) and reap out the revenue benefits which comes its way because ZIMRA cannot simply “DRAW WATER OUT OF A STONE!!”

Why Africa is still a sleeping Giant

Africa has been long known as the sleeping giant that has the potential to grow and be a force to reckon with in the global market, but up to today the giant is still deep in its slumber. Signs of waking up are there but only coming from a few body parts which have failed to go to rest with the sleeping giant. At the current moment Africa has about 15 countries which have the status of “emerging economies” commanding over $50 billion worth of Gross Domestic Product. Powerful markets like America, China and others have GDP’s of over a trillion dollars, which is far off Africa’s GDP combined. Those countries might be well developed and advanced but have got certain mindsets or ways that brought them to this stage. Africa can tap into some of those ideas and make them her own. Once it idolises such mindset this continent can grow and develop into a powerful economic powerhouse. Our mindset as a continent should change.

The continent is rich in natural resources giving it an edge if such resources are used in an efficient economic manner. However that is not the case with our beloved continent. Greed has torn apart most countries as the elite have taken up the resources for their own benefits and a few chosen ones at the expense of the greater population. This has in turn led to war for equitable resource distribution and marginalisation of the poor. Exploitation of resources continues to take place despite African countries being totally independent from colonial rule. Wherever there are vast resources in Africa, conflict is abound. Countries like DRC, Nigeria Sudan, Libya and others have been afflicted with incessant strife due to their resources which always attract conflict. Foreign countries have been directly and indirectly involved in these resource based conflicts, with a view of benefiting these materials at cheaper prices for their own countries development whilst leaving nothing for the local inhabitants. China of late has been fingered in the supply of fire arms to South Sudan as a safe guard to the oil that they are exploiting in that particular country. They are not the only ones involved in Africa,  countries like America, France, England and others also involved in the exploitation of African resources and most often disguise as sheep yet they are wolves.

African governments have mortgaged their own  resources for loan deals with major global institutions and other companies at expensive rates placing their nations at a huge risk.  Most of these dealings come with huge costs and   provide less benefit to the locals of such nations. The question to be postulated is whether African leaders are failing their nations in management of resources and providing a clear path to economic prosperity. . The saying “Power Corrupts” must have been invented in Africa after one experienced the alarming levels of corruption among its leaders and governments. Corruption has grown to be cancerous in Africa as with everyone who gets power wanting to accumulate wealth as an incentive. Daily media reports of corruption emanate from each and every country in Africa and it is a concern that this cancer of corruption is becoming institutionalized. Zimbabwe has seen its development stalled by corruption as every investor who wants to set foot in the country has to pay a bribe for his deal to be facilitated.  There are reports that bribery demands which run into millions of dollars are being made by the ministers. Most companies have highlighted the issue of bribery in Africa with the founder of Econet Wireless noting that  a certain African country demanded that his company pay millions to a minister for his tender to be accepted, a request he vehemently denied. This in itself shows how dirty dealings in Africa have grown to appalling degrees. Corruption is not only detrimental to the attraction of investment since the cost and risk of doing business in a highly corrupt country are high but can also disturb the environment of efficient business operations.

The mindset placed in most of our African systems is to look at ourselves as servants. It is more like we are cursed like the biblical children of Ham who were to be servants of servants and never to be the rulers. Growing up, every educational institution I have attended taught us to write job application letters and never to draft any business proposals or taught how to run businesses. This incessant emphasis on writing job application letters made us believe were born to work for someone else and never to run or own a business. That mindset is wrong and scuttles development within an individual and the society at large as it inhibits growth and innovation. Now is the time for us to rise and teach kids from an early age on issues to do with good business ethics, allow innovation and promote it amongst ourselves. We tend not to support anything that is developed by an African as we feel that we are not good enough but if it is American or European made Africans are the first to howl in celebration. We forget that everything that is perfect today went through many stages of imperfection. It is a case that the so called innovative countries supported each other and had faith in their actions to build the iconic brands we see in the world today. This is a quality which Africa lacks.

Africa seems to focus its attention on small things whilst the major battles facing the continent and its nations are ignored or swept under the rug. Our leaders like majoring in the minor so as to cover up  the big economic questions  which are always lingering on everyone’s mind probably due to the fact that they seem to have no clue on such problems . Southern Africa knew and was advised well back and in ample time that a shortage in Electricity was to be felt due to a growing population and high industrial capacity. Most Southern African governments came up with plans to avert the crisis that was going to impact negatively on industrial growth and development. We are now in 2014  and countries like Zimbabwe, Zambia, Malawi and Mozambique are suffering from acute power supply shortage which is has and continues to cripple  production in some of their industrial hubs. The crisis was foreseen long back but nothing was done. The only action undertaken at that time was to draft ambitious documents and plans which never materialised but have only served the purpose of occupying library shelves. . Action needs to be taken when such matters arise. For sustainable African economic growth, the future should always be taken into and prioritised. Governments must be flexible in their operations and shun rigidity in execution of their duties as this has made us fall way behind other economies.  We are slow to adapt to change and at times we don’t even adapt to change. Decision making is so bad that most agreements take years to be approved and if approved new challenges surface further elongating the process. A classic example is that of the Essar Zisco steel deal in Zimbabwe which has been dragging for years with analysts highlighting that the country has lost billions of dollars due to the dragging of the deal.

We need to act now as a continent and fight for economic development, eradication of poverty and the end to conflict. We must have love for one another as a people of the same continent but most of all we must have love for Africa.  More things can be said or thrown around as to why our continent is still deep in its slumber but  one thing and that alone has to be changed in African people, that is “our MINDSET”. Wake up Africa       .   

Pricing madness in Zimbabwe

The Zimbabwean market is riddled by Non-Performing Loans which have weighed down the performance of many credit facilities providing institutions be it in the financial sector, retailing in clothing furniture or electrical products the situation has been the same and it’s worrying. The country is currently under a strain of problems which among them involves liquidity problems and shutting down of companies on a monthly basis thereby having a largely informalised economy. Business is currently on a low and most institutions had devised ways on trying to be viable and thus had credit facilities for their clients who were likely to attract businesses but in turn they have exposed these institutions to default risk. In spite of the risk companies have continued to offer these services but at times the pricing of these products or facilities has deterred clients from making use of the facilities and opting to buy from South Africa or Botswana where goods are cheaper.

 The imports are indeed cheaper and at times they are of better quality than the products that will be available here at home. The buying of imports has drained the country of the much needed funds to resuscitate the business sector as a whole. The problem especially for the retailing outlets is their pricing model which is not in any way competitive enough to sway importing locals to them. Players in the Furniture and Electrical products sector face a lot of competition from imports even though they have credit facilities but they are not priced in an attractive manner with longer payment periods. ZIMRA has tried on the other hand to help our industries and companies by levying high customs duty for all imports but this has not stopped locals from buying imports as they still view them as cheaper compared to local products.

Below is the calculation table for three products which are available both in Zimbabwe and South Africa and we will compare.

Pricing schedules for both Zimbabwe and South Africa
Product	Zimbabwe	South Africa
55 Inch Sony LCD TV:	Cash Price: $3,999.00	Cash Price: R18,411.00
	On Hire Purchase:	Exchange rate: 10.7485
	Deposit: $1,200.00 with instalments of $351 for 12 months	Transport cost: $100
	Total cost on Hire Purchase: $4,980.00	Customs duty @55%: R10,126.05
	Interest rate: 24.53% per annum	Total cost in dollar terms: $2,754.98
Avante Lounge Suit	Cash Price: $5,699.00	Cash Price: R36,799.00
	On Hire Purchase:	Exchange rate: 10.7485
	Deposit: $1,710.00 with instalments of $398 for 18 months	Transport cost: $100
	Total cost on Hire Purchase: $8,874.00	Customs duty @55%: R20239.45
	Interest rate: 37.14% per annum	Total cost in dollar terms: $5,404.78
Samsung RSA1WTMGI/XFA Refridgerator	Cash Price: $2,499.00	Cash Price: R12,000.00
	On Hire Purchase:	Exchange rate: 10.7485
	Deposit: $750.00 with instalments of $219 for 12 months	Transport cost: $100
	Total cost on Hire Purchase: $3,378.00	Customs duty @75%: R9,000.00
	Interest rate: 35.14% per annum	Total cost in dollar terms: $2,053.76

The above extract shows the differences between the Zimbabwe prices and South African prices and for Zimbabwe we used prices from TV Sales and Hire which is one of the cheapest in the market in terms of pricing. The above is just a glimpse of how our pricing models are affecting demand and with customers having become cost sensitive coupled with the economic downturn that is taking place, companies should brace themselves for two things, high default rate and low demand.

Many points might be thrown across regarding the pricing models in Zimbabwe which may be high cost of raw materials, high lending costs from local banks, and policy inconsistencies which have made planning be that of day to day rather than a year or longer term. Companies should review their pricing with an eye on the foreign markets so as to stay in business and be competitive rather than going for a kill which will have a negative impact on the firm in the end. Alternative means should be put in place innovativeness should be the number one aspect of all companies in Zimbabwe for them to provide quality goods and services at a low cost. We have seen a growing or widening import to export gap recently as locals keep pushing up demand for imported goods which in turn is leading to closure of most industries as they cannot match regional prices of commodities.

For the country to reduce the widening gap of imports to exports, companies must realign their pricing policies, introduce new machinery which is cost effective in production so as to lower costs and also try to be involved in the production of raw materials whether directly or indirectly so as to reduce costs on these materials.

BRICS own development bank….Is the world prepared?

The BRICS grouping of the emerging markets made up of Brazil, Russia, India, China and South Africa came up with a bold decision to create its own development bank which will rival the US backed World Bank and International Monetary Fund. This is a bold decision in that the BRICS are not only breaking with a traditional establishment but have clearly stood up to the inequities of Bretton Woods through action rather than mere rhetoric. However, is the financial world and the BRICS countries themselves ready for a new development bank. Will the BRICS bank outdo the World Bank and IMF and create a new financial order?

One thing for certain is that the BRICS grouping is more united by common dislike for a world financial system whose influence comes from Washington, London, Paris, Berlin and Tokyo.  This goes beyond economic spheres but politics plays a significant role too. China and Russia want to have more say in world politics, South Africa wants to play a leading role as Africa’s messiah, and India and Brazil have equally become important such that they can’t be just ignored in world affairs.

This then poses a unique problem.  Being united by a common enemy rather than goal does not sustain a relationship. Most of the reasons BRICS countries have put up for the establishment of their own development bank are more to do with the dislike of Bretton Woods rather than what they would want to achieve out of their own bank.

This is much evident in the wrangles which have dogged this establishment on who gets the first presidency, which country hosts the headquarters and who provides what stake. These are petty issues which cannot be allowed to take centre stage in a grouping which wants to concentrate on real business.

The developing world cannot agree more to the notion that the World Bank and the IMF are bullies when it comes to the provision of financial packages. They force nations to dance to their own tunes. Some of the stringent measures the Bretton Woods institutions have always maintained include the unpopular budget cuts, privatisation, deregulation and opening up of economies. Harsh and unpopular as they seem to be, measures which come from Bretton Woods are meant to sprout economic efficiency. BRICS do want these preconditions imposed on them but still one would question the rationality of such thinking because in any credit provisioning scenario, stringent measures have got to be in place.

Credit risk is a demon in the world of finance and with the BRICS countries proposing a New Development Bank which will play an active role in supporting other developing nations they cannot simply ignore a stringent credit rationing process just like the one employed by World Bank and the IMF. Ignoring such measures will only expose themselves to enormous risk which the developing world bears.

The BRICS have proposed a $100 billion fund which will provide relief to member countries faced with short term currency problems and persistent Balance of Payments problems. They have dubbed it the Contingent Reserve Arrangement (CRA) and would want to model it around the Chiang Mai Initiative (CMI) of the Association of South East Asian Nations although the CMI employs some of the IMF recommendations. The biggest contribution to this $100 billion currency reserve pool will come from China which will churn out $41 billion. Brazil, Russia and India will contribute $18 billion each and South Africa will provide $5 billion.

Currently the South African economy is gripped with labour unrests, a huge external debt which is 38.2% of the total Gross Domestic Product and stagnant economic growth. Recently Standard and Poor’s downgraded South Africa’s credit rating to BBB, one notch above the junk status. Is South Africa therefore able to afford the $5 billion it is required to contribute at a time its economy is sneezing and coughing all at once. Considering that everything the BRICS wishes for has come into place is South Africa going to be afforded the same treatment as other nations in the grouping considering its low $5 billion capital contribution and mountain of economic challenges.

Turning the attention to India and Brazil one can look no further than the unconvincing budget that was recently announced by the Indian Finance Minister in New Delhi and the protests that were staged by Brazilians, mainly civil servants, in Rio de Janeiro and other cities just before the World Cup. It clearly shows that these countries have more pressing problems which are bigger than just focusing on a BRICS bank. As things stand China and Russia are the only nations which enjoy the comfort of having time off and contemplating on a BRICS bank largely because they can simply afford it. China has got the highest foreign reserves in the world and Russia’s economic health has become stronger by each year.

The global lender which BRICS countries have tentatively named the New Development Bank will also initially start with a capital base of $100 billion with each member country contributing $10 billion and the rest coming from other countries which might be interested in signing up to the idea. As stated earlier some of the member countries will not afford that amount. Affordability is not only constrained to resources but rationality and economic thinking have to be put into perspective. To an ordinary South African, Indian or Brazilian it does not make sense to have their government pooling resources for a development bank when they still have domestic economic problems in place and still can deal with already established institutions like the World Bank and IMF.

For the $50 billion balance BRICS countries expect it to come from the contributions of countries which will or might sign up. However the question which begs an answer is whether the developing countries out of BRICS have warmed up to the idea. Most of the developing countries still have obligations with the IMF and World Bank. Some countries mostly African and those from the Middle East still have their fiscal requirements supported by agencies with IMF and World Bank backing and they will not simply pull that plug for the sake of a new development bank with new ideologies. On top of it most developing countries cannot afford (both in resources and economic rationality) to invest in the New Development Bank.

A doomsayer as we might seem to be the idea of a BRICS bank requires rational thinking and analysis because the current developments do not lead to an articulate product. The BRICS countries need to be guided by a common goal rather than expressing themselves as a co-operation of different characters with a mutual enemy.

The World Bank President Jim Kim said, “…We think that the need for new investments in infrastructure is massive, and we think that we can work very well and cooperatively with any of these new banks once they become a reality."

WE HOPE THAT THE BRICS BANK BECOMES A REALITY TOO MR PRESIDENT!!