Asian Infrastructure Investment Bank Agreement: National Treasury briefing & Ratification

Meeting report

The Chairperson began by welcoming all persons present in the meeting.

He noted that no apologies were received.

Briefing by National Treasury (NT)

Ms Nolundi Dikweni, Acting DDG: International and Regional Economic Policy, NT, greeted the Committee and presented an apology on behalf the Acting Director-General, Mr Ismail Momoniat.

She stated that the presentation will be presented by Mr Mfundo Hlatshwayo, Chief Director: Global and Emerging Markets, NT,

Mr Hlatshwayo greeted the Chairperson and members of the Committee.  He explained that South Africa, through the Minister of Finance, signed the agreement to establish the AIIB on 3 December 2015, thus becoming a “Prospective Founding Member”.  However, South Africa has not acceded to full membership to the Bank. South Africa has missed four deadlines to ratify the agreement. The last deadline is on the 31st of December 2022.

On South Africa’s proposed shareholding in the AIIB, he stated that, according to Schedule B of the Articles of Agreement, South Africa’s original share allocation could have been 5,905 shares. At US$100 000 the total subscription would be US $590.5 million, with the paid-in capital being US $118 million, and callable capital at US $472 million.

The AIIB Board of Directors took a decision that the minimum share subscription for any country shall be 50 shares, having a nominal value of US$5 million. This equates to a (paid-in) capital contribution of US$1 million payable to the Bank in five equal instalments. National Treasury recommended this option to Cabinet (approved 21 September 2022) since it will put less financial burden to the Country.

It is recommended that the Committee approves the Cabinet decision for South Africa to join as a non-regional member through ratification of the Articles of Agreement of the Asian Infrastructure Investment Bank and approve the minimum subscription that South Africa could subscribe to in respect of the AIIB, namely 50 shares with a nominal value of US$5 million and of which US$1 million.

(See Presentation)

Discussion

Dr D George (DA) was astounded that National Treasury is asking for more money from taxpayers even though debt in South Africa is spiralling and economic conditions are not favourable for South African citizens. He did not see the benefit of paying this kind of money when the country does not have enough money to provide for its own needs. What is the immediate and long-term benefit that South Africa will achieve from joining the AIIB? Is there an intention to borrow from this bank?

Mr E Buthelezi (IFP) stated that he was covered partially by Dr George’s questions. He asked what the importance of South Africa being a founding member of the bank is. What does South Africa gain from being a founding member instead of just being a member?

Mr A Sarupen (DA) stated that South Africa makes an equal contribution as other members that are part of the Brazil, Russia, India, China, South Africa (BRICS) Development Bank even though the South African economy is considerably smaller. In the case of the AIIB, is South Africa required to make an equitable contribution as other members or a contribution that correlates to South Africa’s Gross Domestic Product? Will this result in unfairness? The BRICS Development Bank has a lot of projects that they are funding but he hardly sees any projects funded in South Africa that are equal to the financial contribution that South Africa makes. He would like to understand that as well.

On the immediate benefit of the bank in terms of the value for South Africa versus the cost of joining, Ms Dikweni replied that South Africa will pay a once-off amount of USD1 million to join the AIIB. The USD4 million is a callable amount from a cash flow viewpoint. The actual benefit for South Africa is that the bank is focused on green financing and infrastructure. South Africa is increasingly looking for financing for infrastructure investment and other energy-related programmes. The AIIB is another option that South Africa can look to for funding for development.

On the significance of being a founding member, she replied that a founding member gets privileges such as 600 free shares by virtue of being a founding member, in addition to 50 shares that South Africa is subscribing to through the USD1 million. The free shares enable participation on the board level whereby 650 shares give South Africa more votes and influence as a founding member. National Treasury seeks to gain this benefit to be able to influence decisions and resource allocation.

On equitable contribution versus derived benefit, Mr Hlatshwayo replied that South Africa would be paying USD1 million should the Committee ratify this agreement. That is the minimum shareholding a country can take in the AIIB.  The Bank had an equation based on South Africa’s GDP and other factors which in essence stated that South Africa would be in a position to take up 5905 shares of the bank. That would amount to USD18 million in paid-in contributions for five years. National Treasury was of the view that there are budgetary constraints and South Africa would not be able to take that up, therefore it was recommended to Cabinet that we look at the least shareholding, which was the USD1 million for 50 shares. The additional benefit would be South Africa receiving 600 free shares if it were to ratify the agreement now. When compared to the new development bank, South Africa is nearly a 20% shareholder in the BRICS Bank. South Africa has received a number of projects, both in project approvals and project disbursements. This is both for sovereign and non-sovereign.

Committee Report on the Ratification of the Agreement of the Asian Infrastructure Investment Bank (AIIB)

The Committee consideration the AIIB report.

Ms P Abraham (ANC) moved for the adoption of the report. This report was seconded by Mr G Skosana (ANC).

Dr George reserved the position of the DA.

Mr W Wessels (FF+) reserved the position of the FF+.

Mr Buthelezi reserved the position of the IFP.

The Committee adopted the report.

Read: ATC221123: Report of the Standing Committee on Finance on the Agreement of South Africa’s membership to the Asian Infrastructure Investment Bank (AIIB), dated 22 November 2022

There were no Committee announcements.

The Chairperson adjourned the meeting.