Jim O'Neill: So what do the Brics countries want from their new development bank?

Economic View: Putting size to one side, what else do they have in common? Not that much

At their fifth annual summit in April, the leaders of the Brics nations said they would build their own development bank. If it happens, this club of leading emerging economies – Brazil, Russia, India, China and South Africa – will be taking quite a step. Up to now their meetings have produced bold statements, but little in the way of tangible achievement.

Reports of their meeting in Durban, South Africa, were somewhat thin on details: there was no announcement about where the new bank would have its headquarters or how the institution would be funded.

The vagueness suggests the new bank's true purpose hasn't been worked out. In a way, that's understandable, because the Brics grouping is unusual. Even so, for this venture to succeed, the new bank will need a clear rationale.

One of the main reasons it has been difficult for them to co-operate is simply that they aren't much alike. Four of the five (the Bric part of the group) are the world's largest emerging economies. But even this isn't much of a similarity: China is bigger than all the others put together. Its growth in effect creates a new India every couple of years, or a new South Africa every few months.

Putting size to one side, what else do they have in common? Not that much. Brazil – whose president Dilma Rousseff addressed the summit – India and South Africa are democracies; China and Russia aren't. China and India are major commodity importers; Brazil, Russia and South Africa are major commodity exporters. They also have very different levels of income and wealth. Russia's annual per capita income, adjusted for purchasing-power parity, is about $24,000; on the same basis, Brazil, China and South Africa have incomes of between $9,000 and $12,000; India is much poorer, at about $4,000.

I'm constantly reading that one country or another doesn't belong in the Brics group. Having come up with the idea in the first place, I don't know whether to be amused or annoyed. The fact is, it's easy to make a case for excluding each one.

As time goes by, I see China as the real odd man out – not just because of its size but also because, despite the recent slowdown, it's the only one that so far this decade has met my expectations for growth.

In economic terms, South Africa really doesn't belong either – but the Brics are a political grouping, not just an economic one. The membership requirement, you might say, is a compelling combination of economic potential and geopolitical weight. In any event, South Africa's a member, and debating whether it deserves to be is pointless.

What's well worth debating, though, is whether the decision to set up a Brics bank gives South Africa's leaders a new chance to explain its presence and make it count.

These sharply contrasting cases, China and South Africa, are the ones that interest me most when it comes to planning the new institution.

I ask myself why China is even interested, remembering that it already has the China Development Bank, which funds overseas investments judged by Beijing to be in China's economic or geopolitical interests. Here's my theory: China's leaders may see a Brics bank as a low-risk rehearsal for the role they are fated to play, in due course, at the International Monetary Fund and the World Bank, within the Group of 20 and maybe even at the United Nations.

What's South Africa's purpose? Some of its policy makers tell me they aspire to act as go-between for the Bric countries on one side and Africa – or least sub-Saharan Africa – on the other. That's fine, but they should be a bit more specific.

South Africa has a well-developed financial sector, and the expertise and experience that go with it. Why not use this strength to fashion a role in drawing project-development money to the many needy countries to their north?

If they fail to do this, you can bet that other rapidly growing African countries, such as Nigeria (which before very long will have a bigger economy than South Africa), will decide that the Brics bank does little for them, and that South Africa can't serve as their representative.

So much for the motives of China and South Africa. For the group as a whole, the recent turmoil in Brazil, Turkey and other emerging economies suggests – or ought to – what the larger missing rationale should be.

The reasons for the protests in so many emerging economies are complex, of course, and differ from case to case, but I see two common factors. One: fast-growing, emerging economies have rapidly expanding middle classes. These people have gained from economic growth and are anxious to have more of the same. Two: this new middle class sees governments wasting public money on pet projects. They want investment in things that will make them proud and more prosperous, and that will keep up the attack on poverty.

How should governments respond? For many years at Goldman Sachs, I followed scores calculated by our research department for each of the emerging economies: a system of 18 variables that aimed to measure sustainable growth.

For many large, emerging economies, including all the Bric countries and the "next 11" (apart from South Korea), three areas stood out as vital for success: first, governance – meaning better government as opposed to more; second, education, including at the most basic levels; third, access to modern technology.

Governments which raise all three of these scores give their countries the best chance of escaping once and for all from the so-called middle-income trap.

So I have a suggestion for the new bank, once it's up and running: set country-by-country targets for improving performance on each of these three measures over agreed periods. Make these scores the organising principle, and use them to guide capital allocation.

If a Brics development bank adopted a rationale such as this, used it to focus minds and then followed through with its decisions, it could do its members, and others as well, a power of good.

Jim O'Neill, former chairman of Goldman Sachs Asset Management, is a Bloomberg View columnist

Start your day with The Independent, sign up for daily news emails
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm today
Elton John and David Furnish exchange marriage vows
peopleSinger posts pictures of nuptials throughout the day
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

SThree: Graduate Recruitment Consultant

£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K - £45K: SThree: SThree Group have been we...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'