The internal and external institutionalization of the BRICS countries: The case of the New Development Bank

Introduction

New trends and challenges characterize the contemporary global environment, including rising competition and confrontation of great powers, reshaping agendas of trans-regional integration initiatives, and new threats to the international security order. The rapid development of South–South cooperation and the increasing role of emerging markets and developing countries (EMDCs) in global affairs amid the crisis of the post-Second World War Bretton Woods system pushed the transformation of the contemporary world. It changed the shape and balance of power in international relations. The cooperation between Brazil, Russia, India, China, and South Africa, known as the BRICS, reflects these developments. In 2014, these countries institutionalized their cooperation with an agreement to establish the New Development Bank (NDB). Founding this multilateral development bank is the country grouping’s most tangible creation and may be perceived as an alternative to established global governance institutions.

This article explores and explains the internal and external institutionalization of the BRICS countries via a case study of the NDB. Much current research on this topic relies on primary and secondary data from around 2015–2016 (see Cooper and Farooq, 2015, 2016; Reisen, 2015; Roberts et al., 2017; Wang, 2017). This article contributes to the existing literature on the BRICS and the NDB by distinguishing between internal and external factors of institutionalization and by presenting the most recent developments in the field. As outlined in the introduction of this symposium on the BRICS, Global Governance, and Challenges for South–South Cooperation in a Post-Western World, internal BRICS’ institutionalization involves strengthening BRICS’ cooperation, coordinating their decision-making and expanding the BRICS agenda (see Duggan, Hooijmaaijers, Rewizorski and Arapova, this issue). For this article’s case study, we define internal institutionalization as strengthening BRICS’ cooperation and expanding the BRICS agenda via the NDB. The external institutionalization relates to the opening up of the BRICS to non-BRICS countries and integrating the NDB into the network of global governance institutions external to the BRICS framework. The ‘new’ internal and external cooperation channels stand out as structural enhancements complementing the traditional one based on hosting annual joint BRICS summits. The broader picture of internal and external BRICS’ institutionalization drawn in this article is intrinsically linked to liberal approaches looking at institutional arrangements as malleable and a matter of choice and change driven by actor(s) strategies.

Because the NDB is the BRICS’ most tangible creation, it is a suitable case study for answering the various questions of this symposium. This article predominantly focuses on the following questions. To what degree is the NDB an innovative force for change in global governance? How does the NDB contribute to the internal and external BRICS’ institutionalization? How should we understand the NDB in the broader schema of international politics?

The process of establishing the NDB was constrained mainly by internal struggles. However, establishing a multilateral development bank also provides an opportunity for practical cooperation. This article’s contribution to this symposium relates to the internal and external institutionalization of this grouping. A combination of political and economic factors on the domestic and international level contributes to a better understanding of the developments regarding the NDB (see also Hooijmaaijers, 2021a, 2021b). Trust-building and practical cooperation are two of the biggest challenges faced by the BRICS political grouping. The establishment of the NDB contributes to tackling these challenges. The recently founded regional NDB offices play an essential role in the internal and external institutionalization of the NDB. When it comes to external institutionalization, continental connectivity and fostering regional cooperation, for instance, via the various NDB regional offices are two important NDB longer-term strategic considerations. In November 2020, NDB President Marcos Troyjo stated: ‘We realize the NDB’s outreach is made more effective by the work of our regional offices’ (NDB, 2020a).

Regarding the rise of the EMDCs and South–South cooperation, it is also important to point out alternatives and institutional overlap. The NDB is not the only recently launched development financing mechanism. The Asian Infrastructure Investment Bank (AIIB) and the Belt and Road Initiative are among the recent initiatives where China finds itself in the driver’s seat, in addition to the option of bilateral trade, investment, and infrastructure support (see Hooijmaaijers, 2021b; Wang, 2017).

This article is structured as follows. First, we will analyse whether the NDB is an innovative force for change in global governance or whether it should be seen as a continuation of established patterns. Second, we will examine the origins of the NDB. This will be followed by sections on the internal and external institutionalization of the BRICS via the NDB. In the subsequent section, we will focus on the NDB in the broader schema of international politics. The concluding section summarizes this article’s main findings and expounds on their relevance, also concerning this symposium. To support our analysis, we will rely on multiple sources of data. This includes secondary literature, BRICS official statements, and other BRICS and NDB policy documents. Other empirical sources, including newspaper articles and eight semi-structured interviews, including with NDB officials, BRICS experts, and senior officials from BRICS countries, will complement this.

The NDB: innovation or continuation of established patterns?

This section focuses on the question of to what degree is the NDB an innovative force for change in global governance (see Duggan et al., this issue)? In 2014 during the sixth annual BRICS Leaders’ Summit, the BRICS parties signed an Agreement establishing the NDB. In the subsequent year, the NDB formally came into existence as a legal entity (see Cooper and Farooq, 2015; Stuenkel, 2015; Wang, 2017). Although the NDB is the BRICS’ most tangible creation, it is crucial to highlight the differences between the BRICS and the NDB. The BRICS is a political grouping and a broad(er) phenomenon. The NDB is an international financial institution with a single objective of infrastructure financing. The BRICS countries are the NDB’s shareholders. According to Leslie Maasdorp, the Bank’s Chief Financial Officer, the NDB ‘is a physical expression of the desire of emerging markets to play a bigger role in global governance’ (Maasdorp, 2019). The ambition of being something new is already clear from the NDB’s name. The reality that it was a new institution had a potential advantage for building it from scratch.

The NDB is the first multilateral development bank founded by emerging markets and developing countries. It has several innovative features (see also Cooper, 2017; Suchodolski and Demeulemeester, 2018; Vazquez et al., 2017). The NDB’s mandate is very focused and very specialized, and its scope of activities is smaller than other multilateral development banks because it only focuses on infrastructure and sustainable development.

The use of country systems is another NDB novelty. Country systems ensure that outside actors make use of, and abide by, a home country’s administrative systems when engaging in financial and policy-making activities in a recipient country (see Hooijmaaijers, 2021b). The use of country systems on environmental and social aspects and procurement means that the NDB does not impose standards or conditions. Instead, it follows the procurement, legal, and labor laws of the respective countries. It reflects the BRICS countries’ strong determination to protect national sovereignty. Otherwise, countries would need double paperwork in both English and the local language. Most BRICS states do not have the bureaucratic capacity to deal with this excessive bureaucracy. On a related note, the challenge predominantly relates to compliance with the countries’ legal environment. The BRICS countries’ standards are not low, but often there is no compliance with the existing standards.

Another NDB novelty is local currency financing (see Article 24 of the NDB Agreement). Traditionally, multilateral development banks have provided most of their financing in, for instance, US dollars or euros, but volatility in currency markets makes borrowers much more sensitive to possible currency mismatches (Maasdorp, 2019). According to Kundapur Vaman Kamath, at that time NDB president, loans in local currency help ‘mitigate the risks faced by borrowers and supporting the capital markets of its member countries’ (China Daily, 2019). The NDB already has successfully registered local currency bond programs in China and South Africa, and it is about to complete the registration of a rouble program, with India and Brazil to follow next (Maasdorp, 2019). Thus far, around 25% of the projects approved were in local currency.

The NDB’s fourth unique characteristic is the equal voting rights among the (current) five member countries and NDB founders. No country has any veto power. This differs from other multilateral development banks, including the World Bank and the recently established AIIB. However, as will be further explained in the next section, the voting procedures were only concluded after a challenging bargaining process, predominantly between China and India (see Cooper and Farooq, 2016). Per the 2014 Fortaleza Declaration, the NDB has an initial authorized capital of $100 billion, composed of 1 million shares with a par value of $100,000. The initial subscribed capital is $50 billion, equally shared among the five founding members. It mirrors 100,000 shares for each NDB founding member, in a total of $10 billion, with 20,000 shares corresponding to paid-in capital in a total of $2 billion, and 80,000 shares corresponding to callable capital in a total of $8 billion (see NDB, 2014). The NDB’s ratio of paid-in capital to subscribed capital is 20% because $10 billion is paid in, and $50 billion is subscribed. This is the highest among multilateral development banks.

Fifth, the NDB is set up to fund the private sector. Shifting the focus towards lending to the private sector is one of the NDB’s three broad priorities for the future (Maasdorp, 2019). In contrast, the World Bank focuses entirely on funding governments or state-owned enterprises. Currently, the share of governments and state-owned enterprises in NDB projects is around 85%, and the private sector share is around 15%. However, the NDB’s target is to have around 70% for government and state-owned enterprises and around 30% for the private sector.

The sixth issue on which the NDB plans to be innovative is the speed of execution, which it aims to achieve by having a ‘lean and flat’ organizational structure, with a non-resident board of directors and lower hierarchy levels between junior staff and top-level management, and by avoiding excessive bureaucracy (Suchodolski and Demeulemeester, 2018: 584). Whereas project approval at multilateral development banks usually takes around one year, at the NDB, it takes approximately six months. By the end of 2020, the NDB had awarded loans worth around $26 billion, which is quite substantial compared to the approximately $100 billion combined a year approved by all multilateral development banks together.

Cooperating in a multilateral development bank can be beneficial for credit rating because this allows for raising funds at a cheaper cost. ¹ The NDB received a credit rating of AA+ from two of the leading three American credit rating agencies, S&P and Fitch. There are no comparable international financial institutions without any highly rated non-borrowing members as shareholders with such high credit ratings. The AIIB, for instance, has various advanced economies among its main shareholders.

One of the main challenges for the NDB is not to be or become yet another multilateral development bank. For the moment, the NDB is small, centralized, and nimble. However, it remains unclear if this will be the same in the future. In early 2020, the NDB had around 180 staff members, which is relatively small compared to the 15,000 World Bank staff or the 2500 Asian Development Bank (ADB) staff. Going forward, the NDB will remain relatively small because its scope of activities is smaller compared to other multilateral development banks. It has a degree of informality, openness, and agility. It is a challenge to preserve that; not in the short term but in the medium-long term.

The origins of the NDB

The NDB, together with the BRICS Contingent Reserve Arrangement (CRA), is the first BRICS institution. It aims to provide an alternative to the Western-dominated international financial institutions of the World Bank and the International Monetary Fund (IMF). The BRICS countries feel that their voting shares and leadership positions in these institutions do not reflect their share of global economic activity (see also Roberts et al., 2017). They want these institutions to reflect changes in the size and strength of the members’ economies (Hooijmaaijers and Keukeleire, 2016, 2020; Stuenkel, 2015). For instance, in 2011, the BRICS countries jointly criticized the choice of Christine Lagarde as another European leader for the IMF. Even after recent reforms, the BRICS hold 13.68% of the World Bank’s voting shares and 14.7% of the IMF’s. According to Paulo Nogueira Batista Jr., the first Brazilian director of the NDB: ‘We decided to pave our own way. We would never have done this if these institutions were more malleable’ (Dialogo Chino, 2019).

There is a need for infrastructure because it is critical for boosting demand and lifting productivity and growth. The infrastructure investment gap is the difference between a country’s investment needs and current spending. There is a significant gap between infrastructure financing needs on the one hand and the available pool of multilateral and bilateral financing resources on the other hand. Contemporary international financial institutions do not seem to be able to fund this entire need for infrastructure construction sufficiently. The fundamental need for infrastructure investment was, for instance, highlighted by ADB estimations that developing Asian economies need to invest $8 trillion for the period 2010–2020 to sustain their growth trajectory (see ADB, 2013). The Global Infrastructure Outlook forecasts that global infrastructure investment needs to reach $94 trillion by 2040 to keep pace with profound economic and demographic changes across the globe, and $97 trillion if the UN Sustainable Development Goals (SDGs) of universal provision of clean water, sanitation, and electricity are added. Global Infrastructure Outlook analysis reveals a gap in the needed spending of $18 trillion, mirroring 19% of the need (Global Infrastructure Hub, 2017).

The initiative to create a BRICS multilateral development bank came from India, which proposed it during the BRICS Delhi summit in 2012 (see Hooijmaaijers, 2021a, 2021b). Brazil was supportive of the idea, but Beijing initially resisted New Delhi’s plan. Eventually, the Chinese side was convinced (Katada et al., 2017). Driven by its domestic need for funds to finance infrastructure investment, yet not being able to get sufficient funding from the established multilateral development banks to satisfy these needs, India has been very active in launching ideas for BRICS institutions. As governments do not have the fiscal resources available to finance infrastructure projects themselves, they need institutions to do so. China has enormous foreign reserves and industrial overcapacity, for which it needs to find a new home. Before the BRICS Durban Summit that took place in March 2013, Beijing did not come out in any way supporting or opposing the idea of the new multilateral development bank. New Delhi’s proposal included equal voting shares, thus preventing China from dominating the Bank. Both India and Brazil strongly insisted that initial capital subscriptions and voting shares would be equally allocated among the parties. Except for China, the parties agreed (Roberts et al., 2017). On the Indian side, there was a dilemma. There was a need for funding, but Delhi did not want to be dominated by China.

Indeed, non-economic factors became the main drivers during the intensive talks between China and India in defining the NDB. In response to China’s stance on the particulars of the multilateral development bank where it proposed contributions based on each state’s financial capacity and an overall capital base of $100 billion, which would make it the leading NDB nation, India was often ‘wary of its unequal power relation’ with the Chinese side and thus played defensive moves (Cooper and Farooq, 2016: 83). There was ‘speculation’ that Beijing was keen to pay an amount of other BRICS countries’ share of the Bank’s starting capital to deal with initial funding issues. This could hypothetically allow the country to take a primary role in expanding its political agenda, yet from an Indian perspective, such a move would further impair its competitive relations with China (Cooper and Farooq, 2016: 83). Of note, for some BRICS nations, $10 billion is a substantial part of their GDP. However, for others, it is not. It is another illustration of the BRICS being an unbalanced group of countries. To counterbalance Beijing, New Delhi even considered the idea of opening up the bank’s membership to advanced economies, with these sides obtaining a share of around 40 to 45% (Cooper and Farooq, 2016: 83).

The timing of the negotiations is also relevant (see Hooijmaaijers, 2021b). Around the time of the ongoing negotiations, in April 2013, the Chinese sent ‘an unusual number of military patrols’ into the mountains of Ladakh, a remote high-altitude desert at the northern tip of India, which led to the most severe argument between both sides in 25 years (New York Times, 2013; see also Cooper and Farooq, 2015). With the Chinese military crossing the disputed border, the perceived China threat also contributed to an atmosphere in which Indian politicians could not accept a new multilateral development bank led by China. It is another illustration of the broader reality that these emerging powers seek to change the system of global governance but act to prevent one party from the group from becoming the dominant actor within the system.

As was touched upon above, besides the shared goal of a BRICS multilateral development bank, the most important countries’ positions, in this case, China and India, differed (see also Hooijmaaijers, 2021a, 2021b). Although China was not pleased with New Delhi’s equal voting shares proposal, Beijing could comprehend India’s perspective and interests. The main concession that Beijing made concerning the NDB was the quota allocation. Two more aspects were part of the negotiation process, including the location of the NDB and its presidency. Various BRICS countries, including India and China, were interested in hosting the new international financial institution. As the Shanghai government offered free land and the office building for the NDB headquarters, Shanghai won the bid and not New Delhi. As part of the deal, the first NDB President was an Indian national.

In May 2014, Indian Prime Minister Narendra Modi assumed office. Under his more muscular foreign policy, New Delhi attempted harder bargaining within the BRICS grouping, which was illustrated by his attempt to reconsider the NDB-siting decision, and Modi had to be reminded that his predecessor Manmohan Singh had already agreed to Shanghai as the Bank’s headquarters (Roberts et al., 2017). The allocation of the headquarters may, however, have been part of another political deal. Against the backdrop of New Delhi’s ambition to join the Shanghai Cooperation Organization (SCO), but with a lack of support from Beijing, an Indian commentator suggested that ‘While it has not been openly declared, it is likely that India’s inclusion in the expanded SCO is a trade-off for its stance vis-à-vis the NDB’ (Mahapatra, 2014). Indeed in 2017, the SCO expanded its membership from six to eight countries as India and its arch-rival Pakistan were granted the status of full member. ² This illustrates the linkages between the various clubs of emerging powers and the bigger picture in which one should understand the BRICS developments (see Hooijmaaijers, 2021b; Hooijmaaijers and Keukeleire, 2020).

Due to the equal voting shares, the NDB is a rather odd bank and risks low efficiency. Indeed, the principle of equal representation has two disadvantages: China gained the most prestige and influence from its own-led AIIB, causing some resentment among the BRICS club, and the NDB is organized on a lowest-common-denominator basis (Roberts et al., 2017). Still, the absence of a big dollar in the NDB can also be an advantage. All involved parties now have ownership over the Bank, which makes them feel like equal partners and this makes a difference in their dedication to the institution.

The NDB and the internal institutionalization of the BRICS

This section focuses on the internal BRICS institutionalization via the NDB. The establishment of the NDB is a significant landmark in the cooperation between the BRICS countries because it ‘put to rest much of the concern around the future of the grouping’ since it institutionalized the engagement between the five states (Viswanathan and Soni, 2017: 17). Given the various fundamental differences between the BRICS countries, for instance, when it comes to their political-economic weight, geographical location, and military power, the fact that these countries succeeded in establishing an institution can be seen as an accomplishment (see also Beeson and Zeng, 2018; Hooijmaaijers, 2021b). The combination of a strong common social purpose among the BRICS countries and the relatively weak structural power of the established authorities explains the success of the NDB (Helleiner and Wang, 2018: 574).

In general, trust-building and practical cooperation are two of the biggest challenges faced by the BRICS political grouping. Establishing the NDB may contribute to tackling these challenges. However, even after establishing the NDB, some challenges remain when executing this practical cooperation because all sides involved want to benefit, want to get financial support, and have a more influential voice. Concerning the internal institutionalization, some BRICS parties have expressed their concerns about the imbalance in NDB loan distribution, with most funding directed towards development projects in China and India. According to the Russian Deputy Finance Minister and NDB Director Sergei Storchak: ‘they succeeded because the [bank’s] headquarters are located in China plus the economic management system itself [has] dictated that our colleagues from the People’s Republic of China have been faster and more energetic in identifying the projects’ (Svetlicinii, 2019).

Recently, there have been some developments, and the 2019 NDB annual report showed that the share of financing to clients in South Africa and Brazil represented 16% and 10% of the Bank’s cumulative approvals by the end of 2019 respectively. ³ China and India accounted for 28%, and Russia for the final 18% as of 31 December 2019 (NDB, 2019; see the annual reports overview section for the most recent data). The NDB continued to improve the balance of its operations across member countries, and by the end of 2020, no NDB member country had a share of total approvals below 14% (NDB, 2021).

The NDB predominantly serves a technical-economic purpose, and it mainly makes technical decisions, not political decisions. Still, there is a need to prioritize, because the demand for loans exceeds the loans available. Internal policies of the NDB call for a balance of projects and money. As of 2021, NDB regulations call for each party to have no more than 30% of the portfolio in money, meaning there is an explicit limitation to the amount a party can receive.

Member countries differ in methods for NDB project identification. China, India, and Russia have a centralized preparation where the finance ministry controls the project portfolio. Brazil’s situation is different because municipalities also play a role, and we see a similar situation in South Africa. The NDB is demand-driven, so compared to some BRICS colleagues, it takes, for instance, the Brazilian side a relatively long time to propose projects. Apart from the more centralized operating procedures, there are two other differences. China, India, and Russia are geographically closer to the NDB headquarters, and the economies of China and India are growing faster than Brazil and South Africa, and the Russian economy is also facing substantial issues.

Regarding internal institutionalization, there is an essential role for the NDB’s regional branches. In August 2017, the Africa Regional Center in Johannesburg was the first regional office set up by the NDB, followed by the July 2018 agreement to establish the Americas Regional Office in Sao Paulo and a sub-office in Brasilia. In November 2019, the BRICS countries agreed to establish the NDB’s Eurasian Regional Centre (ERC) in Moscow, which will be the Bank’s third regional franchise. ⁴ Also, Indian Prime Minister Modi requested that establishing the India regional office of the NDB should be completed soon because ‘[t]his will give a boost to projects in our priority areas,’ as he offered full backing to the multilateral development bank in promoting global growth. The Indian Prime Minister also mentioned the ‘[i]dentification of economic complementarities’ between the BRICS countries (Economic Times, 2019a). This may be interpreted as a shared social purpose. The regional NDB offices serve multiple purposes. They bring prestige and ownership, and on the internal level, these regional offices can help with project identification, thus tackling the current imbalances in NDB loan distribution. According to the NDB president, ‘We have seen that whenever we open an office in a particular country, it adds a big [investment] pipeline’ (Sputnik, 2019).

With the various NDB projects, the NDB member countries strengthened their cooperation. The COVID-19 pandemic has also impacted NDB activities to the degree that the bank focused its efforts on supporting member countries in tackling the public health crisis and subsequent economic recovery. The NDB Board of Governors approved an emergency line of up to $10 billion in crisis-related assistance to support the NDB’s member countries. However, the expansion of the BRICS agenda is limited due to the narrow focus of the NDB (it only focuses on infrastructure and sustainable development). The assistance is in line with the NDB’s mandate and its member countries’ needs, although it is a broad interpretation of the mandate (see NDB, 2020d).

Despite the NDB predominantly being a technical institution, there still is a political side to the bank. Sanctions and increased trade tensions between Western states and (some of) the BRICS countries results in closer cooperation among the group. This is, for instance, illustrated by the fact that all multilateral development banks, except the NDB, do not approve Russian projects because of the sanctions that are in place against this country due to the Ukraine crisis. The NDB does not lend to sanctioned parties. However, it is supporting Russian projects, while, for instance, the AIIB is not. The NDB is still funding Russian projects because Russia is a significant shareholder and co-owner of this Bank. For Russia, the NDB is a tool for project financing despite the sanctions. On a related note, local currency lending gets around these sanctions because the sanctions only involve transactions in US dollars.

The NDB and the external institutionalization of the BRICS

Regarding external institutionalization, the regional NDB offices are another step towards future NDB enlargement. In November 2020, NDB President Troyjo laid out priorities for the NDB’s work in the next five years, stating, ‘We want to position the NDB as a premier development bank for emerging economies. And we will play a leading role in the conversation on what development policy means in the 21st century’ (NDB, 2020a). In this way, third countries can benefit from the bank. NDB membership expansion is a political issue, and NDB enlargement is set for 2021 per the NDB’s General Strategy. ⁵ On this issue, the NDB differs from, for instance, the also recently established AIIB. The AIIB expanded first, whereas the NDB’s goal was first to build institutions and a track record, paving the way to approve projects. According to Leslie Maasdorp, Vice-President and Chief Financial Officer of the NDB, the NDB has three broad priorities for the future. One of them is starting the process of membership expansion beyond BRICS countries, in line with the original intent of the founders of the NDB (Maasdorp, 2019; see also ; BRICS, 2019; NDB, 2014, 2017a). The NDB’s Chief Financial Officer also mentioned that ‘It was never intended only to be a Brics bank,’ and that ‘The idea was always to create an institution that can eventually become the voice of emerging markets’ (Euromoney, 2019). In the 2019 Brasilia Declaration, the BRICS leaders acknowledged the progress made by the NDB towards expanding its membership (BRICS, 2019).

The Bank’s governors are considering a ‘phased expansion’ (Euromoney, 2019). ⁶ The agreement on the NDB mentions that membership shall be open to members of the United Nations and shall be open to borrowing and non-borrowing members. However, the agreement also states that the founding members will have at least 55% of the total voting power, the non-borrowing NDB member countries combined will not have more than 20% of the total voting power, and the voting power of a non-founding member country is capped at 7% of the total voting power (NDB, 2014). In April 2017, during the 2nd annual meeting of the NDB Board of Governors, the board approved the terms, conditions, and procedures for the admission of new NDB Members, and the parties agreed that the bank would prepare a list of targeted states to be invited for admission to the NDB (NDB, 2017a). The total number of directors shall be no more than ten, allowing for five more in addition to the five of the founding members, and one NDB director and alternate may represent more than one NDB member. Finding consensus among the BRICS countries about new NDB members may be challenging, as among the group for the moment, there also is no consensus on getting a permanent set of developing countries as the BRICS Plus (see also Hooijmaaijers, 2021a). Still, it is via the expansion in NDB’s membership that, for instance, the BRICS Plus concept can be institutionalized through the very initial stages of its implementation (Lissovolik, 2019).

According to Sergei Storchak, one of the potential venues for NDB membership expansion could involve the accession to the multilateral development bank of the regional partners of the core BRICS countries (Lissovolik, 2019). For the moment, no official list of candidates has been disclosed. New applicants to the NDB could be from Africa, Asia, Eurasia, and Latin America. A regional strategy in the expansion of NDB’s membership also allows for exploiting the potential synergies between NDB’s financial instruments and the regional mechanisms that may complement and amplify the effects of the NDB’s project financing (Economic Times, 2019b). The regional NDB offices will play a role in NDB enlargement, and the NDB is pursuing a cluster approach around these regional offices, with approximately five to eight new countries in each region.

There is an interest among the BRICS core countries to not construct it as an exclusive club. One of the potential issues relates to the bank’s credit rating. For the moment, the NDB has AA+ ratings from both Fitch and S&P. New NDB member countries may affect this rating. As Maasdorp has indicated, there is a ‘very strong interest’ among other countries in joining the NDB, in part due to the sheer scale of their needs, stating that ‘Whether it’s Vietnam, Turkey or Mexico, they have a massive need for funding’ (Euromoney, 2019). If the NDB wants to consider Latin American candidates, it is essential to highlight the region’s current political, economic, and social situation. The region is suffering from declining economic growth, and there is political unrest in, for instance, Chile, Bolivia, Ecuador, Peru, Argentina, and Venezuela. These issues pre-existed the COVID-19 pandemic.

The NDB is looking for a balanced mix of EMDCs and advanced economies from different parts of the world. For any multilateral development bank, it is advantageous to take on board countries that are more advanced, have a high credit rating, and are likely to be net donors of funds. As stated in the 12th BRICS Summit Moscow Declaration, ‘The process of expansion should be gradual and balanced in terms of geographic representation in its membership as well as supportive of the NDB’s goals of attaining the highest possible credit rating and institutional development’ (NDB, 2020c). There are multiple reasons why countries like France, Germany, or the United Kingdom (UK) would want to join the NDB. First, it is vital for these countries’ relations with China. Second, the companies of these countries want to benefit from the contracts related to NDB projects. A country has to be a member country of the NDB to participate in these projects’ procurement processes. The third reason relates to the countries’ commitment to multilateralism. The NDB is a new type of multilateralism, for instance, reflected in the equal voting shares. Because of their nature, European countries are more likely to support multilateralism, which contrasts with the US approach (see also Ikenberry, 2018).

When it comes to external institutionalization, and somewhat in line with the above, the NDB has signed memoranda of understanding and cooperation agreements with various multilateral development banks, national development banks, and commercial banks. According to Shelepov, the NDB, with for the moment limited membership and geographical representation, focuses on cooperation with multilateral development banks with a small number of participants, national development banks and commercial banks. This allows it to adopt the best international practices, gain experience in specific countries, receive consultative support for issuing bonds, and improve financial management (Shelepov, 2017). Part of the recently established regional NDB offices’ task is to facilitate cooperation with these national and regional banks. Continental connectivity and fostering regional cooperation are two important NDB longer-term strategic considerations. The regional approach is the most promising one for the NDB and the BRICS and BRICS+ concepts because it provides more scope to pursue connectivity integration projects using the regional institutions (including regional NDB offices and the existing regional multilateral development banks) and frameworks that may operate in tandem with the NDB.

In December 2018, the NDB received observer status in the United Nations General Assembly. This marks the integration of the BRICS institutions into the network of global governance institutions external to the BRICS. Joining the General Assembly is predominantly about the bank’s status.

The BRICS and the NDB in the broader schema of international politics

One should understand the BRICS and the NDB in the broader schema of international politics. We have recently witnessed the establishment of various new development financing mechanisms with a critical role for emerging powers (see Hooijmaaijers, 2021b). Among these new mechanisms, the NDB and the AIIB are the best known.

When it comes to the BRICS, we have seen mixed results with their new institutions. Despite a challenging negotiation process, the BRICS countries established the NDB. However, establishing a BRICS credit ratings agency was challenging (Cooper and Farooq, 2016; Helleiner and Wang, 2018). It illustrates the reality that the dynamics of the BRICS limit their potential to reshape global economic governance (Hooijmaaijers, 2021a). Emerging powers seek to change the global governance system but act to prevent one party in the group from becoming the dominant actor within that system. However, a different conclusion appears when analysing the BRICS within the broader context of various emerging power constellations and multilateral frameworks, including variations on the BRICS grouping and broader multilateral frameworks with one or more BRICS states at their core, reflecting the rise of the EMDCs and South–South cooperation. Lumped together, they indicate an increasingly dense set of partially overlapping (in)formal networks on various political, diplomatic, and administrative levels, covering an increasing scope of policy areas, and providing opportunities for consultation, coordination, and policy adaptation (Hooijmaaijers and Keukeleire, 2020).

One illustration of this is the likelihood that India’s inclusion in the expanded SCO is a trade-off for its stance vis-à-vis the NDB (Mahapatra, 2014). In 2017, the NDB joined forces with the Asian Development Bank, Asian Infrastructure Investment Bank, European Bank for Reconstruction and Development, European Investment Bank and the World Bank, and committed to collaboration on matters of common interest under the Belt and Road Initiative (Svetlicinii, 2019). The NDB has multiple cooperation agreements with regional and national development banks, which relates to continental connectivity and fostering regional cooperation and partnerships (see NDB, 2020b for the most recent overview).

There is also overlap and links between the BRICS, the NDB, and the G20 (Larionova and Shelepov, 2019; see Cooper, 2020; Larionova and Shelepov, this issue). The G20 is considered a forum for emerging powers, unlike the G7, which is seen as a western lobby (Larson, 2018). Although a firm division of labor between the G7 and the G20 has not been founded, and may never be, given the challenge of consensus-seeking, the G20 is predominantly regarded as a more appropriate organization for economic and financial issues, including the re-forming of international financial institutions or development assistance (Kirton, 2015). The G20, of which all BRICS countries are members, can unlock its role as the premier forum of international economic cooperation to close the infrastructure investment gap and generate growth acting for other institutions such as the NDB. The G20 can exert influence for change through endorsement, stimulus, or compellence and can also make its mechanisms work in parallel with existing institutions. This idea stems from the very tentative observation that the G20 made the infrastructure investment gap a key topic. More specifically, during the Chinese G20 presidency in 2016, the G20 leaders decided to proclaim a new paradigm of the G20 dubbed infrastructure for development. It was based on three pillars: first, public finance to leverage or catalyse private sector investment, particularly long-term institutional investment. Second, there is a solid commitment to building pipelines of bankable projects, emphasising megaprojects that are financed and operated through public–private partnerships (PPPs). Third, improving mechanisms to quickly replicate PPPs, including efforts to standardize clauses in PPP contracts. This is in line with the strategic priorities of the NDB, according to the strategy 2017–2021 (see NDB, 2017b).

Conclusion

This article explored and explained the BRICS countries’ internal and external institutionalization via a case study of the NDB. Because the NDB is the BRICS’ most tangible creation, it is a suitable case study for answering the various leading questions of this symposium. It made a theoretical contribution to the existing literature on the NDB by defining and identifying internal and external factors of institutionalization. It is essential to distinguish between the BRICS and the NDB: the BRICS is a political grouping, and the NDB is a multilateral development bank with the BRICS countries as shareholders that focuses on infrastructure financing. Several innovative features distinguish the NDB from other multilateral development banks. However, for some of them, it remains to be seen if the NDB can retain them in the longer term.

The NDB contributes to the internal BRICS institutionalization, because to a certain degree, it strengthens the cooperation between these countries. The bank predominantly serves a technical-economic purpose. It is a platform to discuss infrastructure and sustainable development issues. The parties discuss issues of cooperation and put aside the problematic geopolitical issues that also exist. However, the expansion of its agenda is limited by the NDB’s narrow mandate.

Concerning external institutionalization, to a certain degree, non-BRICS countries can benefit from the NDB. One of the NDB’s priorities in the next five years is to position itself as a premier development bank for emerging economies (NDB, 2020a). The regional NDB offices play an essential role in both the internal and external institutionalization of the NDB. They are critical concerning the NDB enlargement. Member country expansion would follow a balanced, regional, and gradual approach. The Bank also has multiple cooperation agreements with regional and national development banks (see NDB, 2020b). In December 2018, the NDB received observer status in the UN General Assembly, marking its integration into the network of global governance institutions external to the BRICS. However, the latter is predominantly about status.

The NDB fits within the broader context of the rise of the EMDCs and South–South cooperation. One of the limitations of this work relates to the reality that the NDB is still very much in development because it was founded relatively recently. Nonetheless, the internal and external institutionalization approaches provide useful conceptual lenses to understand BRICS cooperation via the NDB better.