Why The UAE Joined The BRICS New Development Bank
UAE developing as a global financial hub for MENA investments
The United Arab Emirates joined the (BRICS) New Development Bank (NDB) in September 2021. With the BRICS including Brazil, Russia, India, China and South Africa, with Mexico also poised to join, the bloc is poised for additional expansion during 2023.
In fact, there are several factors that motivated the UAE leadership’s decision to join the NDB, which they did alongside Bangladesh, Egypt and Uruguay.
First, the geopolitical and geo-economic significance of the existing five BRICS member countries to the UAE. This is significant, as China and India are important to the UAE’s economy as destination markets for Emirati investment and vice-versa. The UAE’s top export partner, for example, is India; China is third. Its top import partners are China and India. The UAE also has deep connections with Russia. In early December 2021, Mubadala Investment Company (MDC) acquired a 1.9% stake in Sibur, the largest integrated petrochemicals company in Russia. MDC has reportedly invested over US$3 billion in Russia since 2010 to create a portfolio across multiple sectors such as real estate, commodities, banking, logistics and technology.
Second, although unlike Bangladesh and Uruguay, the UAE does not directly border any of the BRICS nations, there are close regional links. The broader importance of the BRICS to the UAE is reflected in Mubadala’s choice of overseas office locations: Rio de Janeiro, Moscow, and Beijing, as well as New York, San Francisco, and London. According to senior UAE government officials, NDB membership thus provides co-financing opportunities for UAE private and sovereign investors such as Mubadala and delivers greater market access to the BRICS countries. The UAE’s leadership places emphasis on the development of infrastructure projects that will enhance connectivity between the UAE and the BRICS countries. It sees membership in the NDB as a critical actualizer of fostering more inter-linkages with BRICS countries.
Third, the interest shown by the UAE leadership in the NDB also had much to do with its objective to fund specific projects and open investment opportunities particularly within the BRICS nations. At the same time, the UAE joining of the NDB should not be viewed in isolation in that this engagement comes alongside its already existing memberships in the World Bank, the Asian Development Bank, and the European Bank of Reconstruction and Development (EBRD). It is interesting to note that the UAE also joined the EBRD in 2021 at around the same time as it joined the NDB.
According to a senior UAE government official, the NDB has made significant progress in a short time in establishing itself as a “responsible and pivotal global multilateral development bank” (MDB). He further highlighted the bank’s “nimble and efficient approach” to financing as well as its credit rating; how this combination of advantages has constituted a new outlet for financing of critical infrastructure projects within the BRICS countries.
The UAE’s NDB membership, the official stated, will reportedly play a role in furthering regional integration in the Middle East, enhancing the UAE’s political and economic ties with the BRICS nations, and assist the NDB to expand its scope of operations globally. It will also “complement” the UAE’s membership in other key MDBs.
The fact that the NDB’s decision-making is far more consensual than more traditional MDBs was also an important motivator for the UAE. At least among the founding members, the NDB substitutes the inequitable representative structure of traditional MDBs such as the IMF and World Bank for the principle of equality. However, the governance arrangement does entail a minority voting share (between 40% and 45%) to other countries that join the bank after the founding members.
Crucially, countries with top tier credit ratings such as the UAE could add to the bank’s capital resources – a possibility that the BRICS members likely took into consideration when extending membership to the UAE.
The UAE’s potentially major capital contributions to the bank, down the road, would likely have two sustained effects. First, the bank can increase the scale of capital pool by issuing bonds. Bond issuance was an early challenge for the NDB when it did not have a rating from the big three credit agencies. Secondly, as a contributing member, the UAE may be given more weight, albeit unofficially, in terms of privileging its relationships with the more powerful BRICS members such as China, as well as in the consideration of projects.
With the established international financial hubs of Dubai and Abu Dhabi now in its membership, the NDB may also be able to assist in the development of the UAE’s own financial markets by issuing bonds in these financial hubs, and by engaging in the development of emerging sectors such as fintech.
There are already suggestions that the UAE hopes to host NDB operations and a new Middle East regional office. With NDB membership giving the UAE access to a sizeable pool of funding and increasing voting privileges, it is likely the UAE will push for funding of sustainable and green infrastructure initiatives in the Middle East and North Africa (MENA) region, and equally likely that the NDB membership writ large will be interested to support. The UAE, as a strong proponent of renewable energy to mitigate the negative effects of climate change, fits neatly into the NDB’s intention of advancing sustainable development and green infrastructure.
Finally, beyond the economic motivations, and the shared sense of dissatisfaction with what could be called the Western-centric pattern of global decision-making, the UAE’s leadership has sought, over the past decade, to implement a set of distinctive policies that set it apart from its neighbours and provide equidistance with both its security partner, the US, and its main economic partners in South and East Asia.
For the UAE, being a member in this new international financial institution, the NDB, created by the BRICS, along with joining the EBRD, provides a degree of balancing to its global positioning. In geostrategic terms, joining the NDB constitutes another facet of the country’s foreign policy diversification by which the UAE is forging new dialogue partners that are non-West but in a manner that is not necessarily anti-West. In summary, as a UAE government official stated “The UAE has long pursued a balanced, constructive approach to international affairs… In many respects, our broader foreign policy objectives very much informed our decision-making process to join the NDB.”
This article was written by Andrew F. Cooper and Brendon J. Cannon. It originally appeared on Global Policy Journal.
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