GROUP MEMBERS

Shivanand Indi Satish K Sunil N.M Syed Mubarak Vinay H.R Vinod Sajjan

2013

GROUP ASSIGNMENT
Submitted to
PROF. VENKATESH GANAPATHY

BRICS Development Bank Introduction The BRICS Development Bank is a proposed development bank of the BRICS nations. Its establishment was agreed to by BRICS leaders at the2013 BRICS summit held in Durban, South Africa on 27 March 2013. Among its goals is to provide funding for infrastructure projects, and create a "Contingent Reserve Arrangement" worth $100 billion which will help member countries counteract future financial shocks. BRICS is a group of countries including Brazil, Russia, India, China, and South Africa.

BRICS Development Bank Formation Type 27 March 2013

International financial institutions

Headquarters TBA Affiliations BRICS

4th BRICS summit The 2012 BRICS summit was the fourth annual BRICS summit, an international relations conference attended by the heads of state or heads of government of the five member states Brazil, Russia, India, China and South Africa. The summit was held at at Taj Mahal Hotel[1] in New Delhi, India on 29 March 2012 and began at 10:00 Indian Standard Time.This is the first time that India has hosted a BRICS summit. The theme of the summit was "BRICS Partnership for Global Stability, Security and Prosperity". Development bank

The main agenda for the summit was the creation of a new development bank. The idea for setting up such a bank was put forward by India, as a sign of firming the power of the group and increasing its influence in global decision-making; Sudhir Vyas, a senior Indian official, said that the idea for a BRICS bank had been "in the air for some time." The aims of the bank would include: funding development and infrastructure projects in developing and least developed countries; lending, in the long term, during global financial crises such as the Eurozone crisis; and issuing convertible debt, which could be bought by the central banks of all the member states and hence act as a vessel for risk-sharing

Multilateral financial institution All five countries called for an urgent need to implement the 2010 Governance and Quota Reform before the 2012 International Monetary Fund World Bank Annual Meeting. The countries also want the comprehensive review of the quota formula to reflect economic weights and enhance the voice and representation of emerging market and developing countries by January 2013. All five countries also called for candidatures from developing world for the position of the President of the World Bank reiterating that the heads of IMF and the World Bank should be selected through an open and merit-based process. The call came weeks before the World Bank's presidential election which would, for the first time, feature non-United States candidates. China's Hu said: "We are committed to stepping up exchanges with other countries on global economic governance reforms and increasing representation of developing countries." Manmohan Singh added that "while some progress has been made in international financial institutions, there is lack of movement on the political side. BRICS should speak with one voice on important issues such as the reform of the UN Security Council."

Brics eye infrastructure funding through new development bank

Gang of five hail 'new paradigm', but questions about funding and location of headquarters remain unresolved. Bunch of fives Brics country leaders are poised to deliver a potentially historic challenge to western financial institutions. Photograph: Rogan Ward/Reuters Five giants of the developing world have in principle agreed to create a development bank to provide initial funding for infrastructure projects worth $4.5tn (3tn), in a potentially historic challenge to western-dominated financial institutions BRICS bank could become future World Bank: Goldman Sachs

The BRICS Development Bank could become a World Bank in future due to the increasing influence of emerging countries, chairman of Goldman Sachs Asset Management said on Wednesday. "If, in fact, the BRICS bank is announced, this will be the beginning of an institution that sort of becomes a World Bank for their huge sphere of influence," Jim O'Neill told state-run China Daily here.

BRICS, originally was named 'BRIC' by O'Neill in 2001 before the inclusion of South Africa in 2010.

The bank could be helpful in promoting BRICS (Brazil, Russia, India, China and South Africa) countries' trade, he said, stressing that the new group's economic achievements are much bigger than political. With respect to economics, he said, BRICS countries - except South Africa -have become much bigger much more quickly than he expected, even if they have lost some momentum in the past 12 months. He said the BRICS countries achievements were "remarkable" as their collective GDP in 2011 increased by around USD 2.3 trillion, which is equivalent to the size of Italy's GDP. "By 2015, if not before, the combined size of the BRICS economies seems highly likely to become as big as the US and they are set to become as big as the G7, as we assume, by 2027," O'Neill said. "It is transforming everything in the world economy, including the patterns of world trade and finance," he said. O'Neill continues to put his confidence in emerging markets, remains bullish on China, and believes the country's slowing 2012 growth will pick up in 2013. "The importance and scale of China for the world, never mind within the BRICS group, is next to none and vital for us all," he said. As a result, he said, the decisions China makes - both in its own right and within a BRICS context - are extremely important. "This decade, China will grow by around 7.5 per cent (annually) and I am happy with that," O'Neill said. He is also a bit surprised by the weakness of the retail sales numbers reported this year, which suggests that China needs to boost consumption, which might need more policy support. Assuming the Chinese government does pull that off, O'Neill said it would mean China will succeed in doubling both real GDP and real incomes this decade as planned, and this would be good for the world. Other BRICS countries, O'Neill said, need to concentrate on their own priorities rather than worry about China, as they also have things to achieve.

ROLE OF INDIA

The Indian finance ministry has been given the responsibility to work out a road map for a BRICS bank after differences over the size of the corpus, contribution of each nation and location held up an announcement in Durban earlier this week. Brazil, Russia, India, China and South Africa are the members of BRICS. Top North Block officials said differences arose over stakes and control of the new development bank, which could rival the International Monetary Fund. North Block economists in conjunction with RBI experts will now draw a rough road map, which could be informally discussed at an interim summit at St Petersburg in Russia in September and later fleshed out before a full BRICS summit at Brazil in 2014. India had floated the idea of starting a bank with an initial capital of $50 billion, with each nation chipping in with $10 billion. However, China, whose economy easily dwarfs other BRICS members, wanted the corpus to be jacked up to $100 billion and promised to make up for any shortfall in the contributions. Other BRICS members, who are hard-pressed for funds, wanted the capital pared down to $10 billion with contributions of $2 billion each. Russia and India fought shy of the proposal to have $50-billion capital after it became clear that Brazil and South Africa were not willing to pay much of the corpus, and China by default might get the largest equity share in the bank. Indian officials also wanted a window for participation by non-BRICS nations, which were keen to join the bank. Developing countries such as Egypt and Indonesia as well as developed nations such as Japan and the US could be among those interested. Though none of the member countries rejected the proposal, Chinas offer to underwrite any unsubscribed capital seems to have sidelined that part of the deal. The problem with accepting Chinas generous offer was that the BRICS bank would in effect have become a Chinese bank with Beijing holding a dominant stake. Officials said there were differences over the location of the bank. China wants it in Beijing, where some fear it can manipulate staffing. South Africa wants the bank in Johannesburg as Africa has the most underdeveloped countries which will be potential recipients of the banks lending. India is not against the bank being based in Africa but would like the ground rules to be cleared about staffing.

Problems of BRICS Bank BRICS bank will not be a rival to the West Consensus seems to be that the new developing world financier will look to complement the work of the World Bank and the International Monetary Fund, instead of competing with them BRICS Bank to Alter International Banking, Challenge US Dollar Leaders of BRICS nations, which includes Brazil, Russia, India, China and South Africa, met in Durban, South Africa and came to an agreement to establish an new international banking entity to compete with the World Bank and International Monetary Fund. If Indias money in the proposed bank is lent out through a Beijing-controlled system to infrastructure projects in, say, Africa, it is likely that Indian taxpayers will wind up seeing their taxes serve the national interests of China, not of India. If any more evidence was required that the BRICS grouping - Brazil, Russia, India, China and South Africa - deserved to remain a clever investment-banker fantasy rather than a reality on the ground, with a summit and all the paraphernalia. BRICS countries dump the euro, establish bank The grouping of the emerging economies Brazil, Russia, India, China and South Africa (BRICS) are cutting their foreign currency reserves in euro, having sold 45 billion of the currency in 2012, according to data gathered by the International Monetary Fund About Mittal Mr. Mittal is the richest Indian and a Forbes 100 Billionaire, Mittal, paraded his gilded status last year by staging a $55-million wedding for his daughter at the Palace of Versailles, once the home of Louis XIV, Frances Sun King.

Mittal (who does not discourage westerners from pronouncing his name me-tal, as in The Metal King) accomplished his alchemy by scooping up distressed mills in obscure corners of the world and turning them around through tough management practices. His quest to become the greatest steel tycoon in history hasnt been hurt by his political connections in his adopted land of Britain or by the Wests economic policies that place a premium on privatization and make it easy for clever businessmen to transmute leaden publicsector assets into private gold. Born in Safalpur (Rajasthan), India, Mittal moved to Calcutta when his father bought a small steel mill. Between preparing for his accountancy exams at St. Xaviers College in the 1970s, Mittal worked at his fathers company, which he inherited. In Calcutta he also met his wife, Usha, the daughter of a moneylender, who would become a key adviser to the nascent tycoon.

SCENARIO, PROBLEMS AND STRATEGY ADOPTED BY LN MITTAL.

Scenario in Indonesia- In 1975 when LN Mittal went to Indonesia, he went to retail market to see the prices of bars and rods and saw there was a good margin in the business. Here was also a chance to produce steel for the first time in Indonesia and strike a blow against the Japanese companies who used the country just for finishing products and were monopolizing the local market. He would undercut them building a mini-mill using an electric arc furnace fed with enriched iron-ore pellers known as direct reduced iron(DRI) rather than the bulky coking plants and blast furnaces, which were much more expensive to build and operate. He decided to build the plant in Indonesia. Strategy

But he had no cash, and even if he had, he would not have been allowed by the Indian Government to take rupees abroad. But he discovered that India did have a scheme that would allow him to invest overseas. He could buy equipment and building materials in India, export them to Indonesia, and the Indian government would lend him up to 85% of the cost of that equipment and building materials against the export. Mittal put together the deal: $ 2 Million in Ispat shares, $1.75 Million in cash from a local partner and a $3.7 million loan from the Bank of India in Singapore. Result

In the first full year, 1978, Mittal made 26,000 tonns of Steel at Surabaya, generating a profit of $1 Million on $10 Million of sales even though the Indonesian currency devalued by 50%. The Japanese started to pull out.

Scenario:- Mittal was relying on one supplier in West Java for DRI and the scrap needed to feed his furnace. Now he turned to the Caribbean to find a supplier. The state-owned Iron & Steel Co. of Trinidad and Tobago (ISCOTT) was facing bankruptcy. It was co-managed by sixty Germans from the company Hamburger Stahlwerke, who cost $20 million a year. Its contract was due for renewal and the government in Port Louis decided to put it out to competitive tender. Strategy Mittal told the politicians, Your company is losing $10 million every month. Give me the management and I will pay you $10 million every month. He promised he could run the plant and ramp up profits by increasing production and slashing costs. He got his deal, but he added one condition. If he made it come true he would have the chance to buy the company in five years. Mittal replaced the Germans with sixty Indian managers who cost $2 million.

Results In 1989 the plant was producing 420,000 tonnes. In 1993 it was close to one million tonnes. Mittal bough the plant. ISCOTT became Ispat Caribbean.

Situation in Trinidad and Tobago before acquisition by Mr. Mittal Iron and steel production was the core industry in the new heavy industry strategy of the 1970s and 1980s. Unfortunately, the state-owned venture, Iscott, was the most unprofitable industry located at the Point Lisas complex. Although the modern plant was technically sound and well integrated into the energy resources and deep harbors of the complex, it faced serious marketing and management problems. Iscott's marketing problems were exacerbated in 1983 when five United States steel companies filed an antidumping suit against it. The government's deep involvement at Point Lisas in general, especially its provision of cheap inputs to iron and steel production, made for a difficult defense against claims that the government subsidized the steel industry. After paying countervailing and antidumping duties for several years, in 1987 Trinidad and Tobago signed a voluntary export restraint agreement with the United States to limit iron and steel exports to 73,000 tons per year for a three-year period. Management problems, particularly in the steel mills melt shop, caused steel production to fall for the first time in 1984 and 1985.

Declining production and large financial losses persuaded the government to hire two West European firms to manage Iscott's operations under a two-year contract. Production did increase in 1986, signaling the early success of the outside management contract. Iscott's modern facilities at Point Lisas included two direct reduction plants with a combined capacity of 900,000 tons a year. The US$500 million plant used imported iron ore from Brazil in processing its steel. Iron and steel production reached 522,900 tons in 1985, marking the second year of declining production and the first year of a fall in exports. Exports reached 143,200 tons in 1985, only 27 percent of production, but exports were expected to expand again in the late 1980s. Output included direct reduced iron, steel billets, and wire rods. Direct reduced iron accounted for 42 percent of the subsector's output, the greatest share of iron and steel production, and 45 percent of exports. Production of steel billets represented 33 percent of the subsector's output, followed by wire rods with 20 percent. Over three-fourths of all wire rods were exported, whereas fewer than 10 percent of steel billets were exported in the first half of the 1980s. A large portion of iron and steel was used domestically because of Iscott's marketing difficulty.

Scenario in 1995:- Kazakhstan is the ninth- biggest country in the would, greater in size than Western Europe, bordered by Russia, Kyrgyzstan, Turkmenistan, Uzbekistan and China. It got its independence in December 1991. Its a country rich in natural gas, petrol, coal, gold and diamonds. The state run Karmet Steel works in Temirtau, covering more twelve hundred acres on the bank of the Nura River in the mineral-rich Karaganda region in the north of the country. Opportunity saw by Mittal,
1) China was booming. It needed steel to build the high-rises, highways and airports. 2) Then President of Kazakhstan decided to privatize. 3) Low bid for the plant at $ 400 million due to its poor financial condition. 4) The local Trim and railway system was under loss.

Problems faced by Mittal

1) The salaries of workers were not paid for the past six months. 2) The Central Bank directed him to not fuse the huge hard currency into the local banking

system all at; it would lead the country into such a condition of Inflation that it would not be repaired.

Strategy adopted by Mittal

1) Mittal brought in Indian human resources for management, who studied at Soviet Union

who can speak Russian.

2) He bought local tram and railway services. 3) He made and agreement with the government that no new environmental laws would

apply to the plant for ten years from the date of privatization.

4) Mittal bargained the bid for $400 million and also wrung huge concessions including a

moratorium on the payment of taxes.

5) Mittal paid the labour every 15 days.

Results
1) Within a year Temirtau was profitable. 2) Steel production had doubled to 250,000 tonnes a month. 3) Ten thousand miners and steel workers that would be laid off were saved. 4) Mittal got the name of a savior, second only in popularity to the President.

MITTALS OVERALL PRESENCE IN WORLD

The following are the overall STRATEGY adopted by Mittal:1) Acquire the potential loss making firms so that he can bid less for it. 2) His VISION was to consolidate the steel industry. 3) Use of technology Ex. Direct Reduced Iron (DRI). 4) Bargain in the bid for loss making firms in terms of Non-monetary advantages. 5) Use of Human Resource with less cost. Ex. Bringing Indian Management to work. 6) Making advantage of Geographical location of the plants. Ex. Bought Trinidad and

Tobago for the supply of Steel to the US and Europe region, and Bought Kazakhstans steel plant to supply the growing China.
7) Expansion strategy- going Global. Ex. He started from Indonesia to Trinidad and Tobago

and then to the Middle Asia, Algeria, Poland, Romania, Macedonia and Czech Republic, in South African and France.