DURBAN - BRICS leaders said on Wednesday that the establishment of a BRICS Development Bank would help developing countries face challenges of infrastructure development due to insufficient long-term financing and foreign direct investment, especially investment in capital stock.

Earlier in the day, South African President Jacob Zuma announced the establishment of the bank at the fifth BRICS summit taking place in Durban.

"BRICS cooperation towards more productive use of global financial resources can make a positive contribution to addressing this problem," BRICS leaders said in a joint statement.

They said insufficient long-term financing, coupled with lack of foreign direct investment, especially investment in capital stock, "constrains global aggregate demand."

In March 2012, BRICS leaders directed their finance ministers to examine the feasibility and viability of setting up a New Development Bank for mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, to supplement the existing efforts of multilateral and regional financial institutions for global growth and development, the statement said.

"Following the report from our Finance Ministers, we are satisfied that the establishment of a New Development Bank is feasible and viable," said the statement.

"We have agreed to establish the New Development Bank. The initial capital contribution to the bank should be substantial and sufficient for the bank to be effective in financing infrastructure."

In June 2012, BRICS leaders in their meeting in Los Cabos, also tasked their finance ministers and central bank governors to explore the construction of a financial safety net through the creation of a Contingent Reserve Arrangement (CRA) among BRICS countries.

"They have concluded that the establishment of a self-managed contingent reserve arrangement would have a positive precautionary effect, help BRICS countries forestall short-term liquidity pressures, provide mutual support and further strengthen financial stability.

"It would also contribute to strengthening the global financial safety net and complement existing international arrangements as an additional line of defense," the statement said.

"BRICS leaders  are of the view that the establishment of the CRA with an initial size of 100 billion U. S. dollars is feasible and desirable, subject to internal legal frameworks and appropriate safeguards. We direct our Finance Ministers and Central Bank Governors to continue working towards its establishment."

BRICS finance ministers and central bank governors will negotiate and conclude the agreements in relation to the New Development Bank and the Contingent Reserve Arrangement.

"We will review progress made in these two initiatives at our next meeting in September 2013," BRICS leaders said in the statement.

In a related development, the Development Bank of Southern Africa (DBSA) on Wednesday lauded the establishment of the BRICS Development Bank.

BRICS is an acronym for Brazil, Russia, India, China and South Africa.  

DBSA Chief Executive Officer Patrick Dlamini said the BRICS development bank will go a long way to ensure Africa infrastructure development.

"This bank would ensure that the infrastructure development needs of member states, in particular Africa gets much needed infrastructure funding to address infrastructure gaps on the continent," Dlamini said in a statement.

DBSA is a development finance institutions in southern Africa set to accelerate sustainable socio-economic development by funding physical, social and economic infrastructure. DBSA is southern Africa's leading developmental finance institute set to spearhead infrastructure development in the region.

Dlamini said the creation of the bank from the BRICS block would not pose any direct threat to DBSA as a regional infrastructure bank. He, however, acknowledged that the funding requirements for infrastructure in Africa "are far too huge."

"We therefore welcome and appreciate the establishment of this bank from the BRICS block as it would play a critical role in advancing infrastructure funding to promote development and regional integration on the continent," Dlamini said.