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SOUTH AFRICA'S membership of the emerging market grouping known as Brics (Brazil, Russia, India, China and South Africa) is part of the ANC government’s strategy.
This strategy has important implications for South African businesses and is the subject of this short book by political commentator and author, William Gumede.
If someone else wishes to follow a leader, then it is fair to say that the Western countries' leadership in politics and economics is being eroded. The US’ powerful economy has slowed and Europe is dangerously in debt.
Institutions such as the World Bank and IMF have failed in developing countries and have failed to resolve the global and the Eurozone crises.
Some perceive the UN as having been used by the Western powers for their own interests in places like Iraq Afghanistan and Libya.
The International Criminal Court is accused of targeting African and developing countries' criminals and of ignoring those of the developed world.
At the same time, the economies of the emerging countries have been growing. According to a World Bank report, emerging markets will account for more than half of all global growth by 2025, and 70% by 2060.
This prognosis is easier to digest when considering that currently 96 the Fortune 500 companies come from the emerging economies.
A Chinese tycoon now owns the former Swedish carmaker Volvo. The Indian group Tata bought Jaguar-Land Rover from Ford.
“Although emerging powers are fast growing in influence, they do not yet have the collective institutions, ideas, or economic power to replace the old industrial powers,” says Gumede. Brics is an attempt to do just that.
Brics is not the first inter-continental grouping of which South Africa has been a participant.
We were in a formal political and trade alliance with Brazil and India, called Ibsa (India, Brazil, South Africa) now expanded to Brics. Continentally, we are active in SADC.
The economic heft of the Brics group is impressive. The Brics make up 40% of the world’s population. They account for 18% of the world’s GDP, 40% of global currency reserves, and since 2001, 30% of global economic growth.
The Brics members are all developing countries with enormous untapped markets and splendid growth potential.
However, Brics membership poses special issues. The DA’s parliamentary leader, Lindiwe Mazibuko, holds that Brazil, India, and Russia are benefitting far more from investment opportunities and trade with the rest of than Africa than we are.
This grouping itself is not without serious problems. The members have dangerous inequalities in their populations, coupled with non-accountable, weak, or non-existent democratic institutions.
In Brazil, for example, more than a million people took part in protests over high transport fees, government corruption, and the costs of the Fifa Soccer World Cup 2014.
Within Brics each country has, understandably, different economic and political needs and agendas.
Among South Africa’s intentions in joining Brics is the intention to secure new markets for South African products and new investors into the country.
China needs Africa’s raw materials to keep on growing at high levels in order to keep the millions of impoverished Chinese from destabilising the country.
Within Brics there is significant imbalance. China’s foreign exchange reserves are three times larger than the combined reserves of the four other Brics countries.
This clearly gives China more muscle in the group and allows China’s agenda to be overweight. The cheap Chinese currency is already hurting South African manufacturers.
The upside of such an alliance lies in it being an alliance. While on the one hand it could be seen as enabling unfair trade, on the other hand it does provide a forum for discussion of this imbalance.
While South Africa is by far the weakest member of the group, we are the only representative of the African continent, its largest economy and its regional power. As such, we are not an insignificant partner in this alliance.
According to SA's Minister of Finance Pravin Gordhan, a cost-benefit analysis of this alliance and the prevailing balance of payments seem to suggest possible dangers "unless we take all necessary steps to mitigate them now".
In addition to our cautious participation in Brics, we will need to continue to engage with other emerging markets such as Turkey.
We also need to avoid the mistake of shifting our focus away from the industrial powers in the West.
Brics will not replace our traditional trading partners any time soon, just as China will not replace the United States as the world’s greatest economy any time soon.
It is worth noting that the United States’ 2009 GDP was $15trn and their per capita income $41 000.
China’s GDP at the same time was $5trn and their per capita income less than $4 000 per year.
Alliances are good things when they do not enable our alliance partners to take advantage of us and when they provide us with advantage.
The jury is still out on Brics as Gumede makes clear.
Readability Light --+-- Serious
Insights High -+--- Low
Practical High ----+ Low
This strategy has important implications for South African businesses and is the subject of this short book by political commentator and author, William Gumede.
If someone else wishes to follow a leader, then it is fair to say that the Western countries' leadership in politics and economics is being eroded. The US’ powerful economy has slowed and Europe is dangerously in debt.
Institutions such as the World Bank and IMF have failed in developing countries and have failed to resolve the global and the Eurozone crises.
Some perceive the UN as having been used by the Western powers for their own interests in places like Iraq Afghanistan and Libya.
The International Criminal Court is accused of targeting African and developing countries' criminals and of ignoring those of the developed world.
At the same time, the economies of the emerging countries have been growing. According to a World Bank report, emerging markets will account for more than half of all global growth by 2025, and 70% by 2060.
This prognosis is easier to digest when considering that currently 96 the Fortune 500 companies come from the emerging economies.
A Chinese tycoon now owns the former Swedish carmaker Volvo. The Indian group Tata bought Jaguar-Land Rover from Ford.
“Although emerging powers are fast growing in influence, they do not yet have the collective institutions, ideas, or economic power to replace the old industrial powers,” says Gumede. Brics is an attempt to do just that.
Brics is not the first inter-continental grouping of which South Africa has been a participant.
We were in a formal political and trade alliance with Brazil and India, called Ibsa (India, Brazil, South Africa) now expanded to Brics. Continentally, we are active in SADC.
The economic heft of the Brics group is impressive. The Brics make up 40% of the world’s population. They account for 18% of the world’s GDP, 40% of global currency reserves, and since 2001, 30% of global economic growth.
The Brics members are all developing countries with enormous untapped markets and splendid growth potential.
However, Brics membership poses special issues. The DA’s parliamentary leader, Lindiwe Mazibuko, holds that Brazil, India, and Russia are benefitting far more from investment opportunities and trade with the rest of than Africa than we are.
This grouping itself is not without serious problems. The members have dangerous inequalities in their populations, coupled with non-accountable, weak, or non-existent democratic institutions.
In Brazil, for example, more than a million people took part in protests over high transport fees, government corruption, and the costs of the Fifa Soccer World Cup 2014.
Within Brics each country has, understandably, different economic and political needs and agendas.
Among South Africa’s intentions in joining Brics is the intention to secure new markets for South African products and new investors into the country.
China needs Africa’s raw materials to keep on growing at high levels in order to keep the millions of impoverished Chinese from destabilising the country.
Within Brics there is significant imbalance. China’s foreign exchange reserves are three times larger than the combined reserves of the four other Brics countries.
This clearly gives China more muscle in the group and allows China’s agenda to be overweight. The cheap Chinese currency is already hurting South African manufacturers.
The upside of such an alliance lies in it being an alliance. While on the one hand it could be seen as enabling unfair trade, on the other hand it does provide a forum for discussion of this imbalance.
While South Africa is by far the weakest member of the group, we are the only representative of the African continent, its largest economy and its regional power. As such, we are not an insignificant partner in this alliance.
According to SA's Minister of Finance Pravin Gordhan, a cost-benefit analysis of this alliance and the prevailing balance of payments seem to suggest possible dangers "unless we take all necessary steps to mitigate them now".
In addition to our cautious participation in Brics, we will need to continue to engage with other emerging markets such as Turkey.
We also need to avoid the mistake of shifting our focus away from the industrial powers in the West.
Brics will not replace our traditional trading partners any time soon, just as China will not replace the United States as the world’s greatest economy any time soon.
It is worth noting that the United States’ 2009 GDP was $15trn and their per capita income $41 000.
China’s GDP at the same time was $5trn and their per capita income less than $4 000 per year.
Alliances are good things when they do not enable our alliance partners to take advantage of us and when they provide us with advantage.
The jury is still out on Brics as Gumede makes clear.
Readability Light --+-- Serious
Insights High -+--- Low
Practical High ----+ Low
* Ian Mann of Gateways consults internationally on leadership and strategy.
