The BRICS and South Africa

Some commentators, such as Jim O’Neill, the now retired Goldman Sachs executive, who first coined the term BRICS to refer to the fast-growing emerging markets, question whether South Africa should be a member of BRICS.
They argue that the smaller size of South Africa’s economy, its sluggish growth and its tiny population compared to the other BRICS countries disqualify it from being a BRICS member. This argument is simply wrong.

The real question should be what must South Africa do to make the BRICS work for it? South Africa will only benefit from its membership of the BRICS alliance, if it drives a hard bargain to jealously defend its economic interests, trade intelligently and build clever issue-based tactical alliances with individual member countries.

A naïve SA thinking that BRICS allies will be charitable may end up losing so badly – it may deindustrialize fully, become a modern version of a colony of China and its economy will be overtaken by regional players such as Nigeria and Angola. Every BRICS country is in it to hard-headedly advance its strategic economic, trade and geopolitical interests.

The BRICS alliance is not simply either a geopolitical, trade or economic one – it is a strategic and tactical alliance, based on each country focusing on securing common and their best individual country interests.

SOUTH AFRICA’ FOREIGN POLICY SINCE END OF APARTHEID

Since the end of apartheid, a core strategy of South Africa’s foreign policy has been to deliberately position itself as not only a voice for less influential African and developing countries; and taking a leading role in organizing these countries to forge strategic alliances to advance their common interests in global forums and negotiations. That alone, from a strategic point of view, will make it difficult for any global developing country alliance to exclude SA.

South Africa was an architect of the creation of the IBSA (India, Brazil and SA) alliance which preceded and now has been succeeded by BRICS. Although the success of IBSA was mixed, the economic, trade and political partnership between the three large developing country democracies was an important geopolitical statement.

If one narrowly compares the sizes of the BRICS economies, SA lags compared to its peers. However, one has to look at SA’s wider economic weight, which includes its globally influential private sector, sophisticated economic institutions, including the Johannesburg Stock Exchange and its dynamic financial sector.

SOUTH AFRICA NOT A STAND-ALONE ECONOMY

If effectively combining its private and public sectors, SA Inc. collectively can compete with any of its emerging market peers. For another, the SA economy is not stand-alone economy like many of its emerging market peers. The SA economy is tightly intertwined with the 15-nation Southern African Development Community (SADC) and linked to the broader African economy.

It appears that unlike SA, the political leadership at the head of individual BRICS countries appears to be more focused, with the necessary will, urgency and competitive spirit to want to quickly develop their countries. For another, policy uncertainty, decision paralysis and the appalling marginalization of talent, skills and new ideas – the factors crucial to competitiveness, makes SA easy pickings for trading competitors.

Because SA is in BRICS will not mean that BRICS will support SA’s key geopolitical stances. For example, last year, South Africa’s BRIC allies did not endorse SA’s support for Nigeria’s Finance Minister Ngozi Okonjo-Iweala, as Africa’s candidate for the International Monetary Fund president. This means that SA will have to build smarter issue-based and tactical alliances within BRICS, and must drive harder bargains, and carefully choose to lead or support campaigns which have measurable economic gains for SA.

South Africa will have to protect its economic interests – in SA and in Africa - more vigorously than hitherto. Many South African manufacturers say while products from BRICS relatively easily enters South African markets, high tariff barriers makes it difficult for South Africans products to enter BRIC markets.
Africa has become the new frontier market for many old industrial powers wanting to reboot their economies, and for the new emerging powers wanting to maintain high growth levels. At the same time every sensible analysis argues that significantly lifting trade with growing Africa will provide the platform for South Africa’s own growth – and should therefore be the number one priority of South Africa.

This means that any inroads old industrial powers, BRICS partners and other new emerging powers make into Africa may undermine South Africa’s efforts. In short, South Africa’s BRIC partners are threatening South Africa’s markets in Africa.

BRIC HURTING SOUTH AFRICA’S ECONOMY

Not only is cheap BRIC manufactures hurting SA’s domestic sectors, but it is hurting the manufacturing sectors South Africa identified as key job creating sectors, when it launched (April 2010) the Industrial Policy Action Plan (IPAP), the country’s centerpiece strategy to industrialise and create jobs.
Revitalizing manufacturing is at the heart of South Africa’s attempt to get the economy to create 5m jobs by 2020. Exporting manufacturing goods to Africa is central to that strategy. However, BRICS countries are also exporting manufacturing goods to Africa, including the inputs to Africa’s planned infrastructure built programs.

While the SA’s manufacturing sector is coming out of a deep crisis – with some sectors having declined, others having migrated to industrial countries as many SA companies turned global and take their research, development and innovation capacity with them – the manufacturing sectors of most of the country’s BRICS partners are buoyant.

CHINA’S CURRENCY WILL HOLD SWAY

China is aggressively promoting the use of its currency, the renminbi, for international trade and lending with its developing country partners, particularly in Africa, rather than using the US dollar. Standard Bank of South Africa predicts that China’s renminbi will replace the US dollar as the main currency to finance trade between China and African countries sooner than expected. Standard Bank predicted that by 2015 up to 40 percent (or US$100 billion) of China’s trade with Africa will denominated by renminbi.

By localizing the renminbi in Africa, China will not only be able to reduce the currency risks inherent in many unstable African currencies, it may also be able to circumvent non-tariff barriers in Africa, which stubbornly remain to undermine trade in Africa even where trade agreements are in place.

Furthermore, through successful penetration of the renminbi in Africa, China will be able to speed up lending to Africa and free Chinese cash to finance the selling of Chinese manufacturers and infrastructure inputs to Africa. This will again undercut the penetration of SA’s manufacturing products into the Africa, and undermine production and jobs at home.

The creation of a BRICS development bank also has some inherent risks for SA. A BRICS development bank, dominated by China, and Chinese finance, could accelerate SA’s economic marginalization in Africa.

CREATION OF A DEVELOPMENT BANK

The most ideal situation for SA would have been to create a super African development bank, by merging some of SA’s larger state-owned development finance institutions, such as the Development Bank of Southern Africa (DBSA), the Industrial Development Corporation (IDC) and the Land Bank, into a new giant Africa-wide DFI. Equity could then be offered to other African countries to such a super African DFI.

Importantly, such a giant new African DFI should facilitate the penetration of SA’s private sector into Africa. Individually, compared to those of its BRICS partners, SA’s DFIs are too small, unfocused and poorly integrated into broader industrial and development policy.

Such an entity could then partner with old industrial, BRICS and other emerging power DFIs and private companies on specific African infrastructure projects – but led by the Africans.

Of course, there is no guarantee that such a super African DFI would not mimic the worse failures of current SA state-owned companies: the appallingly poor governance, waste of resources and talent because of patronage appointed managers rather than using the best talent the country has to offer.

Ultimately, for South Africa, the best strategy for SA is not to overly rely on its BRICS partnership, but to strengthen its relations with other emerging markets such as South Korea, Malaysia and Turkey; as well as with the industrial powers of the West.

It should use its BRICS partners to extract better deals with the industrial West and new emerging powers. In all of these trade relations, South Africa should not compromise on democratic principles at home or abroad.
South Africa must forge a partnership between its government, business, labour and civil society, to provide it the capacity to come up with competitive strategies against not only BRICS partners, but also other competitors.

Given the smaller economic size of SA compared to its larger BRICS countries – the competitiveness of these BRICS partners - may yet force South Africa to begin to trade smarter and to use the capacity of all its talents, whether in the private, public or civil sector, in ways it has not done so far.

Finally, one possible silver lining in SA joining BRICS may be that joining BRICS may focus South Africa’s national development efforts, in a way never possible. The quest to match its BRICS partners’ may spark the urgency, will and determination, frustratingly missing up to now, to force South Africa’s political leaders to focus determinedly on growth, industrialisation and economic development.

*William Gumede is author of the bestselling ‘Restless Nation: Making Sense of Troubled Times,’ Tafelberg, Cape Town.

Please do not take Pambazuka for granted! Become a Friend of Pambazuka and make a donation NOW to help keep Pambazuka FREE and INDEPENDENT!
* Please send comments to editor[at]pambazuka[dot]org or comment online at Pambazuka News.