Building capacity to help Africa trade better

SA in BRICS – Are we making the most of it?


SA in BRICS – Are we making the most of it?

SA in BRICS – Are we making the most of it?
Cheap Chinese imports have hit the SA manufacturing sector hard. Photo credit: Financial Mail

The BRICS bloc wants deeper trade and investment ties to underpin its alliance. Troye Lund assesses whether the five members have moved beyond being a loose political grouping.

Amid much fanfare, SA hosts a summit of the BRICS bloc of countries later this month and though the newest – and smallest – of the group, it is revelling in its inclusion. Eager to belong, SA views the hosting of the summit as an endorsement of its tendency to punch above its weight in global affairs.

Trade & industry minister Rob Davies has enthused: “We are convinced that the BRICS bloc is championing a new paradigm for economic co-operation.”

When the acronym BRIC was coined in 2001 by Jim O’Neill, then Goldman Sachs’s head of global economics research, a formal alliance was not envisaged. O’Neill’s paper on Brazil, Russia, India and China described a shift in global economic power away from the G7 (Group of 7) towards these countries that were enjoying rapid growth.

Since 2009, when it held its first summit in Russia, the BRICS group has become more formalised. But SA’s inclusion since December 2010 has been roundly criticised by O’Neill, who says SA does not belong because its economy is too small and lacks potential.

But the BRICS concept has morphed into something more than a group of fast-growing countries. It has become a political grouping that represents a desire to shift influence away from Western states and institutions. On these grounds SA, which has always been vocal about greater representation of developing countries in global institutions, qualifies.

Yet the combined economic weight of the BRICS cannot be underestimated. They represent about 40% of the global population, close to a fifth of global gross domestic product (GDP), estimated at US$13,7trillion, combined foreign reserves estimated at US$4,4trillion, and 17% of world trade, according to the Africa Strategy Group, a consultancy that is promoting the summit.

When the five heads of state gather later this month, there will be much talk about co-operation and mutual benefit in the alliance. But the relationships are not always smooth and are filled with contradictions.

China’s “dumping” of cheap goods in SA and the rest of the continent has been blamed for contributing to the decline in local manufacturing; SA has been taken to the WTO (World Trade Organisation) in a dispute about chicken imports from Brazil; and business with India can be hampered by regulation. For instance, regulatory hurdles forced MTN to abandon a tie-up with Bharti Airtel while Shoprite canned an Indian venture in 2010 due to that government’s curbs on foreign ownership of retail businesses.

Speaking at the China-Africa Forum in Beijing last year, just after China’s president pledged $20bn in loans to Africa, President Jacob Zuma warned about an unequal partnership with Beijing.

“This trade pattern [where Africa exports commodities and imports manufactured goods] is unsustainable in the long term. Africa’s past economic experience with Europe dictates a need to be cautious when entering into partnerships with other economies.”

But last week Zuma told the Financial Times that Western companies should drop the “colonial” approach to doing business in Africa or lose out to China and other developing countries.

The summit in Durban will paper over the cracks and inevitable tensions as the five heads of state reiterate their commitment to building on the theme of the gathering: partnership for development, integration and industrialisation.

Trade ministers will meet the day before to try to resolve some of the disputes.

The department of trade & industry’s (DTI) deputy director-general in charge of international trade & development, Xavier Carim, says SA prefers to find “win win” solutions to “trade frictions”, especially with BRICS allies.

Though the eurozone remains SA’s largest trading partner, intra-Bric investment is growing. Pretoria is promoting itself as the gateway to the rest of Africa in an effort to make up for the small size of its economy compared with the other BRICS members.

In his budget speech last month finance minister Pravin Gordhan announced several measures aimed at stimulating cross-border trade and investment.

SA trade with BRICS has grown rapidly over the past decade. Between SA and China, trade grew 32% last year; with India it increased 25% and Brazil 20%. SA’s exports to China grew 46% while exports to India rose 20%, to Brazil 14% and to Russia 7%.

SA’s desire to promote investment and trade in sectors other than natural resources appears to be gaining ground. Business forums are held regularly and companies that have shown an interest in SA include those working in electronics, automobiles, ceramics, renewable energy and financial services.

But SA’s unequal relationship with China still grates. Is it prepared to stand up to China to protect its business interests, despite the fact that China is SA’s single-largest trading partner as a country and is involved in 85% of all intra-BRICS trade. The DTI argues that it isn’t about standing up to any BRICS partner, but about negotiating investments that free African economies from exporting raw materials and importing the goods that are manufactured with those resources.

SA’s stance on China has been to point out that China stands to benefit most from any expanded BRICS influence in global affairs and should therefore be magnanimous towards Africa, which offers resources and new markets.

Though O’Neill insists the only reason SA was included in BRICS was, as the gateway to Africa, to secure supply lines for fellow BRICS members, SA Institute for International Affairs senior researcher Memory Dube says there’s more to SA’s “Africa first” approach.

It’s linked to SA’s belief that its economic future is tied to the continent’s success. But SA’s efforts to establish itself as leader on the continent don’t sit well with other African states, especially Nigeria and Kenya, and aren’t limited to its BRICS membership. It’s a recurrent theme that can be traced back to apartheid SA.

“Post-apartheid SA has been emphatic about the African agenda and this has been a prominent characteristic of SA’s foreign policy towards the region,” says Dube.

But the question remains whether SA can leverage its relations with its BRICS allies so that their commercial interests are aligned with SA’s, as well as wider African interests.

A major thrust of SA’s foreign policy is to encourage investment in beneficiation which will allow Africa to add value to its abundant raw materials.

In a bid to convince African leaders that SA’s position in BRICS is delivering gains for the continent, Zuma is expected to make announcements on three projects at the summit. These will be discussed at a BRICS-Africa leaders’ retreat that he’ll host straight after the summit.

The projects are:

An undersea cable to connect the BRICS. Currently BRICS countries are connected via telecommunications hubs in Europe and the US which, SA argues, keep costs high and create the potential for “critical financial and security information to be intercepted”.

Risk reinsurance for the five BRICS countries. The BRICS Trade & Risk Development Pool will combine the financial strength and insurance capacity of state-owned and private-sector users. This, according to SA, will support development as well as domestic and cross-border trade. SA’s financial sector will take the lead in developing this.

The formation of a BRICS Development Bank will be confirmed. Though the bank is likely to take years to be set up, the aim is to finance projects that will accelerate growth in emerging markets and act as a counterweight to institutions like the World Bank.

Research by Standard Bank analysts Simon Freemantle and Jeremy Stevens shows that intra-BRICS trade in 2012 reached $310bn. This was a tenfold increase since 2002.

Today intra-BRICS trade accounts for almost one-fifth of BRICS total trade with emerging markets, up from 13% in 2008. In contrast, the research shows the BRICS traded less with the EU last year than they did in 2008.

They project that BRICS-Africa trade will be about $500bn by 2015, roughly 60% of which will be China-Africa trade.

The leap in importance of trading within BRICS has been the most pronounced for SA. A decade ago trade with the Bric economies accounted for 5% of SA’s total trade with the world. In 2012 this figure stood at 19%. Last year SA exports to its fellow BRICS economies increased to 17%.


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