13 April 2011
South Africa may be the new kid, and the smallest kid, on the block at this week’s BRICS summit in China, but the country has plenty to offer the grouping as a gateway to Africa with one of the strongest financial sectors in the world, say analysts.
On Wednesday, President Jacob Zuma arrived the Chinese resort of Sanya on the tropical island of Hainan to attend the third BRICS Leaders Meeting – South Africa’s first as a full member of the grouping of powerful developing countries – taking place on Thursday and Friday.
Emerging markets expert and chief executive of Frontier Advisory, Martyn Davies, said this week that being a key part of the African continent was one of South Africa’s biggest bargaining chips.
South Africa should therefore promote itself to its fellow BRICS partners as the continent’s “services hub”, said Davies, adding that the country also has strong corporates that “punch above their weight”.
Africa’s ‘Lions on the Move’
A McKinsey report released last year entitled “Lions on the Move” touts Africa as the next economic growth story, while the Economist earlier this year reported that African countries would make up seven of the 10 fastest-growing economies in the world between 2011 and 2015.
Added to this, a tripartite free trade agreement between the Southern African Customs Union (Sacu), the Common Market for Eastern and Southern Africa (Comesa) and East African Community (EAC) would create a market of over 500-million people once concluded, Trade and Industry Minister Rob Davies said earlier this year.
But Matlotleng Matlou, chief executive of the Africa Institute, says South Africa has to be cautious not to presume that it is representing Africa when it appears at the summit, as it does have the necessary mandate from other African nations.
Speaking to BuaNews this week, Standard Bank economist Jeremy Stevens also cautioned about South Africa’s approach at the summit.
Stevens said that although South Africa’s ascendancy to BRICS status might be a “massive move forward for the country”, and that South Africa has one of the world’s top banking systems, it had to be careful not to give away one of the only regions in the world where it had a trade surplus.
He said South Africa should also be careful not to place all its eggs in one basket in terms of investments and linkages in fellow BRICS nations, as Europe and the US still made up a large bulk of its trade.
Reputation for independent decision-making
However Peter Draper, senior fellow at the South African Institute of International Affairs, believes that one of South Africa’s strengths lay in its reputation for independent decision-making.
Draper disagreed with some critics that believe that because South Africa pushed to get into the BRICS grouping, it could therefore be seen as being weak; Draper argued that it was not in South Africa’s political tradition to “roll over” and submit to other nations.
The BRICS club is primarily a geopolitical grouping, said Draper, adding that foreign direct investment and trade were after-effects and more suited to bilateral trade missions.
BRICS’ smallest member
South Africa goes into this week’s summit as the smallest of the BRICS nations by population, gross domestic product (GDP) and trade share.
China’s economy, for example, is about 16 times bigger than South Africa’s, while its population is a massive 268 times larger.
Although China is less urbanised than South Africa (47 percent versus 57 percent respectively), it has 70 cities with over a million inhabitants each, while South Africa has just six such cities.
Added to this, China grew at a massive 12.37 percent between 1990 and 2007, according to the UN, while South Africa grew at 5.6 percent during the same period.
Also notable is that while Brazil, China, Russia and India have all substantially grown their share in world trade in the last decade, South Africa’s share of international trade has remained stagnant.
According to the International Monetary Fund (IMF), China almost trebled its share of world trade from 3.9 percent in 2000 to 9.7 percent in 2009, while India’s moved from 0.7 percent to 1.2 percent, Russia’s from 1.7 percent to 2.5 percent, and Brazil’s from 0.9 percent to 1.2 percent over the same period.
South Africa’s share of international trade has, however, remained stuck on 0.5 percent since 2000.
But while South Africa may have the smallest economy and population among the BRICS members, it can boast the third-highest GDP per capita after Russia and Brazil.
Of the BRICS countries, South Africa is the easiest place to open a business, requiring on average the least number of steps and days to open a business, according to the World Economic Forum’s 2010-11 Global Competitiveness Report.
South Africa is also the world’s biggest platinum producer, one of its biggest gold producers, and the sixth-biggest producer of coal.
Of the BRICS countries, China is South Africa’s top export destination, with India ranked sixth, Brazil 24th and Russia 41st, according to the Department of Trade and Industry.
China tops the list of countries South Africa imports from, while India is ranked eighth, Brazil 17th and Russia a distant 54th.
Brazil also faced scepticism
South Africa is not the only country to have met with scepticism over its BRICS membership.
Brazil’s inclusion as one of the BRICS was initially greeted with some scepticism when Goldman Sachs coined the term BRIC in 2003, just months after the IMF provided a large loan to stablise the South American country’s economy.
Lael Brainard and Leonardo Martinez-Diaz, in a 2009 article entitled “Brazil: The “B” belongs in the Brics”, said the country was now growing because of sound macro-economic policies, strong organisations and effective policies on agriculture and alternative energy.
The BRICS summit will take place on Thursday and Friday on Hainan Island (which literally means “South of the Sea”).
The tropical island, rich in iron and fruit, is China’s smallest province and was transformed from a backwater to one of the regions with the highest per capita incomes in China after the island was made a special economic zone in 1988.