South Africa’s ascension to the BRIC group of major emerging economies is more about politics than economics and reflects expectations it will be the gateway for investment in the fast-growing continent, analysts poled by Reuters say.
South Africa, with a $285 billion economy, a much smaller population and tepid growth of about 3 percent, pales in comparison to BRIC states Brazil, Russia, India and China. “It’s not a natural fit,” said Razia Khan, Africa head of research at Standard Chartered. South Africa’s economy is less than a quarter of the size of Russia’s, which is the smallest in the original grouping. While it may be the largest in Africa, it is only a bit bigger than China’s sixth-richest province.
South Africa’s biggest backer for BRIC has been its largest trade partner, China. Last week, Beijing extended an invitation for Pretoria to join and asked President Jacob Zuma to attend a summit of BRIC leaders it will host next year. “This is something that China sees in its own interest with its aim of understanding the future of Africa and becoming an ever bigger presence there,” said Marvin Zonis, professor emeritus at the University of Chicago Booth School of Business. “It is really smart on the part of China to do this and it is also really good for South Africa. It legitimises South Africa as a future global power and as an investable country,” Zonis said.
China has invested heavily in Africa for years, seeing it as a source of commodities to power its economic engine and an export destination for its products that will grow over time. China’s official media last month said trade between China and Africa would hit a record this year and stood at $115 billion as of the end of November. China emerged as Africa’s largest trading partner in 2009, outpacing the European Union and the United States, China’s People’s Daily said.
BRIC has been seen as moving economic activity away from the established powers in Europe and North America and erecting a wall that limits their global power. With sub-Saharan Africa’s total economy growing from $322 billion in 2000 to $931 billion in 2008, according to the International Monetary Fund, it seemed that an African state would eventually join the group. “This is more about perception and projecting Africa as the frontier market that it is, rather than the one that is ignored when talking about BRIC,” said Martyn Davies, CEO of Frontier Advisory and a specialist on African-Chinese economic ties. “This will help South Africa project itself as a first tier emerging market rather than its current second tier status.”
South Africa has been lobbying for some time behind the scenes to be granted BRIC membership, officials have said. Davies said South Africa could better earn a seat on economic merit if it can integrate the economies of the Southern African Development Community — a 15-state regional block. South Africa’s rand has strengthened since it was invited to join BRIC, partly in expectation of an inflow of funds from realigning BRIC portfolios.
Zonis said the impact from capital inflows will be limited, and long term gains will come from how well South Africa can use its BRIC status to make itself more attractive for investment.
The BRIC countries have sought greater clout for their grouping, holding a summit in Russia in 2009. “BRIC” is a term invented in 2001 by Jim O’Neill, the chairman of Goldman Sachs Asset Management in a paper entitled “The world needs better economic BRICs”. O’Neill has said South Africa should not be included. “How can South Africa be regarded as a big economy? And, by the way, they happen to be struggling as well,” he said in December.
The wikipedia notes the acronym has come into widespread use as a symbol of the shift in global economic power away from the developed G7 economies toward the developing world. O’Neill argued that, since they are developing rapidly, by 2050 the combined economies of the BRICs could eclipse the combined economies of the current richest countries of the world. The four countries, combined, currently account for more than a quarter of the world’s land area and more than 40% of the world’s population. O’Neill did not argue that BRIC should organise into an economic bloc, or a formal trading association, as the European Union has done.
Nevertheless, the leaders of the BRIC countries held their first summit in Yekaterinburg and issued a declaration calling for the establishment of an equitable, democratic and multipolar world order. Since then they have met in Brazil in 2010 and will meet in China in 2011. Reuters adds there are worries that as BRIC takes on a life of its own, the listing of South Africa could prompt others to invite their friends to join, swelling membership and perhaps dooming the grouping to irrelevance. Some have suggested the hard-charging economy of Indonesia may be a better fit, while global investment group BBVA has said the BRIC concept itself has become outdated. It has proposed a group called EAGLES, short for “emerging and growth leading economies” it predicts will contribute about 50 percent of global growth over the next decade. Its EAGLES, as sorted by relevance, are China, India, Brazil, Indonesia, South Korea, Russia, Mexico, Egypt, Taiwan and Turkey. South Africa was on a watch list of 11 other up and coming states dubbed the “Eagles Nest”.
In a not-so-subtle dig critical of the term as nothing more than a shorthand for emerging markets generally, critics quoted by Britain’s Financial Times (FT) in December 2006 have suggested a correlating term, CEMENT (Countries in Emerging Markets Excluded by New Terminology). “Whilst they accept there has been spectacular growth of the BRIC economies, these gains have largely been the result of the strength of emerging markets generally, and that strength comes through having BRICs and CEMENT,” the wikipedia quoted the FT as saying.