The BRICS: A view from South Africa

Last month the offices of a London law firm played host to a Royal African Society event entitled ‘The BRICS: A view from South Africa’. Dr Martyn Davies, CEO of Frontier Advisory, a South African research, strategy and investment advisory firm was invited to speak. His talk was wide-ranging and included an analysis of South Africa’s current position within the BRICS grouping, the challenges and the opportunities.

Davies stated early on that as demonstrated by South Africa’s joining in 2010, membership to the club had been largely down to geopolitics and not economics. The increasingly-influential BRICS grouping is made up of five of the world’s leading emerging economies – Brazil, Russia, India, China and South Africa. Even though BRICS members were united around a common vision of re-configuring the global economic landscape away from the erstwhile G8, what divided the BRICS nations was actually more powerful than what united them according to Davies. The intense economic competition that exists between them demonstrated this.

BRICS unity will come under greater scrutiny in coming months as the group seeks to strengthen co-operation on projects such as the BRICS Development Bank.

Compared to its BRICS partners, South Africa’s economy is the tiniest by some distance. Its domestic output stood at US$408.2bn according to 2011 World Bank figures. That is roughly a fifth of Russia’s and India’s economies, the next biggest, which stood at US$1.9tn. As expected, China’s economy led the pack at US$7.3tn while Brazil’s occupied second position at US$2.5tn. Despite its comparatively small economy, South Africa is an important member of the grouping as it is Africa’s largest economy and as some of its policymakers would like to believe, the cultural, trade and investment gateway to the continent – a view contested by observers such as Eliot Pence in his African Arguments article. And even if South Africa were to position itself as the “Gateway to Africa”, Davies argued that successive South African governments had not made deliberate efforts to making this more of a reality.

Of the five BRICS nations, South Africa is the one with “first-mover” advantage in Sub-Saharan Africa but it had been slow to actively formulate policies that encouraged and enabled greater penetration of African markets by its corporations, compared to China and Brazil. Davies stated that in 10 years no South African government minister had visited Angola, a mere 2-3 hour flight away from Pretoria and now one of the continent’s fastest growing economies. Contrast that with the number of high-ranking Chinese officials that have visited the country during that same period. He questioned how serious policymakers were about deepening their country’s engagement with the continent’s growth markets. An audience member raised the Nigeria question: what was the likelihood of Nigeria joining the group as Africa’s second-largest economy? Davies noted that because of the geopolitical dictates surrounding club membership, it was unlikely that Nigeria would be invited to join in the foreseeable future. South Africa, he said, would be more enthusiastic about an Indonesia or a Turkey joining, as is expected from next year forming the BRICSIT. Maybe this would allow South Africa to get its house in order first. As the group expands, it is likely to adopt a more pronounceable name: the E5 (Emerging 5) or E7.

Davies then went on to discuss China. Its economic achievements via state-led capitalism have led to a growing appetite for a similar model in some African countries and South Africa has not been excluded from this. State-led capitalism, he said, doesn’t necessarily involve the state through state-owned enterprises venturing into the market. It can mean the state being proactive at engaging business to create a good commercial environment as well as stepping in to provide the necessary backing where markets fail or just can’t deliver. Davies cautioned against unhelpful intervention by the state and instead called for greater commitment to a more investment-friendly environment.

While it remains to be seen what aspects of Chinese-style capitalism South Africa and other African countries adopt, Davies mentioned that wage levels continued to rise in China’s light manufacturing sector. Citing the Lewis Turning Point (where the costs of production begin to outstrip any gains in production), he mentioned that it was estimated that between 80-85 million jobs in light manufacturing will be lost in China over the next decade. This presented significant opportunities to the economies of Sub-Saharan Africa. South African trade unions, he said, needed to focus on being less ideological and more practical as the relatively high wage levels in South Africa (when compared to regional competitors) risked putting the country out of competition for outsourced jobs from China. Davies ended his talk with: “South Africa is world class, if only the government allows us to thrive.”

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