Mpumelelo Mkhabela

Hard work left for SA to match other Brics economies

2018-07-27 07:00
President Cyril Ramaphosa on the first day of the Brics gathering in Johannesburg (Photo: Gallo Images/Wessel Oosthuizen)

President Cyril Ramaphosa on the first day of the Brics gathering in Johannesburg (Photo: Gallo Images/Wessel Oosthuizen)

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On 30 November 2001, Jim O'Neil, head of research at investment bank Goldman Sachs penned a paper entitled "Building Better Global Economic BRICs".

The paper partly reviewed the origins and relevance of the bloc called the G7 which comprises of France, Germany, the United States of America, the United Kingdom, Japan, Italy and Canada.

The group originated as a G5, excluding Canada and Italy, in the early 1970s as an exclusive club of finance ministers who met informally to discuss matters of mutual interest, among others compatibility of currencies to ensure growth and financial stability.

They considered themselves – in fact they were – the leading global economies whose economic prospects were intertwined. It was, therefore, in their best interest to cooperate. As the G5, the outcomes of their summit were typically secret, until US Treasury officials argued for some transparency.

In the late 1980s, the G7 became a regular forum of the most powerful finance ministers in the world. Their decisions were important for the global economy. Investors looked up to them. Developing countries, typically debtor countries, whose fate was largely dependent on such decisions, always looked to hear the news coming out of the creditor G7 countries.

But in 2001, so much had changed, and a number of developing countries had developed – and were still developing at a fast pace – to such an extent that their own decisions now had global impact. Thus, O'Neil asked: "Does the G7 need an update?"

In his paper, he developed different scenarios using a number of economic variables for what he termed the "BRICs" countries. Note that in the original "BRICs", the "s" is lower case for metaphorical purposes. The acronym represented Brazil, Russia, India and China. South Africa was not included as it didn't meet his criteria of likely influential economies at a global level.

In four scenarios O'Neil developed, China followed by Brazil, came closest and even better than some members of the G7. This led O'Neil to question whether this wasn't enough justification for a G9. Russia was already, though informally, part of an expanded G7 despite its economy not being as powerful as China or Brazil.

O'Neil didn't conceive of BRICs as a separate bloc. But, the global political environment was propitious for such a bloc. His idea found fertile ground: many emerging economies, including South Africa, have been arguing for reforms to global institutions. For political clout and legitimacy of the bloc as an increasingly formal platform, South Africa was invited to join. The "s" ceased to symbolise plural that accounted for proper pronunciation and for building "bricks". It turned into upper case.

We must understand that in economic terms, South Africa didn't qualify. But for political reasons – and perhaps long-term economic potential given its current standing as the developed economy in Africa –  it made sense for South Africa to be invited. The BRICs platform provides members an avenue to articulate their views about the global issues because, collectively, they are relatively stronger than some of the G7 members and therefore cannot be easily dismissed.

As a potential – though distant – threat economically to the G7, they can be perceived to have ambitions to supplant the existing global system if the existing holders of power in the system resist reforms. The formation of the BRICS bank as a potential alternative to the International Monetary Fund and the World Bank is just one example. Their plan to increase investment among themselves, if pursued with vigour, could help rewrite rules of global investments.

But it would be foolish to think that the BRICS could replace the existing rules of the global economic system underwritten by the West. Many of them have huge domestic challenges and their societies are intractably linked into the Western system. And many emerging economies, including those of BRICS, had grown and continue to grow thanks to their ability to create conditions for West-propelled investments combined with indigenous ingenuity.

Fortunately, they are aware of the limitations and are now arguing for the most progressive elements of the global system to be protected from the ruinous US presidency of Donald Trump who has declared a trade war. Chinese president Xi Xinpin and South Africa's Cyril Ramaphosa have argued against Trump's trade war.

While there are broad similarities in terms of the global agenda and the aspirations that are being pursued by the BRICS countries, South Africa must not lose sight of the need to work hard to match the economies of fellow BRICS members. There is a need for South Africa to find an economic niche or niches within BRICS through which it could compete in the interests of its economy.

Russia and China are two of the members of BRICS with the clearest agenda globally. China wants to protect its status as the world's second largest economy. It does so by not pursuing a defensive strategy. Instead, it pursues as an offensive strategy which is not entirely negative.

China is pursuing what one might call an "infrastructure diplomacy". Nowhere is this clearer than in Africa. Not only did China build the African Union headquarters in Addis Ababa; it is also building and refurbishing a number of African ports. You can't get more strategic than that if you want to expand trade and investment.

Russia for its part, faced with American sanctions and accusations that it is meddling with Western democracies, has been pursuing what the Foreign Affairs journal describes as "nuclear diplomacy". Had Russia managed to secure the nuclear deal in South Africa, it would be a massive diplomatic coup against the West.

Russia is, nonetheless, pursuing the strategy in other parts of the world and it would be naïve to rule out the possibility that it could clinch the deal in future. India, for its part, has ambitions to be the next China – a better and, unlike China, democratic one. Brazil is both a huge market and an investor.

In light of the various strengths of fellow BRICS members, South Africa must not just be happy to be a member and a host, as it is now host of the 10th summit of the bloc. It must also not be happy to be seen as the largest economy that dishes out invitations to neighbouring African countries whenever we host such gatherings.

South Africa must not suffer the illusion that it is the leader in Africa. The truth is, African countries are pursuing their own independent strategies and are being wooed by various global players in different directions.

South Africa's primary focus should be on how best we can benefit from our membership of BRICS. Our noble global goals to advance the "African Agenda", fight for reform of international institutions and other lofty plans must not detract from the need to craft foreign policy goals that have a direct domestic economic impact.

Ramaphosa and his minister of international relations and cooperation Lindiwe Sisulu, having launched a review of South Africa's foreign policy, now have an opportunity to recalibrate South Africa's position in global affairs in a manner than resonate with our economic interests. The 10th BRICS summit will provide them with a lot to think about.

After the summit, Ramaphosa should repurpose his investment-seeking and market-seeking strategies so that by the time he assumes his first term as president (assuming Julius Malema or Mmusi Maimane doesn't beat him at the polls!) he can have more domestically impactful foreign economic policy.

- Mkhabela is a political analyst with the Department of Political Sciences at the University of South Africa.

Disclaimer: News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.

Read more on:    brics 2018  |  economy  |  brics
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