Building SA one Bric at a time

South Africa needs to address some internal challenges before it can extract maximum economic benefits from its relationship with China and other major ­developing nations.

Chris Malikane, associate professor of economics at the University of Witwatersrand, said SA does not have a macroeconomic strategy based on statist development where the state leads and directs economic growth and development.

He said: “In India there is a state-owned bank that regulates the extension of credit to priority sectors. Also, an estimated 30% of the financial institutions there are state run, which makes the cost of capital less expensive.”

Malikane’s comments came after President Jacob Zuma ­returned from an economic and diplomatic visit to China. This was the final stop in a world tour that has taken him to countries that included Brazil, Russia and India in his first 15 months in ­office. These countries are the four largest emerging economies and are referred to as Bric.

Malikane said: “All these countries have ­detailed long-term plans and the state is at the heart of economic policy formulation and ­implementation. Their ­governments have put in place comprehensive monitoring mechanisms whose ­purpose is to achieve clear ­outcomes.

“In China, the state is heavily involved in the economy, while in Brazil the concessionary finance model is widely used to fund ­initiatives in priority sectors.”

Under concessionary finance, state-owned funders give investors interest rate discounts to stimulate development in ­industries that commerical banks deem to be too risky. It is a form of state-sponsored ­industrial ­finance.

Malikane argues that as a ­developmental state, the South African ­government must build capacity and refrain from relying on the private sector and individuals to deliver core ­services.

Professor Adam Habib of the University of Johannesburg said South Africa must take all available opportunities to establish partnerships because this was significant for alliances during global negotiations dealing with issues such as world trade, ­economy and finance.

Habib said: “Alliances are ­important. The more alliances we have as a country, the better – especially at an economic level. SA can play a role as an entry point of investments from Bric countries into the continent, ­given its advanced infrastructure and systems.”

Besides being a counterpoint to the deeply entrenched Western economic hegemony, Bric is itself not a monolithic entity. It is plagued by intra-member ­political competition, in particular between India and China, and Russia and China.

The former is caused by ­competition for dominance in Asia while the latter is for global superpower status.

Should the country’s efforts to enter Bric come to pass, it might be caught between the Scylla of beneficial international trade ­relations that bode well for its economic development endeavours, and the Charybdis of being an economic bedfellow of some countries often condemned for gross violations of human rights.

The latter predicament will ­obviously be at odds with our Constitution, whose mantra is the unambiguous promotion and sustenance of human rights.

Notwithstanding such a likelihood, Professor Steven Friedman of the University of Johannesburg’s Centre for the Study of Democracy, dismisses the overemphasis on respect for human rights by countries who are trade partners, especially because ­violations are not peculiar to China and Russia respectively.

He said: “International trade is not about adherence to human rights. There are some members of the Organisation for Economic Co-operation and Development whose human rights track record is far from impressive. Examples of such countries are ­Israel, the US and Britain.”

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