Tebogo Lefifi, Executive Director at Afric@work, explains South Africa admission into
In 2010, South Africa, through its relations with China, was invited to be part of the new elite bloc, and gained acceptance in 2011 South Africa into the BRICS summit for the first time this year.
The emerging market elite club is set to create a new group of Power Brokers besides the industrialized economies. With its global GDP representation at 26 percent, 40 percent of the global population, and expected to account for 61 percent of world economic growth, BRICS should have little difficulty making its mark. South Africa economic indicators pale in comparison to the BRIC group, making it a supplicant new house of power, however as an economic gateway to the continent there is an opportunity for the new comer to come in as an equal.
Jim Oeill coined the term BRIC (with small s) and remarked in surprise that the countries have formed a club, highlighting that hey don have the same interestin his interview he remarked that he wealth per head is very different, the politics is very different and the philosophy and their natural economic edge is different However their bilateral relations as emerging economies have been strengthening, they provide each other with access to select emerging markets and each other. All members seek to have better trade relations amongst each other and mainly with China as their prime partner.
Individually the group has vastly scattering different national objectives. South Africa joined for public relations traction, Russia interest is to leverage the lobby power to become a member of the WTO, whereas, Brazil, India, China seem to be driving its ambition to the preferred reserve currency of choice against the US dollar. The summit was aimed at producing a declaration for common dialogue with intention to have a bigger say in global affairs politics, finance, economy and environmental issues.
As a group, the BRICS club made contributions to the global economy through increasing investment and aid to low-income countries. The group can impact significantly on Africa growth. According to Standard Cha rtered bank literature, by 2015 BRICS-Africa trade will more than triple from US$150 billion to US$530 billion. The share of trade will increase from one firth to one third of Africa total trade. Foreign direct investment is expected to increase to US$150 billion in 2015 from US$60 billion in 2009. Considering the expected increase in economic trade, South Africa carries an implied mandate to ensure that future trade and investment exchanges between BRICS and Africa have transformative elements. South Africa can, on behalf of the continent, coordinate position on beneficiation of resource, sustainable development, industry transformation and issues encompassed in the African Renaissance and the Millennium Development Goals (MGD).
China is critical to Africa development and growth strategies. South Africa new membership in the emerging house of power provides a link to Africa for BRICS. South Africa is sub-Sahara effective economic hub, has good industrial and financial establishment, legal system and a sophisticated infrastructure. South Africa has been instrumental in reconfiguring the Sub-Sahara economy. Although the BRIC economies have surpassed South Africa trade in dollar terms, South Africa still holds a competitive advantage on historical relations, regional proximity, trading bloc and a common brand Africa vision. To remain an equal, South Africa will have to notch up its competitiveness to compete for the very market it intends to open for BRIC.
Inclusion in the group can support future flow of funds towards project that will secure BRIC demand for resources. In return, the group expertise in power and infrastructure are much needed in the continent. South Africa relevance will be measured not by the amount of deals that will flow towards the continent, but the structure of the deals negotiated and opening markets for African goods and services. Trade flows between BRICS and Africa are inevitable, the key concern is delivery in favour of African markets and their ability to grow at the back of Sanya Declaration.
Africa has a captive market, beyond the resource sector there is deepening of consumer market underpinned by the rising incomes in the continent. Demand for BRIC products and services are bound to increase. Exploitation of the resource sector is coupled with new opportunities in infrastructure, such as roads, rail, port and power. According to Standard bank, a leader in emerging markets financial services, Africa new annual infrastructure requirements is about US$40 bn. New projects are planned for transport linkages, infrastructure upgrades.
Although South Africa objective is reputational, there are a number of projects that were pitched at the summit. There is a pipeline of projects where service providers to the projects will look to BRIC members for equity partners and cross border funding. These include a 561KM highway upgrade and expansion project by SANRAL. Transnet has a planned R40 billion Rands upgrade project. PRASA will be upgrading the national railway system on a budget of R80 billion. Their projects will be carried out as PPP projects. Members of the South African delegation at BRICS summit included private sector companies bidding to be partners in these infrastructure opportunities.
The new BRICS monetary reforms included redrafting of Special Drawing Rights (SDR). The decision in principle will be to establish payment of credit in the 5R (Brazilian Real, Indian Rupee, Russian Ruble, Chinese Renminbi, and South African Rand). Through these credit lines, China will be able to open credit lines to the four members, in Renminbi. Considering the flow of outbound FDI from China to the four-member states China will easily be the key reserve currency in the R5.