Connect to share and comment
South Africa invited to join the world's fastest growing economies - but its growth is slow.
JOHANNESBURG, South Africa — South Africa starts 2011 as the newest member of what is now a slightly less exclusive club: the BRIC group of the world’s key emerging economies.
An invitation by China to join the group puts South Africa alongside economic behemoths Brazil, Russia, India and China, a high-profile move that was “the best Christmas present ever” for the country, South African foreign minister Maite Nkoana-Mashabane declared.
The problem is that, according to many analysts and economists, South Africa doesn’t belong in the BRICS group, as it is now to be called. In fact the man who coined the BRIC acronym, economist Jim O’Neill from Goldman Sachs, even interrupted his holiday to write a head-scratching note to investors about this development.
“While this is clearly good news for South Africa, it is not entirely obvious to me as to why the BRIC countries should have agreed,” O’Neill wrote. To give a sense of scale: South Africa’s economy is only a quarter of the size of Russia’s, the next-smallest of the group.
South Africa has a relatively small population of about 50 million, an economy worth $286 billion and growth of only about 3 percent last year — far from scorching. There are many other emerging markets that would better fit the BRIC grouping, O’Neill wrote, including South Korea, Turkey, Mexico and Indonesia, all of which have GDPs that are two or three times bigger than that of South Africa, and much larger populations.
“How can South Africa be regarded as a big economy? And, by the way, they happen to be struggling as well,” O’Neill told a recent investment summit.
China’s invitation to South Africa is clearly more about forging strong political connections with the African continent, with South Africa as its most valuable trading partner and an increasingly important political ally. China-Africa trade is expected to exceed $110 billion in 2011. But it is not just China among the BRIC economies that is looking to the continent — India is increasingly active in East Africa, and Brazil has a growing presence in Angola, among other areas.
“There’s a degree of skepticism about this but it’s more of a political decision than a commercial one,” said Martyn Davies, CEO of Johannesburg-based Frontier Advisory and an emerging markets expert.
South Africa’s entry to BRIC follows a fierce lobbying effort, particularly aimed at the Chinese, Davies noted. President Jacob Zuma visited all four member countries last year, and in November the Chinese Vice-President Xi Jinping, who is expected to be the next president of China, paid an important visit to South Africa.
For South Africa, this new membership provides a shot of confidence and a boost to its goal of becoming an entry point for countries and companies looking to do business on the African continent.
“We will be a good gateway for the BRIC countries,” said Nkoana-Mashabane, South Africa’s foreign minister, to reporters in Pretoria. “While we may have a small population, we don’t just speak for South Africa, we speak for Africa as a whole.”
Lyal White, director of the Center for Dynamic Markets at the University of Pretoria’s Gordon Institute for Business Science, agrees that BRIC is a very important association for South Africa as it gears up to be a gateway economy to the rest of Africa. But he isn’t so sure that other African countries would want South Africa as their representative, given the choice.
“South Africa is seen as an imperialist power on the African continent,” he said.
He also fears that South Africa might be in over its head when it comes to the political motivations of China in inviting the country to join the BRIC group.
China wants South Africa’s backing in global forums, and is particularly keen on being invited to join IBSA, a cooperative forum created in 2003 between India, Brazil and South Africa, White said.
However, India, which has longstanding tensions with China, has been resistant to this idea. “South Africa will be caught in the middle now,” White said. “I think South Africa has totally underestimated it.”
BRIC, originally just an acronym invented by O’Neill to describe a shift in the global markets, has taken on another life as the four countries have tried to use the grouping for greater international clout, holding summits including one scheduled for April in Beijing — the first that South Africa will attend. O’Neill has said that he never expected the grouping to become a political club.
According to Davies, the task now is for South Africa to rise to the challenge as it tries to elevate itself from a second-tier emerging economy to become part of the first tier.
“South Africa needs to kick start its own economic performance,” he said. “Three percent growth last year — at best — is not good enough. This is a big problem.”
Davies said the country should focus on regional integration through the Southern African Development Community, a 15-nation regional organization headquartered in Botswana that includes South Africa and its neighbors — so, effectively making it BRIC plus SADC, rather than just BRIC plus South Africa.
Davies said: “Integration is what’s required here to better justify our qualification to BRIC.”