South Africa's ascension to the Bric group of major emerging economies was more about politics than economics.
South Africa’s ascension to the Bric group of major emerging economies was more about politics than economics and reflects expectations it will be the gateway for investment in the fast-growing continent.
South Africa, with a $285-billion economy, a much smaller population and tepid growth of about 3%, pales in comparison to Bric states Brazil, Russia, India and China.
“It’s not a natural fit,” said Razia Khan, Africa head of research at Standard Chartered.
South Africa’s economy is less than a quarter of the size of Russia’s, which is the smallest in the original grouping. While it may be the largest in Africa, it is only a bit bigger than China’s sixth-richest province.
South Africa’s biggest backer for Bric has been its largest trade partner, China. Last week, Beijing extended an invitation for Pretoria to join and asked President Jacob Zuma to attend a summit of Bric leaders it will host next year.
“This is something that China sees in its own interest with its aim of understanding the future of Africa and becoming an ever bigger presence there,” said Marvin Zonis, professor emeritus at the University of Chicago Booth School of Business.
“It is really smart on the part of China to do this and it is also really good for South Africa. It legitimises South Africa as a future global power and as an investable country,” Zonis said.
China has invested heavily in Africa for years, seeing it as a source of commodities to power its economic engine and an export destination for its products that will grow over time.
China’s official media last week said trade between China and Africa would hit a record this year and stood at $115-billion as of the end of November.
China emerged as Africa’s largest trading partner in 2009, outpacing the European Union and the United States, China’s People’s Daily said.
Bric has been seen as moving economic activity away from the established powers in Europe and North America and erecting a wall that limits their global power.
With sub-Saharan Africa’s total economy growing from $322-billion in 2000 to $931-billion in 2008, according to the International Monetary Fund, it seemed that an African state would eventually join the group.
“This is more about perception and projecting Africa as the frontier market that it is, rather than the one that is ignored when talking about Bric,” said Martyn Davies, CEO of Frontier Advisory and a specialist on African-Chinese economic ties.
“This will help South Africa project itself as a first tier emerging market rather than its current second tier status.”
South Africa has been lobbying for some time behind the scenes to be granted Bric membership, officials have said.
Davies said South Africa could better earn a seat on economic merit if it can integrate the economies of the Southern African Development Community—a 15-state regional block.
South Africa’s rand has strengthened since it was invited to join Bric, partly in expectation of an inflow of funds from realigning Bric portfolios.
Zonis said the impact from capital inflows will be limited, and long-term gains will come from how well South Africa can use its Bric status to make itself more attractive for investment.
Eagles and nest
The Bric countries have sought greater clout for their grouping, holding a summit in Russia in 2009. “Bric” is a term invented in 2001 by Jim O’Neill, the chairperson of Goldman Sachs Asset Management.
O’Neill has said South Africa should not be included.
“How can South Africa be regarded as a big economy? And, by the way, they happen to be struggling as well,” he said this month.
There are worries that as Bric takes on a life of its own, the listing of South Africa could prompt others to invite their friends to join, swelling membership and perhaps dooming the grouping to irrelevance.
Some have suggested the hard-charging economy of Indonesia may be a better fit, while global investment group BBVA has said the Bric concept itself has become outdated.
It has proposed a group called Eagles, short for “emerging and growth leading economies” it predicts will contribute about 50% of global growth over the next decade.
Its Eagles, as sorted by relevance, are China, India, Brazil, Indonesia, South Korea, Russia, Mexico, Egypt, Taiwan and Turkey.
South Africa was on a watch list of 11 other up and coming states dubbed the “Eagles Nest”. - Reuters