SA needs to justify its inclusion in Brics
by Dr Martyn Davies
March 17th 2013
DOES South Africa deserve inclusion in Brics — the new emerging power group of Brazil, Russia, India, China and South Africa?
South Africa was included late in the game in 2011, the default choice of the African continent, after Pretoria lobbied Beijing exceptionally hard.
Goldman Sachs — the creator of the Bric acronym — thinks not. Goldman Sachs's Jim O'Neil says South Africa's economy is limited in size, it lacks long-term economic potential and its population is too small to qualify for the Brics group of countries.
Other countries among the first tier of emerging markets - Indonesia, Turkey, Mexico, Nigeria and South Korea - are perhaps more deserving, based on their size as well as economic merit.
Beyond simply long-term growth forecasts, the Brics club will increasingly take on a political form - an emerging bloc representing the interests of the developing world.
South Africa's inclusion was driven by political interests - Pretoria wanting to punch above its weight and be regarded as a leading emerging market.
Former president Thabo Mbeki was always in his element when engaging with the developed world.
President Jacob Zuma is more comfortable associating with developing nations.
It may be that when we look back at the Zuma presidency, its greatest foreign policy success will be South Africa's inclusion in Brics.
We need to think about how to address the commercial imperative of membership of Brics, to justify our inclusion .
A priority of the Department of Trade and Industry is to push regional integration in the Southern African Development Community (SADC) - a region of 15-member states with a combined population of more than 250million.
This region is bigger than Brazil, Russia and Indonesia but poor government-to-government co-ordination and inadequate infrastructure do not allow for the exploitation of regional opportunities.
Pretoria needs to make the benefits of integration more apparent to its neighbours.
The "S" in Brics could ultimately stand for SADC, bolstering our credibility as a fully fledged member of the club.
When one strips out the political rhetoric, it is ironic that South Africa's strategic political partners in Brics are also its greatest commercial competitors.
This is especially the case with China in manufacturing and India in services. So, management of our commercial relations with both powers will be a delicate balancing act in coming years.
The government and Cosatu, hampered at times by rigid ideological positions, are finding it difficult to come up with pragmatic policy responses to this competition.
Perhaps we are similar to India where business generally prefers to operate independently of government.
By contrast, China and Brazil enjoy more coherent positions in which relations between state-owned and private enterprises and their governments are far closer. This has supported the growth phenomenon of those economies.
Across the African continent, intense competition from both Chinese and Brazilian companies - both supported by their own versions of state capitalism — is being felt by South African companies.
There will be an increasing inclination at Brics summits to discuss the alignment of strategic commercial interests of South Africa and other Bric economies.
Pretoria's primary vehicles of engagement will be the development finance institutions such as the Development Bank of Southern Africa and the Industrial Development Corporation - the tools for an emboldened or "developmental" state.
What has led to this push for a so-called developmental state in South Africa are the successes of Asia and the economic rise of Brics.
With China's economic success story over the past three decades, and in light of questions over the liberal-economic ideologies of the Bretton Woods institutions since 2008, there is a questioning of "market fundamentalism" among the South African leadership.
Joseph Stiglitz, Nobel Prize economics laureate, visited South Africa in May last year at the invitation of Minister for Economic Development Ebrahim Patel — a proponent of the state-led developmental model.
Even Mr Stiglitz endorsed the government's new model supporting a state-driven "demand side" rather than "supply-side" approach to growth.
South Africa's new emerging model of a state-first approach to growth is both a response to the recessionary state of the European Union and an attempt to emulate the high GDP growth performance of the four fellow Brics countries.
How South Africa manages its relations with Brics's business interests in Africa will be a delicate balancing act in the coming years.
Dr Martyn Davies is CEO of Frontier Advisory and a Young Global Leader of the World Economic Forum. He is also a member of the forum's Global Agenda Council on China.
* This article was first published in Sunday Times: Business Times