South Africa Into BRICs: Shifting Global Economic Balance Away From Developed Countries? – Analysis

By Dr. B. R. Deepak

In January Chinese President Hu Jintao formally invited South African President Jacob Zuma to attend the third BRIC leaders’ summit to be held in China in mid April 2011, thus taking the number of BRIC nation to five (Brazil, Russia, India, China and South Africa). South Africa had applied and lobbied to join the BRIC at the G20 meeting of the world’s leading economies in Seoul in November 2010. The acronym, BRIC was coined by Jim O’Neill an economist with the Goldman Sachs in a paper entitled “The World Needs Better Economic BRICs” published in 2001. Yet in another paper Dominic et. al. (2003), again from Goldman Sachs argue that over the next 50 years, the BRICs could become a much larger force in the world economy and could be larger than the G6 in US dollar terms. For example the GDP of the BRICS would be around 85 trillion USD compared to 66 of the G6 countries. The notion therefore, signals a shift in the global economic power away from the G7 economies toward the emerging economies. The BRICS thesis holds that China and India will become the hub of world’s manufactured goods and services, while Brazil and Russia will become leading suppliers of raw materials, however this may not hold true for the future, as China is determined to move away from its labor intensive industries to R&D and high end manufacturing during the 12th Five Year Plan (2011-2015), which is evident from Chinese Premier, Wen Jiabao’s 2011 Government Work Report.

At present, the BRICS account for more than 25% of the world’s land mass; more than 40% of world population; over 50% of world economic growth; 17.82% of the world economy; around 15% of world trade; 53% of world foreign investment; and the average rate of urbanization is 44.2% (Zhao: 2011). The economic indicators are bound to further shift the global economic balance in favor of emerging economies given the astounding growth rate of over 9% in India, over 10% in China, and over 7% in Brazil. Now, with South Africa, the world’s 31st largest economy joining the ranks, the BRICS will wield even more influence in the world economy. Even though, South Africa’s 286 billion $ economy and population of 49 million pales whcompared to other BRICS members, especially China and India, it is the most advanced economy in Africa; the largest trade partner of China in Africa; and more importantly will provide a gateway to the BRICS into Africa for greater trade and investment.

South Africa’s entry has definitely given the BRICS a voice in the African Continent, and is bound to strengthen the economic base of a multi-polar world in the age of interdependence on the one hand, and create conditions for strengthening of the global peace and security on the other. Ever since the BRICs was formally institutionalized as an international forum during the first BRIC summit hosted by Russia in June 2009, the BRICS nations have called for the reforms of the world organizations, including the financial institutions and the United Nations, and demanded greater role for the emerging economies in these bodies. This is obvious from the BRIC foreign ministerial meeting on May 16, 2008 in Yekaterinburg; and from the first and second BRIC summits in Yekaterinburg, Russia and Brasilia, Brazil in the year 2009 and 2010 respectively. During all these meetings, the BRIC nations called for the emerging economies to play a more assertive role in the World Bank and the International Monetary Fund.

In order to reduce their dependence on the US dollar, China and Brazil decided to invest 40 and 10 billion US dollars respectively in the International Monetary Fund (IMF) bonds, so as to diversify their dollar-heavy currency reserves, as these nations, especially China was increasingly apprehensive about the safety of the exchange reserves held in US dollar denominated assets. China holds about 2.8 trillion US dollars in foreign exchange reserves, of which more than 70 percent are held in US dollar assets. BRICS nations hold around 42 percent of the world’s total foreign exchange reserves. The reforms of the world financial institutions are considered as an important step towards a more legitimate, credible and effective bodies that will ensure greater quotas and representation reflecting the new global economic realities.

At the close of the second BRIC summit, a Joint Statement was issued that highlighted various issues of common concern such as global governance, international financial issues, trade, agriculture, climate change, energy and terrorism etc. issues. The third summit is going to be held in mid April 2011 in Hainan province of China. It will formally become BRICS as South Africa joins the summit. The stand on issues such as climate change, reforms of the international monetary system, terrorism, and the Libyan crisis are likely to be reiterated. It may be noted that the BRIC nations abstained from the UN resolution number 1973 that imposed a no fly zone over Libya albeit out of different reasons.

There are various sectoral initiatives between the BRICS aimed at strengthening cooperation. There are ministerial meetings as regards agriculture and development, finance and trade, and various meetings of governors of the central banks, heads of the statistical institutions, and conference of the think tanks of BRIC nations. There are plans to publish a joint encyclopedia of the BRIC countries too. On security issue the BRIC insists on common security and the resolution of conflicts in a peaceful way, and calls for regional security cooperation.

Besides, there are various agreements and framework concluded among the BRIC countries such as the Shanghai Cooperation Organization (SCO), where India is included in the capacity of an associate member and could become a full member in future as Russia has supported its candidature; the IBSA, which unites Brazil, India, and South Africa in annual dialogues; and more importantly, all BRIC nations including the new entrant are the members of G20. South Africa, India and Brazil will also take up a two-year seat on the United Nations’ Security Council from this year, resulting in all BRIC nations being represented on the council.

Regardless of the potential and opportunities, and the reach through every continent, the BRICS will face enormous challenges as they do not have a common agenda. Added to this, they are not an economic block like the European Union or a political alliance like the NATO. Although capable of converting their economic prowess into a greater geopolitical clout; all have diverging interests, and at times conflicting (Ariel Cohen et. al. 2010).

First of all, the mammoth economic growth of the BRIC counties is dependent on the manufacturing based on raw materials such as iron ore, copper, aluminum, fossil fuel and natural gas; technological breakthrough in renewable energy could shift the balance again in favor of G 7, and could result in slower economic growth than anticipated.

Secondly, the so-called currency manipulation by some BRIC countries has ‘harmed’ the manufacturing in some countries, as admitted by the Brazilian finance minister Guido Mantega recently.

Thirdly, there is an asymmetric relationship between the polities and economies of the BRICS nations. For example, the economy of China is bigger than the rest 4 and holds over $2.8 trillion of reserves, over 30% of the world reserves; its political clout is also bigger, as it holds the veto power in the UNSC besides being talked as the G2 partner with the US.

Fourthly, the political equations between India, China and Russia are impregnated with ‘mutual mistrust’ and huge ‘security deficit’, especially between India and China on the issue of border, and China’s entente with its ‘all weather friend’ Pakistan.

Fifthly, some other regional flashpoints whether in the South China Sea or in the subcontinent could make the cooperation between major BRICS countries irrelevant.

Sixthly, the domestic issues, especially the increasing social imbalance in the BRICS nations could also pose serious challenges to the internal security and economic development in these countries.

And finally, even though India has welcomed South Africa’s entry into the folds of BRIC, it is believed that the entry has also intensified the rivalry between India and China, for China would like to dilute IBSA by amalgamating it into the BRICS. India knows that China has a domineering role in the BRICS and would like to keep its strategic space open by way of IBSA. Since Africa is India’s major foreign policy target for the year 2011, it may not be willing to dilute IBSA so easily. The South African entry could open this ‘alliance’ to other emerging economies such as Indonesia, Vietnam and South Korea in Asia, and Egypt and Saudi Arabia in the Middle East.

Notwithstanding the differences, at the moment the BRICS appears to be a real growth engine of the world economy, and we can hope that it also becomes an example for all emerging economies, promote economic cooperation, ease tensions and guarantee prosperity, peace and security not only in the region but also in the world at large.

References:

• Ariel Cohen, Lisa Curtis, Derek Scissors, and Ray Walser (2010) “Busting the Brazil/Russia/India/China (BRIC) Myth of Challenging U.S. Global Leadership” The Heritage Foundation, paper no. 2869, April 10, 2010 http://report.heritage.org/wm2869 (Feb 28, 2011)

• DominicWilson and Roopa Purushothaman (2003) “Dreaming with BRICs: The Path to 2050” Goldman Sachs Global Economics Paper No. 99, http://www2.goldmansachs.com/ideas/brics/book/99-dreaming.pdf

• Zhao Haijuan (2011) ““金砖五国”引领全球经济增长” ‘Jinzhuan wuguo’ Yinlingquanqiu jingji zengzhang (BRICS: The engines of global economic growth) China Economic Times, March 25, 2011

(The writer is Professor of Chinese Studies and Dean of the School of Foreign Languages, Doon University, India. He could be reached at [email protected])