Africa and the BRICS: a win-win partnership?

Seeking diversification and new markets: Besides the huge potential offered by the African primary sector, the BRICS are attracted by the benefits of diversification of African economies as well as the possibility to enter into a large untapped market of one billion African consumers. Over the years, the BRICS countries have accumulated large amounts of reserves which have been invested mainly in the developed world. The persistence of the global financial crisis, which has hit developed countries particularly hard, is motivating the BRICS to shift a portion of their investments toward other emerging destinations in order to maximise returns while reducing risks. Hence, Africa may offer BRICS the opportunity to diversify towards new frontier markets. Moreover, investing in Africa implies access to a one billion consumer market with its growing middle class. In recent years, sectors such as telecommunications, financial services and retail have recorded high rates of growth in most African countries due to high demand by Africa’s middle class.

Implications for Africa

The strategic interest of the BRICS in Africa will strengthen the position of South Africa as a leading regional power and a gateway for other BRICS countries to the African market. As the BRICS are consolidating their positions in Africa through massive investments, this seems to create a new source of development funding for the continent.

South Africa as an influential regional power: South Africa joined the BRICS in 2010 after receiving an official invitation from the group. South Africa is by far the smallest BRICS country in both economic and demographic terms. South Africa’s GDP is less than a quarter of Russia’s, the smallest of the four BRIC countries (Brazil, Russia, India and China). Also, the population of South Africa, which is only 50 million, is far below Russia’s 140 million and Brazil’s 190 million. As South Africa accounts for one third of the sub-Saharan African economy, it constitutes an entry point for the BRICs to access Africa’s one billion consumer market. Inviting South Africa to join the BRICs was a signal by the most important emerging economies that South Africa is an influential regional power and gateway to Africa, which could also defend the interests of the entire continent.

New funding model and regional integration: BRICS countries can enhance the way African countries are financing their infrastructure. In fact, financing is usually available for projects in single countries rather than for those shared by a number of countries, such as intra-regional infrastructure. This model of investment does not help regional integration of African countries. During their last summit in Durban, the BRICS highlighted the need to establish a new funding model that promotes multi-country projects which, in turn, would accelerate the pace of regional integration. In order to enhance their global role in funding investments and to foster South-South partnerships, BRICS countries announced their intention to launch their own development bank, the ‘New Development Bank’. According to the BRICS leaders, this bank would play an important role in boosting the group’s investments in Africa. This initiative may benefit Africa as it will assist the continent to meet its enormous needs in terms of infrastructure.

Mthuli Ncube is the chief economist and vice president of the African Development Bank