South Africa scores another goal after World Cup

  

South Africa is joining Brazil, Russia, India and China in the BRIC group of economies – which, from 14 April 2011, will be the BRICS group of economies.  Since hosting the FIFA World Cup in 2010 – an event that surprised the country’s many critics with its success – South Africa has scored another goal with its inclusion in this economic group. This will have benefits for both South Africa and the BRIC alliance.

The invite, from China, in January this year, has not been without criticism – most notably from Jim O’Neill, who wrote the Goldman Sachs report in 2003 that highlighted the original BRIC countries’ size in terms of raw materials, population and economy; indicating that, together with their growth rates, these four nations could, by 2050, become the world’s dominant economies. With almost 2.9 billion people living in these countries, a quarter of the world’s land mass and combined GDP of $10 trillion, the BRICs already account for a substantial proportion of the world’s economic activity. Only the EU and the US have larger economies.  However, unlike the EU and the US, the BRIC group of countries was never meant to be a political or economic bloc. Using O’Neil’s original thesis, South Africa, with 50 million people, GDP of $350 billion and covering 0.8% of the world’s land mass, would not, at first glance, be everyone’s first choice for addition to the BRICs.

But the BRIC concept has not remained static: it has matured into a political, economic and trade group. The invite to join and become the S in BRICS was issued by China. BRIC is no longer O’Neill’s baby; it has become something much more than the original. The BRICs have matured over the past decade, and come to demand a say in world affairs. The alliance that the BRICs have formed has helped each one of them to become a more important member of the global economic community: no longer does the G7 dominate the world economic order.

The addition of South Africa, Africa’s most developed economy, will help the other BRIC countries to gain access to Africa, and brings to the BRICs another voice – a voice that has made significant progress in making itself heard in world decision-making bodies over the past few years. For South Africa, inclusion as the S in BRICS gives it an opportunity to participate in trade agreements between the BRIC countries, and as the rest of the world seeks to increase trade with these countries, South Africa – and the wider Africa – are likely to benefit.  Sub-Saharan Africa is already benefiting from increased investment, infrastructure development and increased demand for raw materials, which are propelling growth in these countries into the 5%-plus area. South Africa, with its relatively large, developed economy, has been unable to match these rates, even though its economy, dominated by well-governed companies, proved its resilience in 2008. By acting as a gateway to Africa, South Africa has an opportunity to leverage its world-class corporate governance, financial services and technical skills, to reach a higher level of growth.

While South Africa’s population may look small compared with those of its fellow BRICS countries, Africa’s 800 million-strong population, its 20% share of the world’s landmass and $1 trillion economy, make the inclusion of South Africa an interesting proposition for the BRICs; and give South Africa the opportunity to be the conduit for access to this market, grow its economy and attract more business to Africa – assisting Sub-Saharan Africa to grow at a pace beyond its 5%.

The BRIC countries are, with the addition of South Africa, showing an appreciation of Africa’s growth potential, and the position that South Africa holds in Africa as its most developed economy. South African companies have, in many cases, shown an understanding of the markets north of their borders, and have made important entries into these markets in industries ranging from banking and retail, to soft drinks and beer. Like the knowledgeable people who predicted disaster for the 2010 World Cup, but who failed to look at the evidence of three successful events, two major international cricket events and a world earth summit, we think those failing to see the benefits to all the BRICS nations of South Africa’s inclusion are simply not looking at the development and growth opportunities in Africa.

Sven Richter is head of frontier markets at Renaissance Asset Managers



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