Late yesterday afternoon, I attended a seminar organised by Frontier Advisory and hosted by the Johannesburg Stock Exchange on what opportunities South Africa’s involvement in the BRICS (Brazil, Russia, India, China, South Africa) group of nations could represent for the country. The panel, chaired by Dr Martyn Davies, CEO of Frontier Advisory, included:
- Elizabeth Sidiropoulos, National Director, South African Institute of International Affairs
- Mark Casey, Director, Deloitte
- Peter Leon, Partner, Webber Wentzel
- Bobby Madhav, CEO, Global Business FNB Commercial Banking
With resources as a main driver of the relationship between the BRIC countries and Africa, the panellists were clear on the advantages of membership in BRICS but less overt in their assessment of the benefits which South Africa brings to the grouping. However, the invitation has been sent and accepted, and South Africa is now a member of the BRICS club. What must South Africa do to “stay welcome at the party”? What can South Africa gain from being part of a group which is forecast to be among the top 6 global economies 40 years from now?
The panellists unpacked their perspectives in response to a number of thought-provoking questions from the chair and the audience of 100+ business leaders and academics. Peter Leon singled out the question of the evening: “What are some of the structural changes South Africa has to address to stay welcome at the BRICS party?” A variety of issues were raised, notably logistics, hard and soft infrastructure, education, competitiveness and productivity.
On logistics, Peter Leon compared the Brazilian resources giant Vale, whose right to own and operate its own railway infrastructure to the performance levels it needs to support the competitiveness of its steel exports, to South African minerals beneficiating exporters which must rely on state-run, inefficient and capacity-constrained Spoornet to get their product to international markets. While Brazil may be ideologically to the left of South Africa, this is an example of an area where South Africa could learn from the relationship between its public and private sectors to improve its global competitiveness. The other BRIC nations also have structural problems, but are addressing them in their own ways which can provide South Africa with useful lessons.
The seminar also spent time considering the nature of the BRICS grouping itself. Is it merely a group of interests, which some felt that without shared values would ultimately not be sustainably coherent? Or is it, as Elizabeth Sidiropolous suggested, a group which has the potential to deepen its shared values – BRICS agrees already on what it would like to change in the global economy, but is still working out how to make those changes – based on an initial set of shared interests? Acknowledging that the global economic system will be different 15 years from now, the BRICS need to develop a common understanding of how the global economy should be structured and operated.
With a new political dispensation, South Africa could be a bridge for BRIC capital. However, for this to be possible, exchange controls would have to be removed. Also, historically, African risk has been viewed through a “European” risk lens. The BRIC countries do not see African risks the same way and understand how to work political relationships to advantage, so are comfortable to dive into Africa’s investment pool.
On the question of shared interests, Mark Casey noted that all the BRICS share the “pain of prosperity” and are bound by the need for decoupling of dependency on the US economy. The BRICS economies are not necessarily complementary, and in fact are sometimes competitive. Intra-BRIC trade is still in its infancy, with the bulk of trade being with China. And on shared values? The group got as far as agreeing that trade and development can be a major catalyst and binding force for long term relationships, but stopped short of considering the possibility of the BRICS sharing core values such as democracy.
Bobby Madhav believes that other countries are moving into Africa, seeing and grabbing opportunities, while South African business watches. Being part of the BRIC grouping will give South Africa a one shot chance to participate in the changing investment landscape. Business must not only see the opportunities, but must also task and action them.
Mark Casey’s view is that countries don’t prosper on their own – they prosper through cooperation with others. BRIC countries and South Africa understand each other already, and South African business men and women need to leverage this understanding.
Peter Leon sees membership in the BRICS as an opportunity for South Africa to punch above its weight internationally. Geopolitically, juggling for a permanent position on the United Nations Security Council will play a significant part in international relationship management. Membership in the BRICS is a transformative opportunity; through it the trade liberalisation agenda can be reactivated.
So what opportunities does this represent for South Africa?
- “African consumer” used to be an oxymoron. Now the African consumer represents a real opportunity for international investors.
- This is the time to form alliances, to give South Africa a platform similar to the G20 in which concerns can be addressed.
- South Africa can be a springboard for mediating BRIC capital into Africa, but it has to address capital controls and exchange controls.
- It also needs to address its structural issues, particularly competitiveness, productivity and return on education.
- Through this new capital relationship, Africa can also transform – consider Dar es Salaam as Africa’s biggest port becoming the next Dubai!
- South Africa will succeed in this role if it acknowledges its deep understanding of the African continent and stops seeing African risk through a Eurocentric lens, and works more as Team SA.
South Africa Inc needs to raise its game to make sure it benefits from this opportunity, though, and needs to consider carefully where South African companies can fit into the global supply chain.
Wrapping up, Martyn Davies picked up the following themes:
- Collaboration/cooperation: our political collaborators are our most intense commercial competition. The disparity between government and business in South Africa exacerbates our lack of competitiveness.
- While Africa may have experienced significant growth, much of it is thanks to the commodity super-cycle. The World Economic Forum has consistently tracked its competitiveness declining, while at the same time the BRIC countries are becoming more competitive. Resources are not enough; we need to beneficiate these and add value in our economies.
- Africa’s enabling environment for investment is rooted in its people’s productivity. While there is a global rise of 3 billion consumers “buying stuff”, there is also a global rise of 3 billion labourers – and the global cost of their labour is set in China, while the global price for services is being set in India. Africa must ensure commensurate returns in productivity.
He closed the seminar by coining a new term: the E5, or EMERGING 5, to become a global counterweight to the G7. Take it viral!
From the perspective of the South Africa – Canada Chamber of Business, I can only say to Canadian business involved in Africa that if they have not yet taken notice of the BRICS in Africa, they should take careful heed of the perspectives from this seminar.