How Can BRICS Contribute to the Development of Africa?

M. Shaffaedin

The purpose of this piece is to propose a way BRICS can provide support for “unlocking Africa’s potential” for development through regional cooperation. This objective was  agreed upon by BRICS countries in their recent meeting in Durban (South Africa). Let me first explain the background before making my proposal.

In their latest meeting, the BRICS countries agreed, inter alia, on discussing with African leaders the way “Africa’s potential” can be “unlocked”. They also reaffirmed their support for regional integration of Africa, and the  “industrialization process through stimulating foreign direct investment”. Nevertheless, while emphasizing their willingness to help promote regional integration and industrialization of the continent, by supporting infrastructure development, they have not mentioned the mechanism by which Africa’s potential can be unlocked, nor the way BRICS could provide the necessary support. Supposedly, their proposals to establish  “the BRICS Think Tanks Council” and “ a new Development Bank” are relevant in achieving the aforementioned objectives.

How can BRICS provide support for “unlocking Africa’s potential” through those vehicles?  Except North African countries, most African countries (located in Sub-Sahara) are among the Least Developed countries. The common production and export structure of most African countries provide little prospects for regional trade expansion even when the infrastructure is developed.  There is a need to develop complementarity by division of labour and specialization in different products, leading to the development of dynamic comparative advantages.

African countries suffer from scarcities in resources and factors necessary for industrialization and development in many respects: finance, shill, infrastructure, institutions, organization, entrepreneurship, etc. While providing support for its infrastructural development is necessary for regional integration and development, it is not sufficient.  They need to expand their supply capabilities. The scarcity problems are such that that countries of the region can not develop their productive capacities for all products. In other words, individual countries do not have sufficient resources to produce a large number of products.  Nevertheless, they can cooperate with each other, with the help of BRICS, to benefit from the division of labour and specialization.

Each country allocates its scarce resources in a way to specialize in the production of a limited number of finished goods and/or Parts and components and exchange them with each other.  The BRICS Bank can provide financial resources for investment in each country. Initially, trade among the countries involved will take place through exchanges of the new products produced at high production cost. But the exporting countries gain increased employment, income and experience. An additional advantage of the industrial collaboration, so mentioned, is the benefit arising from economies of scale. The combination of specialization, larger market and economies of scale, and experience contributes to the reduction of production costs over time. Supply creates its own demands for products produced not only in each country, but also those produced in other countries which are engaged in the agreement. They can eventually also export the related products to the third market as the production costs decline.

In order to operationalize this idea, there is a need to take into account the capabilities of specific countries for producing specific products. There is also the need for individual countries to pursue industrial strategies in coordination with other countries and BRICS Bank. Further the rules of origin have to be changed and harmonized (the GSTP agreement can contribute to such a harmonization if it comes into effects in the countries concerned). BRICS and BRICS Bank can also provide adjustment assistance for capacity building, training, skill, institutional/organizational development and cooperation for the division of labour and specialization in R&D, technological development and back-up services ,etc.

Such capacity/capability building, together with the  geographical proximity and availability of costal areas in many African countries could contribute to cheaper transport and transaction costs, regional integration and development[1].

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[1] For more details on a similar scheme  see : South-South Regionalism and Trade Cooperation in Asia-Pacific Region, UNDP Regional Centre in Colombo, 2008.