William Gumede, Guest Blogger
William Gumede is associate professor, School of Governance, University of the Witwatersrand (Johannesburg), and chairperson of the Democracy Works Foundation. His most recent book is South Africa in BRICS: Salvation or Ruination (Tafelberg).
This article is based on a longer paper, “South Africa and the BRICS alliance,” from Shifting Power: Critical Perspectives on Emerging Economies (Transnational Institute).
One of the key drivers of African growth in the past decade has been the seemingly unlimited appetite for African commodities in fast-growing emerging markets—mainly in BRICS countries such as China and India.
According to South Africa’s Standard Bank, BRICS countries’ trade with African countries jumped 70% in the past five years: In 2013, China’s share of this trade was 61%; India’s, 21%; Brazil’s, 8%; South Africa’s, 7%; and Russia’s, 3%. In 2013, BRICS members’ trade with Africa stood at $350 billion.
Meanwhile, according to South Africa’s Industrial Development Corporation, in 2012 Africa (excluding South Africa) was the source of 15% of overall BRICS imports, or $420 billion out of $2.8 trillion. In 2013, South Africa’s trade with Africa stood at $25 billion—mostly in manufactured goods.
The big question, however, is to what extent the emergence of these new economies has benefited Africa? In the case of South Africa, which is both a member of BRICS and also an African country, what has engagement with BRICS meant for its economy, society and its relationships with its African neighbours?
What do BRICS offer Africa?
The primary advantage BRICS countries offer African countries is their provision of new markets and sources of development finance at a time when finance sources in the EU and North America struggle with the aftermath of the global financial and Eurozone crises.
There is also evidence that BRICS have used their new economic power to push for a “rebalancing” of global political, economic and trade systems away from their northern bias. The launch in July 2014 by the BRICS of a New Development Bank and a contingency reserve fund to help members who face sudden capital flight is one such measure. The potential of new sources of finance has already made many multilateral agencies bring on board African and other developing country interests—previously mostly ignored.
As BRICS countries prise open policy space for independent development policies appropriate to their own countries, this may help African and other developing countries do the same. Many—using BRICS as alternative trade partners as a bargaining chip—are already able to get better terms from industrial and former colonial powers.
However, some African countries, civil society groups, and analysts argue that these new opportunities ultimately end up reinforcing Africa’s low-quality growth model—enriching African elites rather than the masses, undermining Africa’s own agricultural and manufacturing sectors, leading to vanity infrastructure projects for African elites, and undermining attempts to foster democracy.
They have a point: Africa’s rich are getting richer, and the poor are—at best—marginally better off, with the vast majority remaining poor or becoming poorer. Africa’s share of global poverty rose from 21% in 1999, to 29% in 2008, and, according to the World Bank, by 2030 will represent the vast majority of the world’s poor.
South Africa: A BRICS Member Punching Above Its Weight
South Africa is in many ways an anomaly in the BRICS, but has secured its position in part because it is seen as a bridgehead to Africa. Also, its influential private sector and global financial institutions—such as the Johannesburg Stock Exchange—allow it to punch above its weight.
Its involvement in BRICS, though, is the subject of much internal debate. Some argue that South Africa should use the BRICS alliance to secure new markets for the country’s products, for new investors in South Africa, and to speed up engagement with BRICS countries as an alternative to Western investors and governments. Meanwhile, others oppose the BRICS strategy. “If we let [China and India] enter Africa on their own …. We may find it is not only our minerals that are dominated by foreigners, but also our infrastructure,” says Malusi Gigaba, the Home Affairs minister.
Sections of the South African business community strongly support the current BRICS strategy, as do black business interests, but South Africa’s trade unions have been strongly critical.
South Africa and BRICS: Opportunities
The BRICS partnership offers key allies for South Africa in lobbying for the restructuring of the global trade, economic, and political landscape, and the potential for the transfer of new ideas on social development, sustainable technologies, and institutional innovation. It also offers participating countries the space to resolve disputes, be they trade-related, political, or diplomatic.
South Africa’s new-look BRICS strategy also gives it the chance to secure new markets for its products and new investors at a time when its largest market, Europe, is undergoing economic difficulties. South Africa’s share of trade with BRICS countries in 2012 stood at 18%, up from 10% in 2005 against declines in trade with its traditional markets of Japan, the European Union, and the United States.
South Africa and BRICS: Challenges
At the same time, BRICS may erode South Africa’s domestic economy, because many products from BRICS countries directly compete with its own. Other BRICS countries are already exporting manufactured goods to Africa, including the inputs to Africa’s infrastructure programmes such as railways (supposedly SA’s strategic advantage)—hurting the very manufacturing sectors identified as key to job creation.
While South Africa’s manufacturing sector is coming out of a deep crisis, the manufacturing sectors of most of its BRICS partners are buoyant. Many South African manufacturers say that while products from BRICS enter South African markets relatively easily, high tariff barriers make it difficult for South African products to enter BRICS markets.
Added to these problems, there is a real danger that the Chinese yuan will replace the rand in Africa, enabling China not only to reduce the currency risks inherent in many unstable African currencies, but also to circumvent non-tariff barriers in Africa.
Africa needs to negotiate better with BRICS partners
The formation of the BRICS grouping offers a potential economic windfall to Africa, but unless African countries engage more shrewdly with these new emerging powers, they may also undermine the continent’s long-term prosperity. Looking to the future, African countries may have the opportunity to negotiate better development aid terms from BRICS countries. However, to benefit from the rise of BRICS, African countries will have to make structural changes: they must be more pro-active, clearly identify their priorities, and be more hard-nosed in their negotiations.
Africa needs better economic policies to benefit from BRICS
Ultimately, Africa needs better economic policies that “[achieve] the policy objectives of development and poverty reduction.” Merely seeking to increase investment and growth without seeking to channel the investment strategically and in the right arenas is short-sighted and doomed to failure.
The bulk of Africa’s economy is in the informal sector, but this sector is rarely included by government or civil society in development planning. Instead African states allow cheap, highly subsidised Chinese products to flood their markets. This means the potential for businesses in African countries’ indigenous informal sectors to grow into medium- and then larger-sized enterprises is lost.
In most African countries, agriculture remains the largest sector where people eke out a living informally. African countries should support people to at least produce food for themselves and carry out basic “light” manufacturing of food products without having to import these. However, currently African countries end up doing the opposite, allowing emerging economies, such as China and South Korea, to buy land to produce agricultural goods for export back to these countries, doing nothing to protect food security and often dispossessing people in the process.
Currently, it appears that new investments in Africa—such as those from China, India, and Brazil—are targeted less at the needs of Africans and more at seeking to export goods. African roads and ports developed or built by China, for example, are often constructed to make it easy for China to export or import products to or from Africa, rather than integrated into the infrastructure of the host African country.
African countries should pro-actively decide where and how development should take place, and then partner foreign investment with these home-grown, targeted development initiatives.
Africa must diversify growth and add value to its exports
If Africa wants to achieve a higher-quality, more equitable growth, countries must add value to raw materials and diversify into manufacturing and services. This will create more jobs for Africans, and result in more equitable and sustainable growth for African economies.
Africa has been prevented from doing this by industrial nations that have erected high trade barriers to such products coming from Africa. Yet BRICS nations have similar high tariffs for Africa’s manufactured goods. While African products and services may be uncompetitive in industrial-country markets, for a range of reasons, African countries can trade these products with each other and should be supported to do so.
Unfortunately, at the moment, BRICS engagement with Africa is replicating Africa’s low-quality growth model, exacerbating inequality, and undermining democracy on the continent. Only ecologically and economically sustainable development, inclusive growth, and quality democracies have the chance to turn this around. One of the crucial ingredients for achieving this will be a robust African civil society. To play such a developmental role, African civil society will have to become more innovative, relevant, and engaged.
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