South Africa finally joining the BRIC

What earns South Africa the qualification to be invited to join the BRIC countries? It is one question that has left socio-economic analysts buffled and some academics black and blue.

The size of its economy comes barely close to that of the so called “Big Four”, yet it has received an official invite to share whatever spoils are offered on the top table.

One would have been forgiven to believe that Mexico or North Korea was closer to the BRIC doors than South Africa because of their nominal GDPs.

The Bric club, comprised of the world’s fastest growing economies, include Brazil, Russia, India and China stand reflective of their progressive economic policies and their governments’ steadfast resolve to find workable economic solutions suitable to their countries and their people.

Despite China’s not so good human rights record, it has soldiered ahead and is now the second largest economy in the world, after the United States of America – not far behind!

Brazil, a country composed of 26 States and one federal district, that contains the Capital city, Brasilia, is the largest country in South America, both geographically and by population.

It remains the largest national economy in Latin America and the world’s 8th largest economy at market exchange rates and, according to the International Monetary Fund and the World Bank, it is the world’s 9th largest in terms of purchasing power parity (PPP).

Brazil’s population as recorded in 2008 stood at 190 million people with about 83% defined as urban. Its GDP (PPP) stands at $10.200, placing it at number 64 in the world according to the World Bank.

Russia on the other hand has a market economy with enormous natural resources, particularly oil and natural gas. It has the 10th largest economy in the world by nominal GDP and the 6th largest by purchasing power parity (PPP).

By the end of 2008, its annual average growth rate for the 9th consecutive year was at 7%. It managed to drive effective poverty eradication programmes that saw the middle class grow from just 8 million persons in 2000 to 55 million persons in 2006. It is a country with an estimated 13% of its people living below the poverty line.

Russia’s population in January 2010 stood at 142 million people with 73% living in urban areas.
India, consisting of 28 States and 7 union territories, it is the 7th largest country by geographical area, with a whooping population of over 1.2 billion people.

According to the IMF, India's nominal GDP stood at US$1.3 trillion, which makes it the 11th economy in the world, corresponding to a per capita income of US$1 000. If its purchasing power parity (PPP) is taken into account, India's economy is the 4th largest economy in the world at US$3.6 trillion.

The country ranks 142th in nominal GDP per capita, with an average annual GDP growth rate of 5.8% for the past two decades. It is one of the fastest growing economies in the world. The country’s annual growth has averaged 7.5% in the last few years.

The people’s republic of China, generally known as China is the second largest country in the world by land area with a whooping population of 1.3 billion people and 22 provinces.

The inaugural Global Wealth Report by Credit Suisse Research Institute in mid-2010 stated China is expected to overtake Japan as the second wealthiest country in the world by 2015 ($35 trillion) due to its rapid economic growth and strong domestic consumption.

It is the world's second largest trading power behind the US with a total international trade of US$2.21 trillion. Its foreign exchange reserves have reached US$2.4 trillion, making it by far the world's largest.

The country owns an estimated $1.6 trillion of US securities. With US$801.5bn in US Treasury bonds, is the largest foreign holder of US public debt. It remains the world's third largest recipient of inward foreign direct investment (FDI) by attracting US$92.4bn in 2008 alone, while the country itself increasingly invests abroad with a total outward FDI of US$52.2bn in 2008 alone becoming the world's sixth largest outward investor.

China has the world's second largest nominal GDP at 34.06 trillion Yuan (US$4.99 trillion), although its per capita income of US$3,700 is still low and puts the PRC behind roughly a hundred countries. The primary, secondary and tertiary industries contributed 10.6%, 46.8%, and 42.6% respectively to the total economy in 2009.

If its purchasing power parity is taken into account, the PRC's economy is second only to the US at US$9.05 trillion corresponding to US$6 800 per capita.

South Africa, by invitation will soon be added to the club commonly known as Bric. It is a country with 9 provinces and 48 million people and unemployment topping 25%.

South Africa is a middle-income country with an abundant supply of resources, well-developed financial, legal, communications, energy, and transport sectors, a stock exchange that ranks among the top twenty in the world. It remains the largest energy producer and consumer on the continent, and ranked 25th in the world in terms of GDP (PPP) as of 2008.

In a 2010 survey, South Africa was found to have the second most sophisticated financial markets and the second-lowest effective business tax rate (business taxes as a percentage of company profits), out of 14 surveyed countries.

The country was also ranked 4th for ease of accessing capital, 4th for cost of capital, 6th for its transportation infrastructure (considered better than that of China, India, Mexico, Brazil and Poland, but behind that of Korea and Chile), and seventh for foreign direct investment as a percentage of GDP: in 2008 it was over 3% of the GDP.

However, for availability of manual labour, South Africa is ranked last, and is also the only country of the 14 whose labour force shrunk in 2008 (by over 3%, compared to India, where the workforce grew by almost 3%). The cost of manual labour is ranked 5th out of 11 countries, at about the same level as South Korea, but more expensive than Brazil, India and China. South African factory workers are also better paid than those of Brazil, China, India, Poland and Mexico.

South Africa ranks poorly when it comes to education; only India fares worse when it comes to the percentage of matriculants that moved onto higher education in 2007. In Brazil, 30% of matriculants graduated to tertiary institutions in 2007, and the figure was over 50% in Chile and over 90% in Korea, compared to just 15% in South Africa.

The question is where do these matriculants go after finishing school as the country is said to be running short of manual labour and ranked last in that regard?

South Africa is far behind other emerging markets, such as India and China because of several factors that include the size of the country and its population. Despite the fact that it does posses a huge domestic consumer base, it is in no way comparable to the other Bric club members whose populations top 100 million people.

The country has an inadequate, if not deficient education system and, as a consequence, an acute shortage of skilled manpower exacerbated by severe brain drain and an immigration system that does not promote the importation of those scarce skills.

A leading economist with the Public Investment Corporation (PIC), the SA government’s investment vehicle, once said that SA must make full use of the SADC countries and further open up ways of investing time and resources in its neighbouring countries. Through working bilateral relations, and other trade agreements, SA can create a bigger consumer pool than it currently has.

It has agreements with its neighbours that have never been effectively implemented. Opening up debate within the SADC on the manufacture, movement of finished goods, services and raw materials will certainly help.

Labour has been in the lead crying out loud about the strong and volatile currency which it says deters investors and makes exports less competitive.

The infrastructure, though far better than in the rest of Africa, suffers from severe bottlenecks, including power shortages. The national electricity generating and supply company, Eskom says it will take a lot of effort and teamwork to avoid load shedding in 2011, indicating a severe lack of upgrade and investment in electricity generation.

When President Jacob Zuma visited China in August 2010, with the largest business delegation ever, it was SA’s hope that this will warm up political and economic relations between the two countries.

China has been a very important political partner to SA. With the establishment of diplomatic relations between the two in 1998, the relationship has deepened, both economically and politically.

Politically, SA regards China as an important player in global debates characterizing a shift to multipolarity, while China regards SA as the gateway to Africa economically, and also an agent in resolving African disputes with a “look east policy” approach.

Academics and experts suggest that China is in a league of its own compared to the other BRIC countries.

David Rothkopf, president and CEO of Garten Rothkopf, an international advisory firm specializing in transformational global trends wrote in Foreign Policy, a bimonthly America magazine, that "without China, the BRICs are just the BRI, a bland, soft cheese that is primarily known for the wine that goes with it. China is the muscle of the group and the Chinese know it. It wields effective veto power over any BRIC initiatives because without them, who cares really?”

He says they are the one with the big reserves and have the biggest potential market.

Deutsche Bank Research said in a report that "economically, financially and politically, China overshadows and will continue to overshadow the other BRICs."

The report also added that China's economy is larger than that of the three other BRIC economies combined and moreover, its exports and its official reserve holdings are more than twice as large as those of the other BRICs combined.

Hence, this invitation is widely viewed as a resultant of warm relations, politically, between China and SA.