A Mindset That Could Lead To The Demise Of The South African EconomyAugust 16, 2023
Warwick Wealth Matters – August 2023August 24, 2023
An Article by Ian Kilbride
South Africa will host the 15th summit of the BRICS from 22-24 August. The summit comes at a critical time for the bloc itself and global relations more broadly.
Former Goldman Sachs executive, Jim O’Neill, (Baron O’Neill of Gatley) could have had little idea in 2001 that his prescient observations regarding the future growth trajectory of major emerging economies China, India, Brazil and Russia would not only become a snappy acronym ‘BRICs’, but that these divergent and competitive countries would morph into a new global economic bloc.
Formally established at the 2009 Yekaterinburg summit in Russia, South Africa became the formation’s fifth member state in 2010. The timing of the BRICS birth was significant, coming as it did during the maelstrom of the global financial crisis in which the western financial system was under threat and the confidence of western political leaders was deeply shaken. By contrast, in 2009/10 China’s economy was enjoying 9-10% GDP growth, with the Indian economy not far behind at 8% growth. More specifically, none of the BRICS countries banking or financial systems came under anything like the existential threat experienced by western economies during the global financial crisis.
In the aggregate, the BRICS paints an impressive picture. Comprising a population of some 3,2 billion and generating in excess of one quarter of global GDP, all are members of the G20, with Russia and China occupying permanent seats on the UN Security Council. Despite its chronic challenges, Brazil still constitutes the world’s seventh largest market and the third biggest economy in the Americas. The BRICS outlier, South Africa, remains Africa’s most advanced economy and nominally serves as a proxy for the continent’s burgeoning one billion population and the biggest free trade area in the world.
Though still a work in progress as an international bloc, BRICS has an evolving form, structure and institutional content. Guided by three pillars of political and security co-operation; financial and economic co-operation; and cultural and people-to-people co-operation, there is growing evidence not only of enhanced trade between the BRICS, but greater consultation and co-operation in multilateral forums including global security. Arguably, the most impressive and material development has been the establishment of the BRICS New Development Bank, headquartered in Beijing. Largely capitalised by China, the NDB seeks to fund infrastructure and developmental projects in emerging economies. While not a direct competitor to the IMF and World Bank, the NDB provides an alternative source of infrastructure funding and its purpose is entirely consistent with China’s Belt and Road Initiative. The private sector too has been a beneficiary of the five-nation co-operation through the founding of the BRICS Business Council in 2013.
But the forthcoming Johannesburg Summit presents challenges and opportunities in equal measure. Although President Putin will not be attending the summit in person, the current destructive elephant in the room is Russia’s invasion of Ukraine which has left some members uncomfortable and reduced its protagonist to a sanctioned pariah. Secondly, some 13 countries, ranging from Iran and Saudi Arabia to Mexico, Argentina and Turkey have formally applied to join the club. Reportedly, China and Russia favour rapid expansion, while India and Brazil favour a tighter grouping, thus retaining their respective influence. The third issue floated is that of the forging of a common BRICS currency designed to facilitate inter-member trade and wean countries off a reliance on the United States dollar. This proposal has been wound back somewhat recently, with the South African summit hosts insisting that while a common BRICS currency is not on the immediate agenda, the establishment of a common trade financial mechanism will be.
Given the pre-occupation with the current global strategic, economic and financial risks permeating the international system, the forthcoming BRICS summit could easily descend into an inconsequential diplomatic talk shop of the global south However, the potential exists for an expanded and more energised BRICS to evolve into a global formation that significantly reshapes international relations as we know it.