BRICS And Africa: Can Africa Really Benefit From The BRICS?
When Jim O'Neil, a former Goldman Sachs employee coined the acronym BRIC to represent the new forces of emerging markets making a lot of significant growth and development, little did he know that it was going to generate such a global attention especially at the inclusion of South Africa.
What has become more interesting is the acceptance of South Africa into the membership of these emerging markets forces, hence the formation of the now BRICS (Brazil, Russia, India, China and South Africa). This strategic move to include South Africa is seen as geopolitical calculation more than anything else in a sense that South Africa would be a stepping ground to have access to Africa's vast mineral resources, market access and demand as well as youthful and cheap labour. It therefore speaks to the importance of Africa. Just ten years ago, trade between Africa and the BRIC was about US$ 10 billion and now it stands at about US$250 billion.
In what could be described as economic penetration prudency, one would have thought that Africa needs to be on the agenda of the emerging markets agenda. The question as to whether Nigeria or other African country should have been selected instead of South Africa is also legitimate.Issues over South Africa's contribution to the BRICS membership has also been of a major concern. South Africa now forms just about two and half percent of BRICS total GDP.
In any case, South Africa is not the only shining example of positive growth in Africa. We have over the last decades seen tremendous economic growth sweeping across East Africa and now Nigeria also popping up as the largest economy in Africa by size of GDP and population. It would only have made more economic sense to have considered any of these economies.However legitimate those concerns are, the bigger picture of Africa's presence on the BRICS agenda should be made clear. Though South Africa makes an insignificant contributions to the BRICS agenda, the total contribution of the continent which South Africa represents is quite impressive.
What the BRICS represent
The BRICS economies are seeking to establish a new global economic order. These economies, representing the whole of emerging markets, which also forms about 90% of global population, are seeking to spur more growth, consolidate the current growth trajectory and even so, transform their economies. This was a vision born out of the need to increase economic, energy and military ties.The BRICS economies are therefore not pursuing an agenda of seeking to distant themselves from the economic woes of the West nor sort to establish new form of economic order. All it intends and purpose is to drive more growth in emerging markets. Obviously, there are some huge disparities among the BRICS nations.
The BRICS economies now represents about 43% of global population. It is almost 3 billion people and two of the members can boast of a billion population. They again accounts for 20% of global GDP and continuous to drive the global economic growth by half (50%).
Again,volumes, particularly trade and investment, have surged since the turn of the century. In a matter of a decade, trade between the BRICS countries increased to US$282 billion in 2012 from US$27 billion in 2002 and this is expected to balloon to a higher figure of US$500 billion by 2015.
In 2012, the BRICS nations took the bold step of moving from being just a geopolitical entity to become more institutionalize to obtain more concrete outcomes in member countries and within other emerging and frontier markets.
Therefore at the 5th BRICS Summit at Durban in South Africa, the BRICS nations proposed the establishment of the BRICS Development Bank. At the 6th BRICS summit 2014, in Brazil, they agreed to start the Development Bank with US$50 billion at US$ 10 billion from each member and the preferred choice of the location of the Bank is Shanghai. The location of the bank was chosen I am sure, as a result of China's strategic move of developing Shanghai as an International Financial Centre.
The proposal of the establishment has unsurprisingly receive cold attention from the West. It is seen as global game changerand a rivalry to the Bretton Wood institutions.In 1945 was a different world orderthere was sense of crises, sense of rebuilding and the countries of USA and East Europe who formed these institutions were bound by common ideologies of free market fundamentalism, market forces, political liberalism etc. Therefore the World Bank and the IMF was able to set out the structure of governance for the global economy up until today.
It sometimes seem that the current comparisons of the proposed BRICS Development Bank and the Bretton Wood institutions perhaps is a little too ambitious and in some case unwarranted.There should be a clearer structural understanding of factors underlying the sense in why some of these institutions obsolete and are not catering for the new emerging developing world.
Can Africa really benefit from the BRICS?
I am very positive that this has been the number one question bordering on the minds of many Africans as the story of the BRICS unfold across the world. It is expected that Africa's interest, as a powerful emerging economic force is particular represented. The other fundamental questions asked are; what are the direct benefits of the BRICS to the rest of the members of the African continent?How can these benefits if any, translate into a life changing realities for Africa's people?
There is a growing diversity in the range of thesectorial interests of the BRICS nations, even as strategic considerations continue to drive their overall engagement with the African continent. These isalso the dimension of geographical distribution which is changing, with each country spreading out to have more engagement with African economies.
At the basis of Africa's engagement and co-operation with the BRICS nations is to ascertain the opportunities there are. Trade and investment opportunities. Co-operation that would drive growth, create employment for Africa's youth and structural transformation.
Perhaps, data on China's engagement with Africa is available than the rest of the other members.Beyond offering concessional loans and credit to companies planning to operate in Africa, it sponsors trade and investment promotion missions to Africa.
In just within a period of a decade, China's bilateral trade with Africa USD 11 billion in 2000, to nearly USD 60 billion in 2006 and in 2013, increased to USD 210 billion.
Infrastructure Investments Opportunities
The BRICS presents a new opportunity for Africa to bridge its infrastructure gap. Energy, water, sanitation, telecoms and transport have long being identified as the major infrastructure setback to the continent. Energy supply continues to be Africa's largest infrastructure challenge with 30 countries experiencing frequent power outages with just over a third of Africa's population having access to electricity. Road constitute 90% of Africa's urban transportation. Poor infrastructure is costing each member country's growth to reduce by 2percentage points each year and cut productivity by as much as 40%.
According to the World Bank, about $93 billion is needed annually to be able to fund Africa's infrastructure for the next 10 years. Which is about 15 percent of the region's GDP. About $60 billion of this would go to funding of new projects and the rest would go into the maintenance of the existing ones. Given the substantial amount involved, governments will need to be innovative in the search for sustainable approaches to infrastructure development as well as financing. The private sector will need to play an increasingly important role. Governments will do well to create conditions where private-sector engagement is encouraged, probably through public-private partnerships (PPPs).
This is exactly the kinds of investment seen across the continent carried out by China. In 2012, China became the number outside investor in infrastructure in Africa. Its investments in infrastructure stood at $13 billion and the next largest was the World Bank at about $4 billion. In the same light, FDIs went up from $500 million in 2003 to almost $15 billion in 2012. It also promised $20 billion in loans for infrastructure development.
African countries can benefit enormously from the BRICS. Countries must therefore capitalize on their co-operation with the BRICS to develop sectors with large multiplier effects, which could bear on growth and employment through the various linkages. To ensure the maximization of this opportunity, this relationship must be part of the long-term economic planning of member countries.
Paul Frimpong, Ch.E, CEPA, Member of AAFM
Chartered Economist (Ch.E. |ACCE Global))and a Member of the American Academy of Financial Management (AAFM).
He is also an African Affairs Analyst and Emerging Markets Strategist.
Disclaimer: "The views/contents expressed in this article are the sole responsibility of the author(s) and do not necessarily reflect those of Modern Ghana. Modern Ghana will not be responsible or liable for any inaccurate or incorrect statements contained in this article."