Tag Archive: South Africa

Normally, loose economic blocs do not assert their political clout in matters which are handled by UN or the group of five established powers. But it now seems that BRIC which refers to the countries of Brazil, Russia, India and China, (South Africa will join soon) which are all deemed to be at a similar stage of newly advanced economic development, has decided to come out of just economic closet and start talking politics. They see their opportunity to assert themselves in the Libya intervention of the West, which they have dared to criticize. According to a paper published in 2005, Mexico and South Korea were the only other countries comparable to the BRICs, but their economies were excluded initially because they were considered already more developed, as they were already members of the OECD. BRIC countries are developing rapidly and by 2050 their combined economies could eclipse the combined economies of the current richest countries of the world. These four countries, combined, currently account for more than a quarter of the world’s land area, more than 40% of the world’s population, and hold a combined GDP (PPP) of 18.486 trillion dollars. On almost every scale, they would be the largest entity on the global stage. These four countries are among the biggest and fastest growing emerging markets.

BRICs could not organize themselves into an economic bloc, or a formal trading association, as the European Union has done. However, there are some indications that the “four BRIC countries have been seeking to form a ‘political club’ or ‘alliance'”, and thereby converting “their growing economic power into greater geopolitical clout”. These are not a political alliance (such as the European Union) or any formal trading association, like ASEAN. Nevertheless, they have taken steps to increase their political cooperation, mainly as a way of influencing the United States position on major trade accords, or, through the implicit threat of political cooperation, as a way of extracting political concessions from the United States, such as the proposed nuclear cooperation with India.

And they have demonstrated their political ambitions in their abstention failing to support UN Security Council Resolution 1973 which raises serious questions about the future functionality of the multilateral system – a system in which the BRIC countries aspire to have a stronger voice. Effectively, the BRICs sent a message of opposition to allied intervention in countries experiencing fundamental political change. Their vote was an implicit acknowledgement that such collective action often has unintended consequences, and that it can result in one side being given an undue advantage over another. But a less obvious driver for their position is also the notion that one day such a vote could be cast against one of them.

It is premature to conclude, says a report in Foreign Policy Journal that the collective opposition of the BRIC countries to allied intervention in Libya represents a formal coalition between these countries. While China and Russia have used their Security Council veto with frequency, aspiring permanent Security Council members Brazil, India, and South Africa are still finding their footing on the global stage, appear hesitant to blatantly oppose the collective will of the established five power permanent members of the Security Council. What they share is a long-held mistrust of Western-led military action and a more general stance in favor of non-intervention.

One of the major criticisms of the West’s decision to intervene in Libya by these countries has been the perceived hypocrisy of ‘selective intervention’.

One will find it quite interesting that India, together with other three countries of the bloc has found it expedient to criticize West’s intervention in Libya even though it also has a history of armed intervention in erstwhile East Pakistan. The Maldives and Sri Lanka have all experienced intervention by Indian military forces. Likewise, South Africa, the soon to be “S” in the “BRICS” has intervened numerous times in its post-independence history, most prominently in the Angolan civil war in 1975/6 and in the post-Apartheid era, and participated in multilateral intervention in Lesotho in 1998. After vocally supporting the principle of non-intervention, it eventually voted in favor of allied action in Libya.

The escalation of the Libyan conflict has surely prompted some of the BRICS countries to contemplate what is involved in having a seat at the world’s top table. The Libyan case further highlights the limitations of a global order struggling to reconcile principles of national sovereignty with principles of multilateralism. The modern history of the world has shown that there will always be crises that require multilateral action. The question has become when the BRICS will be willing to step up to the plate and place idealism above self-interest – an admittedly lofty ambition for any nation-state. Not that the U.S. and European nations have a pristine record in that regard, but they certainly do have substantial economic interests in Libya. The difference is that they have proven willing to sacrifice that interest to participate in sometimes distasteful and necessary political decisions. When was the last time the BRICS countries did that?

Related link:

Libya turmoil; Interventionism is West’s new colonialism…

Is the love affair between Russia, China, India and Brazil over already? Are they looking for new affiliations, new love affairs and new life? It seems they are. But before we dwell on that, let’s look at the intensity of soon-to-be-forgotten love. Four countries namely, Brazil, Russia, India and China (BRIC) got together to become a force-to-reckon-with by 2050 keeping the following in view:

  • In 2001 and 2002, real GDP growth in large emerging market economies will exceed that of the G7.
  • At end-2000, GDP in US$ on a PPP basis in Brazil, Russia, India and China (BRIC) was about 23.3% of world GDP. On a current GDP basis, BRIC share of world GDP is 8%.
  • Using current GDP, China’s GDP is bigger than that of Italy.
  • Over the next 10 years, the weight of the BRICs and especially China in world GDP will grow, raising important issues about the global economic impact of fiscal and monetary policy in the BRICs.
  • In line with these prospects, world policymaking forums should be re-organized and in particular, the G7 should be adjusted to incorporate BRIC representatives.

It was estimated that if things went right in less than 40 years, the BRICs economies together could be larger than the G6 in US dollar terms. By 2025 they could account for over half the size of the G6. Of the current G6, only the US and Japan may be among the six largest economies in US dollar terms in 2050. The list of the world’s ten largest economies may look quite different in 2050. The largest economies in the world (by GDP) may no longer be the richest (by income per capita), making strategic choices for firms more complex.

Goldman Sachs was particularly upbeat on the prospects of formation of this economic power block. It wrote in December 2005:

  • Since we began writing on the BRICs, each country has grown more strongly than our initial projections. Our updated forecasts suggest the BRICs can realize the ‘dream’ more quickly than we thought in 2003.
  • The case for including the BRICs directly in global economic policymaking is now overwhelming.
  • We present the prospects for another set of developing countries, a group we call the N-11—the Next Eleven. Of them, only Mexico and perhaps Korea have the capacity to become as important globally as the BRICs.
  • We introduce a Growth Environment Score (GES), which aims to summarize the overall structural conditions and policy settings for countries globally. Improving long-term foundations is key to converting potential into reality.
  • Encouragingly, the BRICs themselves are all in the top half of the rankings for developing countries. While the BRICs are generally progressing, there is a need for considerable further policy improvement in each.

Thus the term BRICs, coined by Goldman Sachs’ chief economist Jim O’Neill in 2001 and referring to Brazil, Russia, India and China, has come to be widely used as a way of describing the transfer of economic power to the emerging markets and away from the developed world. But the realities are now shifting away from Brazil and Russia to Asia and (South) Africa and a new economic power block is coming into shape which only includes China and India from the original BRICs lineup, with Brazil deemed now to be relatively well developed, and the love affair with Russia is seen as over. The new buzzword among hedge fund managers in London, CIVITS–China, India, Vietnam, Indonesia, Turkey and South Africa–are tipped to be the hotspots to watch for growth through the current decade.

Wall Street Journal, in an article titled, Forget the BRICs-its all about the CIVITS, has reported that it’s a far cry from the start of the last decade, when Goldman Sachs argued that the combined economies of the BRICs could eclipse the combined economies of the wealthiest countries of the world–including the U.S. and the whole of Europe–by 2050.

China is well on its way, and its inclusion in the CIVITS is more than deserved. Its economy overtook Germany in 2007 and then surpassed Japan in July 2010, catapulting it into a league of its own because of its breakneck growth. The U.S. bank now says China will overtake the U.S. by 2027 to become the world’s largest economy, while PricewaterhouseCoopers pitches it even earlier, at 2020.

But, while timing is the only difference of opinion over China’s potential, India has drawn slightly more mixed views. The world’s second most populous nation suffers from poor infrastructure, volatile disputes with its neighbors and high levels of bureaucracy that hinder its ability to achieve its potential–not insurmountable challenges, but certainly ones to take into account. Goldman Sachs sees India, currently the world’s eleventh largest economy, outstripping the U.S. by 2050.But if opportunities in Brazil are on the wane given its relative self-sufficiency in the agricultural, mining, manufacturing and service sectors, the story in Russia is the opposite.

The world’s biggest country holds the largest reserves of mineral and energy resources globally, yet faces a shrinking population and an economy that is struggling to recover after falling off a cliff during the economic downturn. Earlier Thursday, the International Monetary Fund said the Russian economy faces a big challenge in withdrawing financial stimulus from its economy, with inflationary fears on the rise following the country’s worst drought in decades.

So if Brazil and Russia are old news, what’s behind the inclusion of new entrants to the top picks for emerging markets growth? On the face of it, South Africa’s entry is a little strange. But hedge funds say the country is a proxy for the continent as a whole, which has seen its collective GDP soar to equal roughly Brazil’s or Russia’s.Africa’s largely a commodities story, with rising demand for minerals and oil driving consumers to pay dearly for its natural riches. South Africa is already the largest energy producer and consumer on the continent, and a top producer of gold, platinum and palladium.

Indonesia meanwhile is already the largest economy in Southeast Asia and a member of the G20, and has emerged from the global downturn in better shape than its neighbors. Again, it’s a natural resources story, producing and exporting oil, natural gas, tin, copper and gold.

Vietnam meanwhile makes a lot of sense. It’s one of the world’s fastest growing economies attracting vast foreign investment and a significant agricultural exporter. PWC has said Vietnam could be the fastest growing of the emerging economies by 2025 with a potential annual growth rate of almost 10% pushing the size of the country’s economy to around 70% of the U.K.’s by 2050.

Like Vietnam, Turkey is also one of the fastest growing economies, boasting low inflation and soaring foreign investment following a series of key economic reforms. So wither the BRICs? Goldman Sachs isn’t giving up on them. In a recent update to its data, the bank said the BRICs would exceed the U.S. by 2018 and account for a third of the global economy in purchasing power parity terms, plus 49% of global GDP growth, by 2020. But it did admit that the stellar performance of BRICs’ stocks in the last decade might not be repeated this decade. The bank said:

“Now that the BRICs story is better known, expectations are higher and the valuation gap is much smaller, the same degree of out-performance seems much less likely, even if the BRICs deliver solid returns.”