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South Africa’s Role in BRICS,
and Its Benefits to Job Creation
and the Infrastructure Drive in South Africa
Maite Nkoana-Mashabane,
Minister of International Relations and Cooperation, Republic of South Africa
Speech presented at The New Age Business Briefing, Johannesburg, September 11, 2012
Programme Director;
Ministers with us today;
Chairman of the New Age;
Captains of Industry and Business Leaders;
Opinion Makers with us today;
Distinguished guests
Men and Women of the Media;
Ladies and Gentlemen;
"South Africa could do more to justify its presence if it helped Africa to fulfil its remarkable potential. I witnessed South Africa's successful hosting of the 2010 FIFA World Cup tournament and following that, wrote an article suggesting that if South Africa explored cross-border synergies, it would be big enough to be regarded as a true BRIC country. If South Africa could also help to lead the rest of the continent to reach its own standards where these are high, Africa would be on an accelerated path to greater economic might. By exploring cross-border expansion in trade and infrastructure, as well as improvements in domestic productivity, South Africa would have more than justified its role as a member of BRICS. South Africa scored well for the cost of setting up business and for most of macroeconomic stability variables and also does reasonably well in some areas of governance and schooling."
These are words of Jim O'Neil, Chairperson of Goldman Sachs Asset Management, in his recent article titled "SA's BRICS Score".
Programme Director,
It is a great privilege and honour for me to have been invited to deliver this speech on "South Africa's Role in the BRICS, and its Benefits to Job Creation and the Infrastructure Drive in South Africa". It is befitting to be at this special business briefing of this magnitude driven by a progressive member of the media fraternity, the New Age.
Ladies and Gentlemen,
Our talk today, as you already know, is on: "South Africa's Role in the BRICS, and its Benefits to Job Creation and Infrastructure Drive in South Africa".
South Africa has a pivotal role to play in the BRICS formation to promote our foreign policy globally and to achieve our domestic policy objectives.
Our membership to BRICS is anchored on three pillars, namely:
When the leaders of the five BRICS (Brazil, Russia, India, China, and South Africa) countries met this year (2012) in March at the fourth summit in Delhi, India, they declared that:
"BRICS is a platform for dialogue and cooperation among countries that represent 43% of the world's population, for the promotion of peace, security and development in a multipolar, interdependent and increasingly complex, globalising world. Coming, as we do, from Asia, Africa, Europe and Latin America, the transcontinental dimension of our interaction adds to its value and significance".
It is in this context that we should understand the Global Socio-economic and political and economic framework of BRICS.
Programme Director,
According to Zambian economist, Ms Dambisa Moyo as quoted by Jocelyn Newmarch in her article on the City Press of 2 September 2012, titled: "Glabal Slowdown 'Africa's Chance To Stand Up and Shine":
"The current state of the global economy is bad for the rest of the world, but good for Africa — 64% of Africa's population is under age of 24. The continent's population is expected to hit 2 billion in the next 40 years. 60% of economic growth is accounted for and some African states have higher productivity than developed nations. Sub-Saharan Africa's economy is expected to grow by 5.4% this year and by 5.3% next year."
When South Africa joined BRICS in 2010, it was once again an affirmation of what this country has achieved in creating a better Africa in a better world. South Africa's BRICS membership is a strong brick for building Africa's growth and its regeneration. Already, the benefits of South Africa's membership are showing signs Africa's Rise as the next growth pole.
In his address during the 4th BRICS Summit in India, President Jacob Zuma said; (I quote):
"Our participation in BRICS is designed to help us achieve inclusive growth, sustainable development and a prosperous South Africa".
It will be recalled that, President Jacob Zuma's State of the Nation Address in February this year (2012), identified the triple challenges of poverty, unemployment and inequality as critical areas that require the most attention from all of us as a collective.
It is for this reason that, amongst others, our country launched the New Growth Path framework in 2012, to help us achieve inclusive growth and create jobs. This is our strategic response the triple challenges we face in our country. In this regard, we identified six jobs drivers to help us achieve the much needed growth leading to jobs. These are:
Again in our State of the Nation Address in February 2012, we publicly singled out infrastructure development as a key vehicle for improving the quality of life and of providing a more focused access to basic services, competitiveness and jobs.
Programme Director;
Since then, we had begun working intensively on our infrastructure strategy. The reason we singled out infrastructure is precisely because we know that the bedrock of new growth on the African Continent will come from economic integration and infrastructure development. Our BRICS partners have an important role to play in this regard. We have to take them on board, work with them in order to realise the measurable benefits of this partnership.
Infrastructure is therefore at the heart of how we will change the lives of our people in the next decade.
Ladies and Gentlemen,
Countries of the South remain critical, and South Africa's BRICS membership has become more important than ever before. At the BRICS Summit held at Sanya, China, in April 2011, the five leaders declared that:
"It is the overarching objective and strong shared desire for peace, security, development and cooperation that brought together BRICS countries with a total population of nearly three billion from different continents. BRICS aims at contributing significantly to the development of humanity and establishing a more equitable and fair world".
The world has since seen the BRICS grouping emerge as a powerful formation with 43% of the global population. Their combined nominal gross domestic product (GDP) is estimated at US$13,7 trillion and between 20% and 25% of global GDP, as well as combined foreign reserves estimated at US$4 trillion. Undoubtedly, BRICS accounted for approximately 11% of global annual foreign direct investment (FDI) flows in 2012 (US$465 billion) and 17% of world trade.
Leading academics participated in the BRICS Academic Forum earlier this year in New Delhi. They poignantly reflected that while there had been a proliferation of global multilateral conferences, there had also been a proliferation of a different kind of forum that is plurilateral in nature. They commented that:
"these forums should not be perceived as fragmenting the multilateral system and could create valuable opportunities to form consensus among smaller, like-minded groups on specific issues, which can again cascade into the broader multilateral forums."
Programme Director,
Indeed, the view of the BRICS is that, as articulated in one of its summit communiqués, "the global economy remains vulnerable, with a negative impact on the everyday lives of people all over the world, affecting jobs, trade, development and the environment".
In asserting itself in the world as part of the agenda to transform power relations in the global system, the BRICS leaders recently jointly pledged additional funding of US$75 billion to the International Monetary Fund (IMF), for the so-called "firewall fund". China provided US$43 billion, Brazil, India and Russia US$10 billion each and South Africa US$2 billion.
Distinguished Guests;
This pledge by the BRICS countries is in line with our vision to transform institutions of global governance. It has been a tradition, and indeed a norm, that decisions in international financial institutions are made and influenced by countries with strong financial muscles. In this regard, the more we contribute financial resources to such institutions, the better the chance and prospects for us as a country to influence decisions. The decisions that we must influence should be aimed at ensuring that we strengthen job creation and infrastructure development in our country. This partnership can help us achieve those objectives.
The BRICS pledges were contingent on the completion of the quota review to, among other things; better reflect the relative weights of IMF members in the world economy, which have changed substantially in view of strong GDP growth in dynamic emerging markets and developing countries.
Another separate, but strategically important, agreement was the announcement to put in place a swap arrangement, allowing central banks to lend to each other if needed to maintain market liquidity and a mechanism for pooling foreign exchange reserves. From the above account of the outcomes of the Group of 20 (G20) Summit, it is clear that BRICS economies have become the new engines of global growth.
South Africa and BRIC(S) countries share a common vision. Like South Africa, our fellow BRIC(S) nations are striving to enhance inclusive economic growth that will lead to an increase in the creation of decent and sustainable jobs, advance the fight against poverty and accelerate the economic transformation of our countries. We also dream and work to realise a more equitable global political and economic system. This is the right platform for such growth prospects!
Ladies and Gentlemen,
South Africa will host the 5th BRICS Summit in early 2013, which will also complete the first cycle of BRICS summits. The opportunities presented in hosting this prestigious summit are considerable. Our membership of BRIC(S) is premised on our global and regional/ continental role as well as our domestic achievements in the "proudly South African manner".
Our membership of this body has indeed expanded BRICS' geographic and intercontinental reach, including its global representative and inclusiveness.
South Africa itself has a population of 50 million and an economy worth approximately US$527 billion. Our per capita income level at purchasing power parity compares favourably with BRICS partners estimated at US$11 000 (after the Russian Federation at US$16700 and Brazil at US$11845).
The comparative advantage within BRICS pertains to our considerable non-energy in situ mineral wealth. In a recent report commissioned by the United States (US) based Citigroup bank, South Africa was ranked as the world's richest country in terms of its mineral reserves, worth an estimated $2,5 trillion. We must be proud that we are the world's largest producer of platinum, chrome, vanadium and manganese, the third-largest gold miner and offers highly sophisticated mining-related professional services, contributing significantly to the BRICS resource pool.
Our country is investing R300 billion ($35, 6 billion) into expanding and improving its railways, ports and fuel pipelines, as a catalyst to help unlock the world's greatest mineral wealth.
The continent will also continue to be buoyed by the exploding global demand for oil, metals, minerals, food, and other natural resources. Likewise, the African continent, which is arguably one of the world's largest unexplored resource basins, has abundance of riches; including 10% of the world's oil reserves, 40% of its gold ore and 95% of platinum.
Accordingly, demand from BRICS countries for these commodities has been a critical source to support growth on the continent. Our financial market development and sophistication, also as a source of exceptionally sophisticated professional services and financial expertise, is globally recognised.
Distinguished Guests,
The 2011/12 World Economic Forum's Global Competitiveness Index displayed a high level of confidence in our financial market development, ranking us in fourth place globally on this measure.
The regulation of the Johannesburg Stock Exchange (JSE) was ranked number one in the world, as was the strength of South Africa's auditing and reporting standards. Additionally, South Africa is ranked second for both the soundness of banks and the efficacy of corporate boards.
Our continued excellence in science, technology and innovation is also recognised by many of our partners, e.g. being awarded the majority stake in hosting the Square Kilometre Array. BRICS countries supported South Africa in obtaining the majority stake.
South Africa's export structure to BRICS member countries shows significant diversification and the negative trade balance has also narrowed over the last four years, i.e. from R57 billion in 2008 to R22,8 billion in 2011.
Our export trade with the BRIC partners has grown from 6,2% of the total in 2005 to 16,8% in 2011; whereas its imports from the BRIC countries represented 13,6% of total imports in 2005 and 20% in 2011. The Minister of Trade and Industry, Dr Rob Davies, has emphasised that last year alone, trade between South Africa and BRICS countries grew by 29%, which is considerable.
Furthermore, South Africa enjoys recognition as a dedicated and committed global and regional player within the ranks of BRIC. Our constructive role in global governance structures as well as our position within organisations of the South, notably the African Union (AU), the Group of G77 (G77) plus China and NAM are appreciated by our BRIC and other like-minded partners.
Programme Director;
Please allow me to remind our honourable audience here this morning that South Africa is the only African country represented in the G20. The G20 has become an important institution on the reform of the financial and economic global governance architecture. We have always been at the forefront of promoting more inclusive formations and more equitable participation of notably emerging markets and developing economies in the world system and its decision-making structures. This belief stems from our core conviction that Africa has to be repositioned in the global system to assume its rightful place.
Programme Director,
BRICS contribution towards Consolidating the African Agenda
South Africa, together with other African countries, initiated the dialogue with the Group of 8 (G8) in 2000, which led to the subsequent endorsement of the AU's New Partnership for Africa's Development (NEPAD) by the international community at large. At the last BRICS summit, President Jacob Zuma once again strongly articulated this view, also in light of the issue of the World Bank Presidency, where Africa had put forward an exceptionally merit-based candidate. South Africa's invitation to join BRICS takes cognisance of our country's contribution to shaping the socio-economic regeneration of Africa, as well as our active involvement in peace, security and reconstruction efforts on the continent.
It also recognises South Africa's own unique historic political transformation process to become a constitutional democracy. This constitutional model linked to our reconciliation and nation-building processes and peaceful political transition, is perceived as a unique contribution to the world.
Ladies and Gentlemen,
We have indeed facilitated similar processes for peace elsewhere in the world. South Africa is a systemically important economy, which is diversified and includes a sophisticated services sector and well developed infrastructure comparable with developed countries. The BRICS countries now constitute the largest trading partners of Africa and the largest new (not total) investors.
The BRICS investment portfolio in Africa is very encouraging and promising. Over the past decade, we have seen a seismic acceleration of commercial and strategic engagements between the BRICS and Africa. BRICS has nourished Africa's economic emergence and elevated the continent's contemporary global relevance. The recession and recovery period has enhanced this shift. In 2010, Standard Bank economists predicted BRICS-Africa trade will "see an additional increase in the velocity of BRIC-Africa engagements, with trade and investment spearheading the commercial charge".
According to Standard Bank, BRICS Africa trade will increase threefold, from US$150 billion in 2010 to US$530 billion in 2015. Between 2010 and 2015, BRICS' share of Africa's total trade will increase from one-fifth to one-third and BRICS FDI stock in Africa will swell from around US$60 billion in 2009 to more than US$150 billion by 2015.
Today, the BRICS countries are the largest investors in the continent. While South Africa's share was not absorbed into these projections at the time, South Africa's trade with Africa accounts for 17% of our total trade, 21% of our outward investment and when broken down, 14% of our total exports to the world and around 24% when including the Southern African Customs Union. The IMF also conducted a study, which indicated that the trade and investment from BRICS to low-income countries was deemed as a critical factor to protect them from the shock of the global recession.
Distinguished Guests,
BRICS leaders have expressed support for infrastructure development in Africa and its industrialisation within the framework of NEPAD, first at the Sanya Summit in 2011. At the New Delhi Summit, the leaders reiterated the highest importance attached to economic growth that supports development and stability in Africa, as many of these countries have not yet realised their full economic potential.
The leaders undertook to take their cooperation forward to support Africa's efforts to accelerate the diversification and modernisation of its economies, through infrastructure development, knowledge exchange and support for increased access to technology, enhanced capacity-building and investment in human capital, including within the framework of NEPAD. BRICS leaders also considered the possibility of setting up a new development bank for mobilising resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, to supplement the existing efforts of multilateral and regional financial institutions for global growth and development. They directed the BRICS finance ministers to examine the feasibility and viability of such an initiative, set up a joint working group for further study and report back at the next summit. Such a new development bank could complement existing institutions and address gaps and challenges in critical sectors.
Ladies and Gentlemen,
President Zuma has already articulated South Africa's strong support for this initiative and other African leaders have also indicated their keen interest. In terms of strategic consideration for South African business, is the fact that regionally, South Africa provides direct access to the rest of the continent and is situated between the East, the Americas, Europe and the Middle East. South Africa has many geostrategic and related structural advantages which make it an excellent investment destination and ideal "gateway" partner in the African growth story.
Complementary to this existing and strong consumer market, are the exciting regional integration initiatives taking place on the continent. Negotiations are underway to establish a 26-country, US$1-trillion African Tripartite Free Trade Area (T-FTA) for East, Southern and Central Africa within three years, which will expand this market to 600 million people.
Programme Director,
Without doubt, this regional integration initiative will put us in the same market size bracket as our BRIC counterparts. Another related and exciting new initiative, which has just been announced, is that of the Southern African Development Community (SADC) Regional Infrastructure Master Plan (RIMP), which could involve cross-border projects with a combined investment value of up to US$500 billion.
The RIMP has been finalised and was presented at the summit, scheduled for Maputo, Mozambique, last month (in August 2012). The plan proposes the development of regional power, transport, water, communications, and tourism and metrology infrastructure over the 15-year period, from 2012 to 2027. The intention is to align the implementation of the plan with the establishment of a SADC development fund, or bank, with an initial capitalisation of between US$600 million and US$1 billion.
At present, intraregional trade comprises less than 20% of total trade and the bulk of that trade takes place between South Africa and the other 14 SADC member states. Once the plan has been officially endorsed, the SADC Secretariat will conduct road shows in BRICS and other countries, targeting Brazil, China, Europe, India, Japan, the United Kingdom and the United States to expose potential investors to the opportunities available within the RIMP.
The Project Preparation Development Facility has already been established at the Development Bank of Southern Africa.
Programme Director;
At this stage, please allow me to turn to Africa's promising growth and demographic dividends, as also encapsulated in the National Planning Commission's Vision 2030. The growth rate for sub-Saharan Africa is estimated around 5, 5% for 2012; and The Economist of 6 January 2011 predicts that between 2010 and 2015, seven out of the top 10 fastest-growing economies in the world will be African. This is good news!
There are many reasons for this sustained growth. These reasons include:
South Africa is also cognisant that the African "demographic dividend" is already recognized by economists as the future locus for growth. According to Standard Bank's research, the five enduring factors driving this are:
Ladies and Gentlemen;
South Africa hosted its first ICT Indaba recently, where we had a discussion on our interaction with BRICS. During that discussion, we indicated that in 2010, BRICS accounted for 13% of global demand in the ICT sector, with spending of about €328 billion. As South Africa is one of the leading investors among developing countries on the continent, South African companies can take advantage of this unique position, through partnering with BRICS companies to explore commercial opportunities in Africa.
For example, the Brazilian company Vale has partnered with South Africa's Rainbow Minerals in an agreement worth more than US$1, 2 billion to build a copper mine in Zambia. Tata Power has formed an equal joint venture with South Africa's Exxaro Resources, named Cennergi (Pty) Ltd, to develop and operate power-generation projects in South Africa initially and will have later projects in Botswana and Namibia.
With all this background, the question is: "What should business be doing to take advantage of South Africa's BRICS membership?" There certainly is a wide scope for cooperation in various projects within the existing BRICS structures.
President Zuma addressed BRICS' captains of industry prior to the last BRICS summit in India, and emphasized that South Africa's participation in BRICS was designed to help us achieve inclusive growth, sustainable development and a prosperous South Africa. The BRICS Business Forum's joint statement called on the respective governments to deepen economic engagement of which trade and investment were identified as the pillars of such an engagement. The target for intra-BRICS trade was set to be enhanced from the present level of US$230 billion to at least US$500 billion by 2015. The business leaders called for improvement of the quality of trade by focusing on more value-added trade in the three sectors of manufacturing, services and agriculture.
Distinguished Guests,
I wish to focus our business leaders on the fact that South Africa's service sector comprises two thirds of our economy (65, 9%), which compares favourably with our BRICS partners and provides niche opportunities. The BRICS Business Forum further cited opportunities in sectors such as, but not limited to, agriculture, energy, infrastructure, mining beneficiation and healthcare. As you can see, South Africa already enjoys comparative advantages in these cited sectors. Domestic economic priorities, such as increased beneficiation at source, could be pursued through joint partnerships and ventures.
At the Delhi Summit, other possible areas of cooperation, ranging from energy to construction and water provision were also discussed. President Zuma urged us in his State of the Nation Address that the triple challenge of poverty; unemployment and inequality required our single-minded attention. The New Growth Path framework is geared at achieving inclusive growth and creating jobs. We identified six jobs drivers to help us achieve the much-needed growth leading to jobs — I spoke about these in the beginning of my address.
Ladies and Gentlemen, Captains of Industry;
To facilitate the success of these drivers, business should focus on enhancing the intra-BRICS business cooperation and coordination by promoting opportunities in the area of availing economic opportunities in infrastructure development. We have begun working intensively on the infrastructure strategy through the Presidential Infrastructure Coordinating Commission (PICC).
I have no doubt that we are on course to spend in excess of R860 billion on infrastructures by March 2014. Infrastructure is therefore at the heart of how we will change the lives of our people in the next decade.
Today I want to place a challenge, and also make a clarion call to business — please invest in skills development in your respective companies. In this way, you will be promoting youth training and empowerment through their engagement with BRICS countries.
On the new development bank: As already explained, South Africa is excited by the plans for a new BRICS-led development bank, which would further facilitate cooperation among members of the BRICS business community. The bank will reinforce the BRICS grouping by utilising surplus reserves. It will also encourage investment in a more sustainable and productive manner. South Africa will co-chair with India the joint working group under the auspices of the respective finance ministers to ensure that this initiative's feasibility be thoroughly investigated as well as benefit South Africa and Africa to the extent possible.
The South African National Advisory Group on the new development bank will meet in the near future to prepare South Africa's technical input hereto. The President has also signalled that we are convinced that we can negotiate new types of mutually beneficial developmental agreements with BRICS countries on infrastructure development.
On promoting intra-BRICS trade: Here, I wish to challenge you all to study the agreements signed during the BRICS summit under the auspices of the BRICS Inter-Bank Cooperation Mechanism. Areas covered in these agreements include the Master Agreement on Extending Credit Facility in Local Currency and the Multilateral Letter of Credit Confirmation Facility Agreement.
Ladies and Gentlemen;
These measures are intended to increase commercial transactions, since currently, business people have to convert local currencies into dollars before reconverting them into the currency of the trade partner, and this escalates transaction costs. Another exciting initiative that has been launched is the Alliance of Exchanges, which will entail cross-listing of equity index derivatives and trading in the local currency. Companies are therefore encouraged to facilitate engagement with their counterparts in BRICS countries.
South Africa seeks to increase its exports of higher value-added products and to encourage inward investment to support our beneficiation and industrial development objectives. Our work in BRICS is increasingly focused on cooperation to achieve these ends.
Finally, cooperation on another crucial infrastructure project is underway, requiring our collective involvement — the proposed high-capacity marine cable system linking the BRICS countries. This will address the connectivity challenges which have featured as impediments to intra-BRICS trade. The end of apartheid has put our country on a firm footing to play its part in global affairs for a better South Africa, Africa and the world. Our national agenda is aimed at achieving inclusive economic growth for our people as well as the people of our continent.
This objective is strongly complemented by the exponential and accelerator growth potential which BRICS engagement has delivered to us and our neighbours. Therefore, the potential for growing our own trade and investment, as well as intra-African trade and investment must be further maximised. We will utilise our Chairpersonship of BRICS in 2013 to vigorously pursue support for these goals.
According to the World Economic Forum's Global Competitiveness Report 2012/13 released on the 05/09/2012 "South Africa is ranked 52nd this year, remaining the highest-ranked country in sub-Saharan Africa and the third-placed among the BRICS economies. Among the BRICS, the People's Republic of China (29th) continues to lead the group. Brazil is ranked 48th, South Africa 52nd, India 59th and Russia 67th. South Africa did well on measures of the quality of its institutions and on intellectual property protection (ranking 20th), property rights (26th), its goods market efficiency (32nd) and the accountability of its private institutions (2nd). These combined attributes make South Africa the most competitive economy in the region."
Indeed, with such commendable figures and track record, our membership of BRICS will promote trade and investment, enhance industrialisation and promote job creation at home. These figures give credence and validity to Jim O'Neil's recent article on "South Africa's BRICS Score", in which he commends South Africa for scoring well for the cost of setting up business and for most of macroeconomic stability variables and that we also do reasonably well in some areas of governance.
Ladies and Gentlemen,
In conclusion, there can be little doubt that through South Africa, the rest of Africa will benefit from this membership of the BRICS formation. The South African Government pledges its commitment to continuously engage and support business in South Africa and also work tirelessly in tandem with our BRIC counterparts to forge stronger partnerships to deliver prosperity and progress to our peoples.
Our vision of a prosperous BRICS is a reflection of South Africa's rising influence in the world.
When the global economic sun is setting down in many parts of the world, in Africa, it will be shining for continental regeneration, and South Africa will be there when it happens!
I thank you.
Source: Department of International Relations and Cooperation, Republic of South Africa