Author: Graeme Polson
South Africa being the latest and smallest addition to the BRICS nations seems to perform well being a part of this Alliance.
A few years ago, it was expected that BRICS would become the economic drivers for global trade and explosive growth, with weak growth rates in GDPs last year, it is clear that BRICS has not accomplished “explosive growth” just yet, however South Africa’s showed a positive but small increase in GDP growth rate last year.
“South Africa – grew by just 2.5 percent last year. China’s full GDP growth in 2012 was 7.8 percent, the weakest it has ever been since 1999. Russia saw 3.4 percent growth last year the lowest figure since 2009. India saw 6.8 percent growth and Brazil had a measly 0.9 percent.” (Fortin J, 2013)
It is reassuring that, despite the country’s high crime and unemployment rate, South Africa’s business confidence increased to 52 in the first quarter of 2013 from 46 in the fourth quarter of 2012, according to statistics reported by the Bureau of Economic Research. China also saw an increase during the same period in contrast to Brazil and India which saw a slight decrease and Russia’s business confidence remained unchanged.
In support of these statistics, it is remarkable to see that the platform for global trade established by the BRICS Bloc, is not only reduced to the obvious trade patterns based on a country’s comparative advantage, initially introduced by the 19th century English economist, David Ricardo, that described it as “the ability of a nation to produce a good more efficiently than other nations, but an ability to produce that good more efficiently than it does any other good”.
In the BRICS case, China has an obvious comparative advantage in producing high tech, labour intensive final products. South Africa, Brazil and Russia have a comparative advantage in the production of natural resources.
Contrary to these conventional trade patterns, The Paramount Group, a South African company founded in 1994 by entrepreneur and chairperson, Ivor Ichikowitz, specialising in global defence, internal and peacekeeping securities, will now supply their armoured security vehicle “The Maverick” to Rio de Janeiro, Brazil. Brazil is keen to upgrade their security before the commencement of the two most important sporting events, The FIFA World Cup 2014 and The Summer Olympics of 2016.
We hope that interesting trade patterns such as these, where South Africa can produce and deliver final complex products on large scale will increase in the future. Not only for the sake of increasing job creation and skills development, which will also eventually increase business confidence but also to relieve the pressure on depleting our precious natural resources that amounts to a large percentage of South Africa’s comparative advantage in commodities destined for the export market.
One may also speculate that South Africa experienced an increase in business confidence as trade patterns were obliged to shift to emerging markets, if regard is had in the consequences of the Euro Zone debt crisis resulting in low GDP growth rates and severe austerity measures currently in action.
We predict further economic integration amongst these nations as;
- The construction of a development bank for the BRICS nations will provide more financial control over their investment decision in capital,
- The dumping of the BRICS bloc’s foreign exchange holding in the euro, which decreases the euro’s status as world reserve currency, as the BRICS nations try to strengthen their alliance,
- The announced direct currency swap between China and Brazil, involving trading in each other’s currencies for a period of three years that amounts to an exchange of $30 billion in trade per year, in an attempt to shift some trade away from the US dollar, hedging against another financial crisis such as the American economy that plunged into recession as a result of the collapse of the US housing market in 2008.
- The trade explosion between Brazil and China that escalated from nearly 7 billion in 2003 to 75 billion dollars in 2012.
Further economic integration such as these efforts already mentioned, will surely enhance the BRICS Bloc’s economic stability and business confidence as it is most certainly, mutually beneficial for each nation’s business confidence and stability respectively, in particular that of South Africa, despite their unique difficulties in being emerging economies.
©2013 G Polson: Universe, International Business Consulting (Pty) Ltd
Fortin, J. (2013, 04 16). A Boon For BRICS: Security Vehicle deal links Brazil to South African Defense Company. International Business Times .
Ryan, V. (2013, March 26). So Long, Yankees! China and Brazil Ditch US Dollar in Trade deal before BRICS Summit. Retrieved from International Business times: http://www.ibtimes.com
Villarreal, R. (2013, 04 04). BRICS Kiss Euro goodbye, dump foreign Exchange Reserves. International Business times .
World indicators. (n.d.). Retrieved from Tradingeconomics: www.tradingeconomics.com