South Africa the Next Emerging Market Powerhouse?

by Robert Hsu | April 23, 2011 2:00 pm

Part of the reason why China is seeing inflation is massive economic growth enjoyed by the nation. The growth in China, as well as the growth of the BRIC economies, was the subject of a recent summit held in Sanya, China’s southernmost city in the Hainan province.

The BRIC nations — Brazil, Russia, India, China — have all become important and powerful economic forces. Together, they’ve soared past the original predictions of Goldman Sachs executive Jim O’Neill, the man who coined the acronym BRIC, regarding what influence these countries were going to have.

Interestingly, the BRIC summit was actually a BRICS summit, as it included South Africa. The inclusion of another country here in the same breath as the original BRIC nations is significant, because it’s transformed the group into a truly global entity. South Africa is largely seen as a gateway for BRIC trade and investments into the resource-rich nations of Africa.

This grouping of five countries — accounting for 43% of the world’s population, 18% of the world’s economic aggregate and 15% of international trade, and which attracts 53% of foreign capital — cannot be ignored. Especially considering that by the year 2015, according to the International Monetary Fund, BRIC countries (excluding South Africa) will account for 21.6% of the world’s GDP, on par with the United States, 20.1% of the world’s exports, or more than double the U.S. export share, and 18% of the world’s imports, compared to just 12% from the United States.

Right now, every global trend favors the BRICS, and the potential here is enormous. In fact, although South Africa’s entry into the BRIC club has been criticized by Jim O’Neill on grounds that the nation’s influence on global economic trends is too small to qualify it as a BRIC member, the inclusion of South Africa in the summit by the other four countries shows that this group has its own identity, and is imposing its own footprint on the world.

While the inclusion of South Africa in the BRICS meeting was probably the most interesting development, the summit didn’t produce much real news that was shared beyond the closed doors. The BRICS countries called for changes in the global economic governance architecture that would better reflect their voices on global economic issues, with the official statement released after the summit saying:

“The governing structure of the international financial institutions should reflect the changes in the world economy, increasing the voice and representation of emerging economies and developing countries.”

We’re already seeing international financial institutions such as the IMF and the World Bank make changes to give emerging economies a greater representation, and I think that this trend will continue.

The other development that came from the summit was the inking of a framework pact between the major banks of each economy — an agreement that the countries would establish credit lines denominated in their local currencies, rather than dollars. This is an opening salvo, as central bankers in fast-growing emerging economies increasingly lose faith in the U.S. dollar. This dollar devaluation will likely continue in the near future.

Overall, the summit reveals that major emerging market economies want to have a greater influence on the global stage. The leaders of these nations believe that they share different common interests with each other than with developed economies led by the United States.

Looking forward, I think that the BRIC and BRICS nations will continue to give investors plenty of tantalizing opportunities.

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