CAPE TOWN — In this rational, balanced and insightful piece, Glenn Silverman, CIO for an independent financial services group and long-time student of BRICS, unpacks the current strengths and weaknesses of the economic alliance. There are some telling markers when it comes to the johnnie-come-lately member of the alliance, balanced by several important areas where we outperform our allies. Try this on for size; for a decade up to 2016, SA was ranked in the top three positions globally in key areas such as audit and reporting, corporate board efficacy, protection of minority interests, exchange regulation, and local equity financing. By last year (in an astonishingly short time), we had collapsed in every category to rank somewhere between position 25 and 46. No prizes for guessing why. Yet in our media, judicial system, constitution, protection of property rights and (still) our financial services sector, we’re the strongest BRICS member. Just imagine what value we could add if we outperformed our partners on controlling and cleaning out corruption – instead of taking lessons in the sleight of backhanding. – Chris Bateman
By Glenn Silverman*
By visiting and researching Brazil, Russia, India, China and South Africa (BRICS) individually between 2012 to 2014, many of the experts that were interviewed were adamant that the bloc would never survive. In their view, the acronym was merely a clever marketing ploy coined by Jim O’Neill back in 2001 that caught the eye of many but that would never amount to anything meaningful or sustainable. For many years, the BRICS, a sub-component of the wider emerging market universe, did, in fact, disappoint, at least from an investment perspective.
With that said, the BRICS trade bloc just celebrated its 10th birthday at a lavish gathering in Johannesburg. According to the trade bloc, the group’s relationships are more unified, stronger and healthier than ever, and ready to challenge to the West and its institutions.
The BRICS arrangement was never going to be an easy construct, especially given the challenges and differences of the respective economies from a historic, geographic, economic, political, philosophical and size perspective (to name but a few). Considering the latter, it was hard not to be sceptical.
Since inception, the political commitment of the participants has been a key component to the sustainability of the BRICS. This commitment is also rooted in its origin – conceived by Russian President Putin, with its first summit held in Russia in 2009 – BRIC (before SA joined) was established with the goal (at least implicitly) to act as a bulwark against the West. It would be a way for the BRIC economies to stand up to the economic, political and financial power of the West (especially the USA) and the global financial institutions that it either created or controlled.
Whilst the inspiration for the group came from Russia, it is China that gives it its huge clout, whether that be in terms of population (world rank #1), or economic power (world rank #2). China is, therefore, the ‘dragon leading the BRICS dance’. And so, when the ‘Big C’ invited SA to join the bloc in 2010 it was a ‘defining event’ for SA. One that would necessitate a change in SA’s geopolitical alignment and bring with it certain advantages as well as disadvantages, with some more but others less obvious.
This year, SA hosted the 10th BRICS summit in Johannesburg and is also chairing the bloc for 2018. No further members will be added, although there is a clear effort to make others, for example neighbouring African countries, feel welcome and included.
While it has been a tough decade for most of the BRICS, both economically and politically, the group has stayed together and has grown increasingly stronger and more confident.
India has been a star performer with a positive change in leadership, improved economic growth and impressive structural change. More is left to be done but the signs are positive.
Even though its rate of growth has, understandably, slowed, China has continued to grow strongly nonetheless. Its strength is real, as is its key regional economic initiatives (Belt and Road) and increasing ventures into Africa. This does, however, mask some weaknesses such as its high level of debt and pollution, weak state-owned enterprises (SOEs) and shadow banking sector. Its increasingly autocratic leader, Xi Jinping, is unquestionably the most powerful since Chairman Mao.
For Russia, Brazil and SA, the going has been tough. The three countries continue to be plagued by serious political issues and, in cases, near recessionary economic conditions. Russia has had sanctions imposed in it by the West, as it increasingly flexes its military muscle in many corners of the globe. Most of the respective challenges these three economies are facing have also been of their own makings.
Taking a closer look at SA, when SA joined the BRICS, former president Jacob Zuma was at the helm and in power for most of the decade of its existence. Under Zuma’s leadership, SA lost its way economically and financially, with its highly regarded institutions, along with its reputation and moral standing suffering severe damage.
The scourge of corruption (ironically, a noted feature of all the other BRICS but also many other emerging markets too) has come to the fore with vengeance. The total costs will be tallied for years to come and has ensured SA’s dramatic descent. SA’s significant plunge in the World Economic Forum (WEF) Global Competitiveness survey is proof of this. For a full decade up to 2016, SA was ranked in the top three positions globally in key areas such as audit and reporting, corporate board efficacy, protection of minority interests, exchange regulation, and local equity financing. However, in the 2017 survey, SA fell in every category, to rank somewhere between position 25 and 46 – an almost unheard-of level of collapse. SA, a previous global leader in Financial Services, can no longer enjoy this claim to fame, and worse, the situation will not be easily reversed.
What does the future hold for SA in the BRICS?
It is now clear that the BRICS bloc is here to stay. The political will is strong, and that, along with the growing business links, and creation of the likes of the New Development Bank, will ensure that, in a post West-dominated world, the likes of China, and its erstwhile allies, will likely continue to gain prominence, acceptance and influence. The global leadership vacuum created by President Trump, has created a gap that the BRICS are arguably both keen, and able, to exploit.
SA has allied itself to the BRICS and (probably) rightly so. President Ramaphosa is close to the Chinese, and both liked and supported by them. As the saying goes – it pays to have friends in high places – and having the ‘Big C’ in SA’s corner is advantageous, even if China has, at times, been perceived to be a bully. This is, therefore, also a key challenge to SA within the BRICS. How does it remain an equal partner, yet maintain its independence and moral standing? How does it say no, when appropriate, to its BRICS partners, whether that be on nuclear power, or on human rights issues?
SA has robust, independent and highly respected institutions in critical areas. Its media, judicial system, constitution, protection of property rights and (still) its financial services sector are arguably the strongest amongst all the BRICS. It is vital that these key areas are not only nurtured and protected but then also passed onto the other BRICS. These would be amongst the greatest gift that SA could bring to the BRICS, enable both the bloc, and the individual countries to scale even greater heights.
- Glenn Silverman, Acting Chief Investment Officer at Novare Investments, and co-author of BRICS: HalfWay There.