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Africa Macro 26 June 2018

The BRICS Summit

Jeremy Stevens

The commercial relevance of the BRICS to one another needs elevation; so do their institutional underpinnings

  • The cyclical improvement in the BRICS economic prognosis lays a constructive platform for the upcoming summit in Johannesburg in July. However, the reality is that the BRICS economic trajectory is almost entirely about the prospects of China and India.
  • It would be foolish to ignore the strong business cycle synchronization between emerging markets and the rest of the world. However, the BRICS must find ways to elevate their commercial relevance to one another. Unfortunately, the commercial relevance of the BRICS to one another is minimal. Intra-BRICS trade has actually fallen, from USD342bn in 2013 to USD312bn in 2017. Furthermore, taken as a share of their respective trade, the BRICS share has plateaued, after doubling from 6% 2003 to 12% 2011. In fact, it fell sharply in 2016.
  • The trade data is simple; for each of the BRICS, China is a large trade partner; just 20% of BRICS trade excludes China. The trade relation is therefore unbalanced. China is exporting manufactured goods to the other BRICS in proportions consistent with their relative GDP, whilst importing mineral products from Russia, Brazil and South Africa, and prepared foodstuff from Brazil. In fact, there isn’t anything particularly special about the commercial cords between BRICS.
  • Even though the statement is true for India, too, it is specifically important for Brazil and South Africa to ensure that the bloc puts building manufacturing capacity at the centre to create much needed jobs and enhance skills.
  • In some respects, the timing for South Africa and the other BRICS couldn’t be better: China’s sense of encirclement is ratcheting higher with every passing week as China's industrial policy exposes economic tensions with the US, tensions unlikely to be resolved any time soon.
  • Protectionism and unilateralism have cast doubt over harmony within global multilateral intuitions such as the G7 and perhaps even the G20. BRICS will need to add their collective voice to the discussion.
  • The BRICS attention, focus and resources must now be on ensuring the commercial success of the New Development Bank. BRICS must focus on building the institutional arrangements and architecture that reinforce the bloc’s relevance in a way that links their respective internal development objectives whilst also recognizing that BRICS is a voice for all emerging markets.
  • For South Africa, the starting point should be manufacturing and job creation.

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