Out-Law News | 26 Jul 2018 | 9:34 am | 3 min. read
The announcement of $14.7 billion of investment in South Africa by China shows the benefits of membership for South Africa and the value placed on South Africa's participation by the group's most powerful member.
South Africa only joined BRICS in 2010 and is much smaller than the other BRICS countries, Brazil, Russia, India and China. Because of this its role in the group has been questioned, but this week's summit gives it the opportunity to emphasise its value to the group, and to encourage investment in a way that most benefits the South Africa economy.
The first day of the summit, Wednesday 25 July, confirmed the general view that the meeting is likely to address the growing risk of an international trade war in the wake of US president Donald Trump's threats of protectionist trade policies and increased tensions between Russia and G7 countries over alleged interference in elections and referendums.
It is a geopolitically fraught time, and international groupings like BRICS need all the help and stability they can get. This makes South Africa more valuable than ever.
South Africa was not a founding member of the group and according to International Monetary Fund figures its economy is five times smaller than Russia's, the next-smallest economy by GDP.
But South Africa's importance in the group should not be underestimated. BRICS is a political as well as an economic group, seeking to provide a counter-balance to the G7 group of the world's biggest economies, which is focused on countries in the north and west.
South Africa played a vital role in ensuring that the bigger G20 group took account of issues important to all of Africa, and when admitted in 2010 it had the biggest economy on the continent, though Nigeria's is now larger.
China is the economically dominant member of BRICS and it has underlined South Africa's strategic importance with promises of $14.7bn of investment. This is a huge sum – in 2017 all foreign direct investment into South Africa was $1.3bn.
China is the target of much of Trump's trading rhetoric and the investment may signal its intention to further develop non-US trading relationships.
China is South Africa's biggest trading partner and the investment comes in the form of a number of agreements with state owned companies, private companies and loans to South Africa's state-owned power and logistics companies.
South Africa is important to BRICS not just on its own account but also as a gateway to other African countries. Leaders from Angola and Zambia will join this week's summit and South Africa is developing as a facilitator of inward investment for those and other countries.
South Africa faces a complex balancing act. On the one hand it must use the opportunity for its own ends and ensure that enough of that investment is retained here, especially as foreign direct investment fell dramatically in 2017, 41% down on the previous year. Investment to South Africa fell 21% in the same period, to $42bn. On the other hand, South Africa must demonstrate its commitment to engage in regional and continent-wide reciprocity if it is to benefit from the substantial market which Africa presents for South Africa's significant export capacity. Indeed the theme for this year's summit is "BRICS in Africa: Collaboration for Inclusive Growth and Shared Prosperity in the 4th Industrial Revolution" and South Africa has placed Africa-wide growth and shared prosperity front and centre.
South Africa's construction services and heavy engineering sectors, which have historically been major job contributors, are in desperate need of a sustainable major infrastructure project pipeline. However, to flourish and be sustainable, the project pipeline cannot be solely domestic. China's $14.7 billion investment on the back of the recently announced commitment by Saudi and the UAE to invest $10bn each go a long way towards president Ramaphosa's $100bn foreign investment target and, properly balanced, could prove to be the catalyst needed to meet that delicate balance.
Growing political and trading uncertainty across the world makes it more vital than ever for BRICS to have a strong partner in Africa. The opportunities are there this week – South Africa just has to capitalise on them.
Rob Morson is a Johannesburg-based infrastructure expert at Pinsent Masons, the law firm behind Out-Law.com.