Post-Durban Perspectives: The geo-politics behind geo-economics

17 April 2013 06:30 pm - 0 - {{hitsCtrl.values.hits}}

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At the recently concluded fifth BRICS summit held on March 26 and 27, 2013, Russian President Vladimir Putin, likened the BRICS nations – Brazil, Russia, India, China and South Africa – to Africa’s “Big Five” game beasts of trophy hunting lore – the lion, elephant, buffalo, leopard and rhinoceros.
At the convention held in Durban, the leaders of countries that make up more than 40 per cent of the world’s population and a fifth of global GDP agreed to set up a new development bank.

“We have decided to enter formal negotiations to establish a BRICS-led new development Bank based on our own considerable infrastructure needs, which amount to around $4.5 trillion over the next five years,” the host, South African President Jacob Zuma, told the summit.

“We have firmly established BRICS as a credible and constructive grouping in our quest to forge a new paradigm of global relations and cooperation,” Zuma said.
At the Durban summit, the South African hosts announced the signing of two multilateral agreements, one on “green economy co-financing”, the other on infrastructure co-financing for Africa, but no figures or details were immediately given.

Seasoned BRICS observers said they were not surprised by the lack of concrete institution- creating results from the summit. “I think there was too much hype around it,” said Martyn Davies, chief executive of the Johannesburg-based Frontier Advisory consultancy that focuses on emerging markets. They are still battling to create the economic institutions to back their geopolitical rhetoric ... the rhetoric is not supported by the substance,” he told Reuters. Just as lions, elephants and rhinos are not natural allies, Davies saw the BRICS countries as “very disparate, with no political commonality”.

The Doubting Thomases point out that some major contours of the proposed BRICS bank have yet to be defined and crucial issues remain unaddressed: Will its governance model go by consensus or voting rights? Where will it be domiciled? What will be the size of the corpus, for China is pushing for $100 billion and some others are comfortable with $50 billion? No doubt these will require a lot of effort to reconcile.

Yet what goes without saying is that on matters such as these, political will is very important and once that signal is conveyed in clear terms, the sherpas often manage an acceptable document for the high table after a nudge here or two, some green-room talks and behind the scenes give and take. In this case, the leaders have given a clear 12-month timeframe to the finance ministers. That’s where the BRICS Bank stands.

The Durban Summit in many ways also showed the benevolent face of the five-nation bloc by choosing the theme “BRICS and AFRICA: Partnership for Development, Integration and Industrialisation”. No other region in the world needs the kind of assistance for nation building as does the vast and largely impoverished 54-nation continent of Africa.

With the leaders announcing two funding mechanisms for African countries forged among the Exim Banks of the five BRICS members - one for sustainable development and another for infrastructure building - and once the development bank takes shape, the fiscal needs of several of these poor economies will be well-addressed in a much more organised manner. This is also because while global institutions have preferred single-country dealings and funding, the BRICS approach has been more multi-country projects that help in regional integration.

Led by China, the BRICS are now Africa’s largest trading partners and its biggest new group of investors. BRICS-Africa trade is seen eclipsing $500 billion by 2015, with China accounting for 60 per cent, according to Standard Bank. African governments and leaders broadly welcome the multi-billion-dollar Chinese-led BRICS trade and investment influx. The French daily Le Figaro believes that “little by little, the BRICS are asserting themselves.

The BRICS alliance has existed as a concept since 2001, when Jim O’Neill, a Goldman Sachs economist, identified Brazil, Russia, India and China as rising economic powers and argued that they should play larger roles in global economic policymaking, perhaps by joining the established Group of 7. Earlier, in the 1990s, Russia had already organised a triangular group with India and China — known as RIC — but the attention generated by Mr. O’Neill’s formulation apparently prompted these three to add Brazil and create a new political club.

First it was called BRIC, a group of emerging economies thought up in 2001 by a Goldman Sachs economist, Jim O’Neill, made up of Brazil, Russia, India and China. Then it acquired an “S” for South Africa and become BRICS. Now there’s talk of Indonesia, which has a strongly growing economy, maybe wanting in.
As the leaders of the BRICS nations met in South Africa in March 2013 and announced they would establish a development bank to help fund five-year infrastructure investment sums, plans for a financial “safety net”, or reserve, and a string of councils to add business and intellectual heft to the group, some are wondering if Indonesia should be in.

“You can add it as a sixth BRICS, perhaps, making it BRICSI,” PK Basu, regional head of Maybank in Singapore, told the BBC. Here’s the argument, from the Jakarta Post: Indonesia is the strongest Southeast Asian economy.

“McKinsey & Co. predicts that Indonesia will be the seventh-largest economy in the world and will add 90 million people to its middle class by 2030. There are 45 million middle-class Indonesians today, and the country ranks as the 16th largest economy in the world,” the newspaper wrote.

For now, though, it’s called BRICS, known in Chinese as “Gold Bricks” and China is a major, perhaps the major, driving force behind it, some commentators say. The concept of BRICS has been viewed skeptically by some who are asking what these nations actually have in common.

In the absence of concrete institutions to consolidate and leverage their clout on the global stage, Frontier Advisory’s Davies said the BRICS should consider widening their

organisation. “What about new members ... Turkey, Indonesia, Mexico, Nigeria?” he said. The CNN was quoted as saying, “As leaders of Brazil, Russia, India, China and South Africa convene in Durban, and the term “BRICS” used to describe these rapidly growing economies is so last year; today everyone is talking about the “CIVETS.”

Made up of Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa - these nations, some with sizable populations and others with a wealth of natural resources, could be the economic boomers of the next decade, according to John Bowler, director of Country Risk Service at the Economist Intelligence Unit. Although unlikely to rival the economic might of India and China or the resources of Russia and Brazil, this heterogeneous crew of emerging markets makes the CIVETS the next band of countries to profit from a shift in global power. Bowler highlights oil-rich Indonesia as a growth story for the next decade in particular.
With low levels of public debt and a population of more than 200 million people, the Southeast Asian nation posted a growth of 6% in 2012, at a time when economic giants such as China and India slowed.

Other members of the CIVETS - Colombia, Turkey and Vietnam -- all saw growth of more than 3% for 2012, according to IMF data. Bowler told CNN: “Turkey is an exciting emerging market and Colombia will continue to do well over the coming decade with good demographics and rich, diverse resources even though it has had problems with militia.”

However, Goldman Sachs economist Jim O’Neill, the man who coined the BRICS term in 2001, said any club including China is going to be very difficult to match. He said the world’s second- largest economy, in tandem with India, Russia, Brazil and South Africa, is still the big story for at least the next 10 years.
O’Neill added: “China creates another Cyprus every week, creates another South Africa every four months, has created another India in the past two years ... by the end of the decade the BRICS will have at least 25% of global GDP.”

salmayusuf@gmail.com

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Post-Durban Perspectives: The geo-politics behind geo-economics

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