Building BRICS of Foreign Aid: Newest Member of the Club

South Africa: To BRIC or not to BRIC?

The term “BRIC” was first coined by Goldman Sachs economist Jim O’Neill in reference to the group of emerging economies that O’Neill thought had the potential to become an economic bloc rivaling the industrialized economies over the course of the next century. While not originally used to refer to a political alliance of these countries, the term BRIC has been co-opted by the countries themselves who now hold summits to discuss issues of common concern to emerging economies.

A few years ago South Africa began to lobby the other BRIC countries to be admitted to the group.  In 2010, it got its wish and an ‘S’ was added to the end of the BRIC acronym. But even now that South Africa is formally a member of the club, many people question whether it makes sense to think of South Africa in this way.  Is South Africa a future economic powerhouse with the same economic potential as the other BRIC countries?

South Africa falls short of the BRIC countries in virtually every economic indicator.  Its population of about 50 million is dwarfed by even Brazil and Russia, let alone India and China.  Life expectancy in South Africa is 55 years compared to India—the least of the others—where it is 66 years.  Its GDP is both smaller and growing more slowly than any of the other BRICS.  The only indicators in which it scores some points are per capita GDP and literacy where it ranks 3rd and 4th out of 5 respectively. Moreover, South Africa’s economy is one-dimensional.  Its comparative advantage is in primary resource exports, especially minerals.  Its economy is therefore subject to external price fluctuations and will, for the foreseeable future, have limited growth in manufacturing and other industries.

Perhaps it would have made more sense to expand the BRIC group to include countries with similar populations, growth rates and long-term economic potentials. Indonesia, Mexico or Turkey would all have been logical choices. But South Africa has something these other countries lack, namely: its position on the African continent.

Economists are increasingly lauding Africa’s tremendous economic potential.  The continent is home to roughly a billion people and has huge reserve of untapped natural resources. That’s why the BRICS are investing so heavily in Africa even as Western donors are scaling back.  Trade between Africa and the BRICS has increased fourfold in the last ten years.

While South Africa’s economy will always be the smallest of the BRICS, it is still big by African standards and makes up nearly a third of sub-Saharan Africa’s GDP. South Africa’s mining sector is a magnet for migrant workers whose remittances help fuel the economies of its neighbors. Being the most developed in the region, its financial sector acts as a sort of conduit for investment to Africa and ranks first among the BRICS on the World Economic Forum Report on Global Competitiveness in Financial Markets. And it is seen as an example in improving testing and treating HIV and AIDS, one of Africa’s biggest health problems.

As South Africa develops its own economy, it is taking on a bigger role in regional development. In the past, its foreign aid has focused primarily on emergency response to humanitarian crisis and on military support for its allies.  Most of its aid goes through the African Renaissance Fund (ARF). But there are multiple South African agencies that distribute foreign aid which causes it to be disjointed and inconsistent. Next year, the South African Department of International Relations and Cooperation plans to streamline its bureaucracy through the creation of the South African Development Partnership Agency (SADPA).  SADPA will replace the ARF as the primary vehicle for delivering foreign aid and increase South Africa’s role as a development partner in the region. Seen in this light, South Africa was a natural choice to represent African interests to the group.

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