President Cyril Ramaphosa addressing the Brics stakeholders round-table meeting at the Sefako Makgatho presidential guest house. Picture: JAIRUS MMUTLE/GCIS
President Cyril Ramaphosa addressing the Brics stakeholders round-table meeting at the Sefako Makgatho presidential guest house. Picture: JAIRUS MMUTLE/GCIS

The economic muscle of the Brics group of nations is rising to nearly a third of global gross domestic product (GDP), yet members of the bloc, other than China and India, are likely to receive a declining share, new research shows.

At the 10th Brics Summit, hosted by SA in Johannesburg last week, members Brazil, Russia, India, China and SA pledged co-operation to promote peace and strengthen a fairer political and international order and promote inclusive growth.

There was also commitment to collaborative research on various fronts including agriculture, energy and the environment. Infrastructure development and integration to bolster economic ties was emphasised.

A vaccine research & development centre to be established in SA is on the cards, while the groundwork for a Brics Contingent Reserve Arrangement is near completion. Co-operation between the latter and the International Monetary Fund (IMF) is envisaged.

On the financing front a greater role is expected for multilateral development banks such as the Brics-funded New Development Bank — a monument to the club’s first decade — in "catalysing private sector financing for public infrastructure and investment", as the Johannesburg Declaration signed by the heads of state puts it.

By 2020, the demand for infrastructure investment in member countries is expected to be $1.1 trillion with a funding gap of $134bn that has to be raised, according to New Development Bank president KV Kamath. To date the bank has approved just over 20 projects valued at about $5bn.

Rising protectionist policies by the US in particular threaten multilateralism and the international rules-based trading system, presenting opportunities for the Brics countries, which are committed to the advancement of other developing nations.

However, Brics as a group is yet to achieve its full potential as a mechanism for promoting trade and investment, research conducted by two SA firms, Tutwa Consulting and Trade Advisory, shows.

The bloc’s economic muscle is largely accounted for by the size of the Chinese and Indian economies. The others are projected to suffer a decline in share over the next six years.

For SA especially, the IMF projects GDP to begin to muster 2% growth in 2020 from weaker levels.

Brics accounted for about 18.1% of the value of global exports last year and 14.9% of global imports by value. Over the past five years, the share of intra-Brics trade has been steady yet marginal, accounting for 18.7% of their total exports and 17.9% of total Brics goods imported.

Brics trade on the African continent has been similar, with imports and exports peaking in 2014, followed by a slump. But there was a recovery last year. "Disaggregated by country, it’s evident that the pattern is driven largely by Chinese trade and this is reflected in a breakdown of the ongoing trade deficit that Africa has had with Brics since 2013," the two research firms find.

SA has had a decline in trade with other Brics countries since 2012/2013 but an improvement last year. Russia is now the only country where trade with SA has exceeded 2012 levels. But last year China still accounted for 70% of SA’s trade.

In terms of investment, research by Baker McKenzie and IJGlobal shows a rise in investment into energy, mining and infrastructure mostly bound for African countries. The drive is led mainly by China. Chinese loans to energy and infrastructure projects on the continent almost trebled between 2016 and 2017 to $8.8bn from $3bn previously. In sub-Saharan Africa, Chinese lending accounted for more than 40% of infrastructure finance last year. The China Development Bank and Exim Bank of China are emerging as frontrunners in bridging Africa’s infrastructure gap. Lending for transport projects is waning. The oil and gas sector is also benefiting from Chinese investment.

Almost half of the total $19bn of Chinese outbound loans committed to infrastructure projects in sub-Saharan Africa since 2014 were made in 2017, with Kenya and Nigeria benefiting the most, according to Kieran Whyte, head of energy, mining & infrastructure at Baker McKenzie. This is based on fully financed projects and excludes recent government funding commitments.

What it means

Non-tariff barriers remain a critical challenge for greater inter-Brics trade

Though the US recently reinvigorated its Power Africa programme, Africa and the Middle East have been turning to China. European development finance institutions focus on lending for renewable-energy projects in Africa where coal remains the dominant energy source. Grid capacity doesn’t necessarily exist and two-thirds of the continent lives without ready access to power.

China’s dominance of the bloc seems largely to advance its own causes. Its Belt & Road Initiative has progressed from 31 deals in 2012 to 105 in 2017. The initiative is China’s development strategy tying a 21st century maritime silk road and a Silk Road economic belt, though at the summit President Xi Jinping urged Africa and the world to also take ownership of the strategy. Energy as a catalyst for growth of other sectors provides a platform for long-term economic development, while infrastructure is also an area of competence for many Chinese construction firms, Whyte said.

To strengthen Brics, the bloc will have to improve trade between its members first. Tutwa and Trade Advisory research indicates that nontariff barriers remain a critical challenge for greater inter-Brics trade.

The researchers suggest among other things the creation of intra-Brics value chains that build on existing trade with China and encourage linkages between other Brics countries, facilitate potential linkages between investment by Brics members and those made by the development bank to increase intra-group trade.