The Brazil, Russia, India, China and SA (Brics) summit kicks off on Tuesday at the Sandton Convention Centre in Johannesburg, where at least 40 heads of state and government are expected to join Brics leaders.
Key economic agenda items that will be discussed include deepening the use of local currencies in trade between member states, together with the establishment of a common payments system.
The SA chapter of the Brics Business Council said it will ask Brics counterparts to address uneven trade patterns among members. In 2022, SA sold exports valued at $17.6bn to Brics markets and bought imports valued at $32.5bn from Brics countries, generating a trade deficit of $14.9bn. The 2022 trade deficit was more than four times larger than the deficit of $3.7bn recorded in 2010 when it joined the five-country grouping.
Chair of the SA chapter of the Brics Business Council Busisiwe Mabuza said it will propose Brics partners consider outsourcing or relocating parts of their industrial production to SA, where they will find new export markets facilitated by the African Continental Free Trade Area (AfCFTA), particularly in agriculture and the automotive, pharmaceutical and logistics industries.
“There is a need for Brics countries to collaborate and remove bottlenecks that stifle the free flow of imports and exports across the bloc,” Mabuza said. “If this trade imbalance is left unaddressed, it has the potential of hurting economic growth and job creation in the deficit-running country.”
She said relocation and outsourcing would work as SA is a preferred location for multinationals looking to access markets in Africa and for those looking to take advantage of the AfCFTA, the world’s largest free trade area spanning 47 African countries with a combined 1.3-billion population and GDP totalling $3.4-trillion.
Chinese ambassador to SA Chen Xiaodong said financial and monetary policies will be also be discussed at this week’s summit. He said economic and monetary co-operation, including a common currency, was essential for the future of the group.
A new common currency has been touted for some time as a way to reduce the dominance of the dollar in international trade (80% of global trade is settled in dollars) and bypass Western-style political economy and financial regimes, providing more accessible international trade avenues.
In a note, Investec said it would take years to collaboratively develop the financial and banking infrastructure to support a common currency. “Instead, attention seems geared towards developing a currency unit that can be used to settle cross-border trade only, rather than a currency unit to replace local currencies.”
Brics represents about 42% of the world’s population and 32% of global GDP. Trade between SA and its Brics counterparts expanded exponentially between 2016 and 2022, growing annually by about 7% to reach $50.1bn in 2022.
Business indicator
The Reserve Bank’s leading business indicator for June will be published on Tuesday. The leading indicator, which offers a projection of SA’s economic growth cycle for the next six to 12 months, declined 1.7% month on month in May, after falling 1% in April, pointing to weak future economic activity.
Reserve Bank data showed that six of the 10 available constituent variables contributed to the decline. The largest contributors were a decrease in residential building plans approved, as well as the dollar-denominated index of SA’s export commodities. The most significant positive contributions were from a wider interest rate spread and accelerated trend growth in real M1 money supply.
FNB economists said the leading indicator is signalling an elevated probability of subdued growth or a recession.
Data on consumer inflation for July will be released by Stats SA on Wednesday.
Headline inflation cooled to its lowest reading in 20 months in June, falling back within the Reserve Bank’s 3%-6% target range. The consumer price index slowed to 5.4% from 6.3% in May and came in below the Thomson Reuters consensus of 5.6%.
Annual core inflation reached a five-month low of 5% in June from 5.2% in May and was below forecasts of 5.1%. Core inflation has been inside the target range for the past 26 months, and above the midpoint of the target of 4.5% for the past 10 months.
Stanlib chief economist Kevin Lings said that while the decline in core inflation is welcome, risks that may affect it on the upside include an upward bias in wage increases, the pending 18.65% increase in electricity tariffs and continued cost pressures due to electricity outages.
He said SA’s inflation rate is expected to remain inside the target range throughout the second half of 2023, notwithstanding the pending increase in the electricity price and recent rand volatility.
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