With the streets of Sandton gridlocked by traffic, intense security details and road closures as we host heads of state from across the globe in the Brics summit, it is no wonder that this is the topic of the day.
But we have been here before — maybe not the Brics summit, but certainly the air of great expectation and the air of great disappointment all around us, all at once. The last distinct memory is the 2010 Fifa World Cup. Though a different event, it came with similar hopes of economic opportunity for SA.
This conference, which until a couple of weeks ago, when Russian President Vladimir Putin was set to come in person, was a hot political mess with SA at the centre, has now turned more positive with everyone looking for potential upsides. The main question remains, what do we want out of the Brics summit, and indeed Brics itself? But also, what can we realistically achieve?
The combination of countries is made up of producers of commodities, like SA, and consumers of commodities, mainly China — so it stands to reason that the primary purpose of Brics, which is increased trade between member states, would be achievable. But on looking closer at the numbers we find that only China and India feature in the top 10 trading partner economies with SA.
China features as a big trading partner of all Brics member states, with Russia and India also featuring in a few of the countries, namely each other and China. Brazil features once with China. SA does not feature as a big trading partner economy with any of the other Brics nations. While there is trade between the member states, a lot more could certainly be done.
One strategic objective for SA would therefore be to make the cut as a top 10 big trading partner economy with some of the Brics member states. Of course, scale is an issue, with the SA economy being the only one with an economy that is below $1-trillion, the second smallest being Russia at about $2-trillion — almost three times the size of ours. China, of course, is the largest at about $18-trillion. — about 25 times the size of SA.. And in this instance we can safely say that size matters. Inasmuch as scale is an issue, it is also an opportunity for growth.
A resolution has been taken to expand the number of member states to include Argentina, Egypt, Iran, Ethiopia, Saudi Arabia and the United Arab Emirates (UAE.). This increases Brics’s global reach, with an estimated economic size in excess of 30% of global GDP and a population size of 45% of the world. This brings opportunity from a resources and production perspective, and also from a market perspective for producers of goods within Brics.
Historically, a big criticism however from a SA perspective has been being viewed as a raw materials producer and an end market for refined products. We need to find ways to rebuild our labour-intensive sectors including manufacturing and construction to reduce our high unemployment, which still sit above pre-Covid, and participate as much as possible in the full value chain.
Internally, before we are able to successfully position ourselves as a vibrant and diverse economy, willing and able to produce in scale, we need to capacitate our infrastructure. Looking at the various earnings releases as well as trading and production updates from various companies listed on the JSE,two themes have stood out: namely issues around energy and transport.
Companies across sectors, and in particular energy intensive sectors, have struggled due to load-shedding. A difficult choice is faced to either shut down operations during load-shedding hours or high capital costs in building systems with backup power as well as higher costs of energy where backup is powered through fuels such as diesel.
There has been some good news on deregulation of energy provision, but the implementation is lagging, and further lags are to be expected until we see a real economic effect. Meanwhile, companies particularly involved in imports and exports as well as logistics have additionally struggled with railway issues at Transnet and backlogs in the trucking industry, which should not be used as a primary mode of commercial transport.
Finance minister Enoch Godongwana, in his Medium-Term Budget Policy Statement, expected in October, will have a tough time balancing fiscal austerity with bolstering state-owned enterprises, including Eskom and Transnet. These remain among the biggest risks for containing the budget, alongside labour and costs of servicing debt, while also being among the largest stumbling blocks to unlocking economic value and opportunity.
Another development to track among Brics member states is the conversation about de-dollarisation, which would mean countries within the bloc would be able to trade with each other without converting to the dollar first. Proponents of the move argue that this would reduce currency volatility for the member states, ease access to funding and reduce trade barriers. Though this did not come into fruition at the summit, it is likely to continue being a subject of discussion.
• Smith is chief investment officer at Absa Global Investment Solutions, Stockbrokers & Portfolio Management.
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