"A guide to the new Bric"

por Charles Robertson

• On 14th April South Africa will formally join Brazil, Russia, India and China in the Brics forum, to be held in Hainan, China. As South Africa’s minister for investor relations has said: “We do not speak for South Africa alone but also for all other African countries”; so “not only South Africa but a larger African market of a billion people” is the real addition to this forum.

• Indeed, Africa and the Bric countries contain half the world’s population, roughly 3.8bn of a total 6.9bn, and they also account for much of the world’s population growth. From 2000 to 2020, Asia’s population will have risen by 840m to 4.53bn and Africa’s by 451m to 1.26bn. Europe’s population will be stagnating, rising just 5m, and aging.

• At $12,700bn, the GDP of the Bric countries with Africa in 2010 was larger than the $12.2 trillion of the Eurozone. By 2012, the IMF estimates their combined GDP of $15.91 trillion should surpass the US GDP of $15.88 trillion. Note we do not use PPP numbers here. We prefer to use hard cash figures – actually, as we’re talking US dollars perhaps soft cash is the better description given recent dollar weakness (let’s not even talk about the UK pound) – because it is cash that matters when we are talking about trade, investment and profits.

• African GDP rose by more than India’s in 2008 and the IMF expects this to be repeated in 2011. We suspect the IMF is too cautious in assuming that African GDP will go on rising by only $130bn to 140bn a year (equivalent to New Zealand’s GDP). It managed similar growth off a much lower base in 2003-06 and in a number of those years, African GDP was rising more quickly than Brazil’s, Russia’s or India’s.

• Trade turnover is also booming. Between China and Africa alone, trade has soared from $10bn in 2000 to $129bn in 2010 and, unusually, China runs a deficit with Africa. Brazil too ran a trade deficit in 2008, exporting $10bn but importing $16bn from Africa (10 per cent of Brazil’s total imports). Africa’s trade surpluses are helping fund infrastructure spending, often by Chinese firms.

• Companies from the Bric nations are showing increased interest in Africa. Brazilian companies like Vale are investing in the Portuguese-speaking African countries, while others use South Africa as a bridge to the region. China’s ICBC investment of $5.5n into Standard Bank was one high profile example.

• FDI in Africa should also increase. Many African countries have seen their per capita GDP double in the past 10 years but in China per capita GDP has risen over four-fold. From rough equivalence to many African countries in 2000, China’s per capita GDP has become four or five times larger. China is already pricing itself out of the market for lower-value-added manufacturing, leaving room for Africa to expand. Indeed, in some areas Africa is already more advanced than the Bric countries and the developed economies. Mobile phone banking is creating a revolution in the service sector that countries like Kenya and Rwanda are quickly taking advantage of.

• It is a significant change that Africa is involved in an economic grouping like the Brics. In the 20th century Africa took the lead in political organisations such as the Non-Aligned Movement. In the 21st century, it is access to African resources, consumers and market-share that has become more important.

• In conclusion, this Bric expansion will give the largest emerging market economies a foothold in a top-10 near $2,000bn economy, with a billion consumers, plentiful resources, strong growth and great demographics. Intra-EM trade and investment is only like to increase as a result.

* Charles Robertson is chief economist of Renaissance Capital, a Moscow-based investment bank

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