AS THE host of last week’s Brics summit, the government was quick to announce the success of the event. The numerous agreements and accords signed by member states during the two-day meeting — most notably an agreement to set up a development bank — were presented as examples of altruistic co-operation for the benefit of all.
While it may be tempting to buy into the idea that the group’s members are bonded by their status as emerging economies, or perhaps — more darkly — by their desire to become an antipode to the imperialist West, in reality, self-interest will always remain the main motive. Any agreement reached between parties will always be more beneficial to some. This is especially the case in a grouping such as Brics, where there is such a marked disparity in size and economic power.
While the agreement to form a development bank was the news event of the summit, the idea of a Brics bank is not new. At the end of last year’s summit, the group announced its intention to set up a south-south bank to fund development and infrastructure projects in developing and least-developed countries. Having agreed to this in principle, the specifics of finance and structure were to be discussed this year.
Although there was allegedly good progress last week on a deal to establish currency-swap lines, the final agreement was — as it was the year before — thin on detail and increasingly lacking credibility.
Unsurprisingly, suggestions were that financing the bank proved to be the biggest sticking point between the five nations. The difference in size between the economies of the Brics member states is likely to result in structural issues in financing the bank. For example, were each of the five members to contribute $10bn to the bank, as has been suggested, this would constitute a significant 2.5% of South Africa’s gross domestic product (GDP), compared with a tiny 0.12% of China’s GDP.
If, however, each country contributed to the bank in proportion to its GDP, smaller countries such as South Africa and Brazil would benefit substantially from the collective pool of resources, yet, relatively, their membership would cost as much as China and Russia, which would stand to contribute the lion’s share.
It is here in the detail that it becomes apparent that self-interest will always triumph, and there is no such thing as a free lunch — even between supposed new friends.
The R5bn loan from the China Development Bank to Transnet to finance upgrades at rail and port networks — signed at last week’s summit — is a prime example of this. There is no question that South Africa’s rail and port networks require urgent and substantial investment and that this will be of great benefit to the domestic economy. However, there in also no question that the Chinese investment is not motivated by commercial interest alone.
If its sole objective was a handsome, market-related return on investment, China would be better off investing in any number of other emerging markets. Yes, a stronger, better developed South African economy would, in most respects, benefit China.
But preferential access to our resources is of far greater value to the emerging giant.
The statement released by South Africa’s government, that the Chinese bank would offer "financial and nonfinancial assistance" to the parastatal over a period of five years, is also particularly telling.
Moreover, while it is comforting to the domestic ego to believe that the Chinese interest in South Africa’s infrastructure development programme is a consequence of a closer relationship forged through Brics, China has a long history of funding development in resource-rich emerging economies.
In 2007, the Asian giant signed a deal with the Democratic Republic of Congo for a $5bn loan to develop infrastructure and mining, including the construction of roads, schools and hospitals. In exchange, China would get rights to Congo’s extensive natural resources — timber, cobalt and copper, among others. At the time, this was the largest single loan to any African country out of $20bn China had pledged to make available to finance trade and investment on the continent over the next few years.
Since then, the size of China’s investments in Africa has increased substantially, but the underlying mechanism of exchange remains much the same: it provides finance in exchange for preferential access to scarce and much-needed resources.
That said, cheap money is cheap money, and it would be foolish for South Africa to look a gift horse in the mouth. South Africa is woefully behind on infrastructure development and if we are to stand any chance of maintaining our relative position amongst the Brics nations, let alone improving it, we simply have to invest. Even now, justifying our position in the group is difficult at best.
With that in mind, we need to stop deluding ourselves that other Brics nations are interested in the development of South Africa for its own sake. They are interested in the growth of Africa for their sake. Africa is, and will remain, a growth frontier and South Africa is, arguably, the most convenient access point to the continent. But if we cannot stay relevant in this context, there is no question that the other Brics will look to other leading economies in Africa, our Brics status notwithstanding.