Emerging Market in South Africa, Essay Example

South Africa needs to look beyond BRIC(S) markets and emerging CIVET(S) markets and rather focus on Africa

Definition of Emerging markets

An emerging market is defined as a nation’s economy that is progressing towards becoming more advanced, specifically through establishing liquidity in local debt and equity markets. It also entails that the nation exhibiting some existence of market exchange and adherence to a regulatory body. Emerging for the most part though  do not have stable market efficiency or the same strict accounting standards or securities regulatory policies that advanced economies follow. Europe, the United States and Japan are examples of nations having the type of economic efficiency that defines the distinct difference between an emerging market and a developed country.  Emerging markets do tend to have the traditional financial infrastructure such as stocks markets, banks,  and a unified currency. Emerging markets are viewed by investors as providing the potential for substantially high returns.  This is due to the fact that they experience faster economic growth as measured by GDP. Investments in emerging markets also has greater potential risk due to political instability in the countries and problems with their domestic infrastructure, also currency volatility and limits on equity opportunities. An example of an emerging market can be seen in both China as well as Africa as China has invested a lot of capital in Africa.  In an assessment of the fundamental aspects of policy that has made Chinese foreign aid to Africa so effective, Dr. J. Stephen Morrison and Mr. Li Ruogu outlined the five main features of their aid process. The authors note that, “1) China’s foreign aid caters to the long-term development of the recipient countries. It believes that development is the best way to eradicate ignorance, terrorism and turbulence and the most viable option to social progress and democracy. China’s aid thus focuses primarily on infrastructure development and assists recipient countries to set up free trade areas and export processing zones” (Zafar, 130).

Discussion of the economic importance of emerging markets to the developed world. Quote economic data, statistics

It was recently reported in The New York Times that China has now topped the African financial aid donor list with President Hu Jinato’s recent pledge of $20 Billion dollars to be distributed over the next three years for infrastructural and agricultural needs. As Ali Zafar notes in his study on the growing relationship between China and Africa, “China’s economic ascendance over the past two decades has generated ripple effects in the world economy. Its search for natural resources to satisfy the demands of industrialization has led it to Sub-Saharan Africa.” Sub-Saharan Africa in particular has been the largest benefactor of China’s generosity, as the network of trade China established with the region has resulted in a consistent increase in commodity prices and windfall surplus revenues that Sub-Saharan Africa has been able to reinvest back into building infrastructure such as schools and roads. Zafar goes on to note that,  “trade between China and Africa in 2006 totaled more than $50 billion, with Chinese companies importing oil from Angola and Sudan, timber from Central Africa, and copper from Zambia” (Bauer, 1).

Discussion of the factors that make it attractive for South Africa to be part of BRICS and CIVETS

The traditional sources of aid available to developing African countries, specially South Africa has originated from Western channels of diplomacy, with either direct national support or though institutions such as the IMF or the World Bank, which although independent are heavily influenced by the United States (U.S.). One reason why it’s appealing for South Africa to be a part of the BRICS and the CIVETS is that ti will expose the country to more diverese types of aid similar to that which Africa already receives from China. One core difference between U.S. aid to Africa and China’s aid distribution that could attribute to its success could be the massive size of support the U.S. attempts to provide verses the more narrow conservative focus China implements. While China mainly provides aid to Sub-Saharan Africa, Uganda, Sudan, Rwanda, Angola, South Africa and a few other regions, the Bureau for Africa reports that the United States has 27 operations in Africa, specifically located in Angola, Benin, the Democratic Republic of Congo, Ethiopia, Ghana, Guinea/Sierra Leone, Kenya, Liberia, Madagascar, Malawi, Mali, Mozambique, Namibia, Nigeria, Rwanda, Senegal, South Africa, South Sudan, Sudan, Tanzania, Uganda, Zambia and Zimbabwe. World Bank development indicators also show though that there are distinct difference in GDP growth between the BRIC nations as can be viewed below.

The report notes that South Africa is substantially outmatched economically compared to the other nations in the BRICS. The authors state that, “with a GDP of approximately one-sixteenth of China’s out-put, an annual growth rate of  2.8 per cent in 2010 (compared to 10.3 per cent for China, 9.7 per cent for India and 7.5 per cent for Brazil) and a population of 50 million (compared to China’s 1.3 billion and India’s 1.2 billion), South Africa has significantly less economic power than the other members” (“South Africa in the BRICS,” 2). The authors further note that South Africa’s nominal GDP of US$286 billion, is also significantly lower than Brazil valued at $1 Trillion, India valued at $2Trillion, Russia valued at $1.6 Trillion and China $5.5 trillion. The table below demonstrates a better example of these discrepancies.

Many experts and analysts argue that integration into BRICS causes concern for its foreign policy, given that it may be difficult for the country to justify its foreign policy positions among the other, much wealthier countries in the forum and difficult for all members to reach a consensus, considering their differing national, regional and strategic interests”. The authors go on to note that the South African Government has stated they are now focusing it’s foreign policy on Africa specifically and increasing trade with India and China. Being a member of the BRICS could prove to be challenging for South Africa’s economic objectives as the authors note the forum is more political in nature combining many countries that would traditionally be viewed as economic adversaries.

Discussion and formation of an opinion whether South Africa would have been better advised to develop and strengthen economic ties in Africa

South Africa clearly demonstrates a desire to improve economic ties in Africa as it’s one of the countries core objectives. Entering into the BRICS may not have been the best approach to achieve this goal especially considering China’s interest in Africa regarding the continent (albeit with soft and financial power) and taking what they please without regard for long-term African needs: sustainability and good local governance. China has been characterized as having a conquering mindset and such predatory actions on the scale of China’s afro-influence could destabilize any fragile structural reform that exists, going so far as to say China is playing the part of neo-colonist. It makes one questions whether South Africa should focus more in building infrastructure and investing in Africa as opposed to involving in the BRICS, as China’s political influence will be more prevalent and apparent in South Africa as time progresses.  Even so, Weisbrod and Whalley state that Chinese investment has resulted in modest, but significant GDP growth in African countries. Fundamentally opportunistic, China enjoys much economic success in Africa despite the critics’ claims that Chinese influence is coercive and decidedly unscrupulous (contrary to People Republic of China (PRC) party rhetoric). The manner in which the PRC forms partnerships with the leader who is in power regardless of their local governing tactics is considered a major international foul. One study reports growing Chinese influence in Africa in all modes – economics, security, and governmental ties – but states that their methods could endanger advancing democratic reform and harm U.S. Activity.  Though they did not until recently publicize just how much aid monies they dedicated to Africa (Brautigam,1) .Under public pressure to play the international donor game, the China White Paper was released revealing some figures, a sign some take as a China moving in the direction of good nation behavior.  There is a growing belief in Africa that the Chinese model is more appropriate and effective at changing the situation of both national economies and the lives of the population.

Zafar, Ali “The Growing Relationship Between China and Sub-Saharan Africa: Macroeconomic, Trade, Investment, and Aid Links,” The World Bank Research Observer, 22, no. 1 (2007): 103-130,