JOHANNESBURG, March 21 (Reuters) - The hearty
self-congratulation with which South Africa welcomed its
accession to the BRIC grouping of major emerging countries has
been met with a deafening silence from global investors.
Since Pretoria joined more than two years ago and changed
the group's name to BRICS, almost all of the major BRIC funds
have maintained zero exposure to South Africa. If there is an
"S" country in their portfolios, it is more likely to be South
Korea or Singapore.
South Africa will have an equal seat at the table next week
when it hosts a summit of leaders from Brazil, Russia, India and
China in Durban on Tuesday and Wednesday, even though its
economy is dwarfed by those of its new partners.
"While it is difficult to justify South Africa's inclusion
into the BRIC acronym from an economic perspective, the country
remains the most developed of the sub-Saharan African nations
and, in this regard, can be seen as the continent's
representative," said Anna Stupnytska, macro economist, at
Goldman Sachs Asset Management.
"It would be great if South Africa took up the challenge of
trying to be that, unifying the continent through stronger cross
border trade and infrastructure links. If that were to occur,
then Africa as a continent could perhaps be regarded as a
genuine BRIC economy," Stupnytska said.
Jim O'Neill, chairman of Goldman Sachs Asset Management,
coined the BRIC concept in 2001 and has since said South Africa
does not belong in the group.
The original BRIC group represents about 20 percent of the
global economy and 43 percent of the world's population.
Add South Africa, call it BRICS, and the combined GDP figure
rises by 0.55 percentage points.
If South Africa were a province in China, its GDP would rank
number six, just above Hebei, a producer of coal and sorghum
OUT OF THE MIX
South Africa's economy is about 80 percent smaller than the
smallest of the BRIC members, Russia and India. The Brazilian
government's official BRICS fact sheet leaves South Africa out
of the mix when talking about GDP growth for the group.
It is this relatively small size that could derail the
biggest agenda item on the table at the BRICS Summit, the
formation of a BRICS development bank to serve as a counter to
the likes of the International Monetary Fund and World Bank.
South African diplomats have said the current plan is to
have all five partners contribute $10 billion to fund the BRICS
bank. For China, it is a relatively small sum that represents
about 11 hours of GDP. For South Africa, it is more than double
its national defence budget.
BRICS leaders are also likely to endorse plans at the summit
to create the bank as well as a joint foreign exchange reserves
pool that would initially hold between $90 billion and $120
billion, senior emerging market officials said on Thursday.
"If the bank is an equal partnership it will be weakly
capitalised because South Africa will set a low threshold for
contributions," said Mark Rosenberg, Africa analyst for the
Eurasia Group global political risk consultancy.
"If not, and the parties are assigned different 'roles',
South Africa's will be largely symbolic - i.e. the bank may be
based in South Africa but ultimately financed by the other
members, especially China," Rosenberg said.
BANG FOR THE BUCK
It is not that South Africa is a bad investment, actually,
quite the opposite.
Since the start of 2012, Johannesburg's benchmark Top-40
index has shot up by more than 25 percent while the
main indices in Brazil, Russia, India and China have been
solidly in the red, according to Reuters data.
Johannesburg has also been ranked as the best regulated
exchange in the world by the World Economic Forum's Global
But South Africa is excluded from BRIC funds is because the
size of its economy and population are much smaller than those
of the group's original members.
South Africa is usually covered by funds that invest in the
next tier of smaller emerging economies that include the likes
of Turkey and Indonesia.
South Africa however hopes to expand its economy through the
BRICS grouping, seeing it as a way to increase trade.
But there are difficulties. Almost all of South Africa's
exports to the BRIC states are relatively low value raw
commodities while it imports value-added finished goods. The mix
is not likely to change, especially when the pay of a South
African factory worker is three to six times higher than that of
a Chinese worker, who is also more efficient.
The most appealing items South Africa and its neighbours
offer the original BRIC states are the commodities they need to
power their economies.
By setting up in South Africa, the BRICS partners can gain
access to the regional grouping SADC - Southern African
Development Community - 15 countries with a total GDP of around
$575 billion and a population of about 260 million, where South
Africa is the driving force.
It includes fast growing economies such as Angola, one of
Africa's biggest oil producers, Botswana, the world's biggest
diamond producer, and Mozambique, with untapped coal reserves
that have attracted billions of dollars in investment from
Brazilian mining company Vale.
"South Africa extends the group into Africa, strengthening
its status as a representative of 'emerging markets' writ large,
versus the 'developed markets' which typically dominated
multilaterals like the IMF," said Eurasia Group's Rosenberg.
(Additional reporting by David Dolan; Editing by Giles Elgood)