Jim O’Neill: South Africa as a BRIC?

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Jim O’Neill, the chairman of Goldman Sachs Asset Management and creator of the ‘BRIC’ acronym, discusses why the leaders of Brazil, Russia, India, and China are welcoming South Africa into their political club.

According to Bloomberg late last week, South Africa may be formally invited to join the annual meeting of the BRIC leaders in 2011. Many people are asking me about my views on this development. Here they are, briefly.

The newest member of the club?

Congratulations to South Africa if it is true, a nice seasonal present.
This news follows from a few weeks ago when Russian sources suggested a South African application would be looked on favourably. President Zuma had been lobbying to be included for some time.

While this is clearly good news for South Africa, it is not entirely obvious to me why the BRIC countries should have agreed. South Africa rightly sees itself as a leading emerging nation, and that explains their motive.

Furthermore, their historic trade ties with Brazil and India would justify South Africa wanting to be part of any ‘club’ that relates to trade relations between them. Of course, the rapid growth in trade between China and Africa, South Africa included, can explain much of their motive also.

When I created the acronym, I had not expected that a political club of the leaders of the BRIC countries would be formed as a result. In that regard, the purposes of the two might be regarded differently and more so after this news.

As far as the economics are concerned, South Africa is one of the more wealthy nations in Africa, and is currently the largest in US$ terms at around $350bn. However, this is quite small, not only by BRIC standards, but compared to some others.

For example, Russia is around $1,600bn, nearly five times larger than South Africa, and India is currently similar in size to Russia. Brazil is currently closer to $2bn in size, while China is considerably larger at around $5,500bn.

Importantly, there are a number of other economies from the so-called emerging world that are bigger than South Africa. This would include Indonesia (approximately $700bn), Mexico ($1,050bn), Turkey ($725bn) and South Korea ($1,000bn). These four nations, along with each of the BRIC economies, are all 1% or more of global GDP, and what we would increasingly think of as ‘growth economies’.

It is tough to see how South Africa matches up to these four countries, nevermind the BRIC countries.

In terms of population, South Africa has around 50m people, or perhaps slightly less. This is surpassed by each of the so-called group of ‘N11′ countries – and many by a considerable distance. In my view, their growth potential is likely to be considerably stronger than South Africa.

As I have frequently written, we monitor many countries growth potential by combining the size of their likely labour force – driven primarily by population – with their productivity.

Goldman Sachs Growth Environment Scores (GES) can be used as a guide to sustainable growth/productivity. For 13 different variables weighted equally, the scores are shown on an index level from 0 to 10, with 10 being the best possible score.

In their most recent report, the 2010 GES scores for 181 countries show South Africa slipping to 108th with a score of 4.88. While this is approximately the same as the average of the four BRIC countries, and the average of the N11, it is considerably lower than some of the stronger performing N11 countries, notably South Korea (7.48, above the US and Germany!), Vietnam, Mexico, Turkey and Iran.

There are some countries outside the N11 who have larger populations, higher GES scores, and are either of similar size or bigger than South Africa. This would include Argentina, Poland and Thailand.

So, with all this in mind, if South Africa is going to be invited to be a permanent member of the BRIC political club, it suggests others might then decide to apply. Certainly, their economic circumstances and prospects would warrant it if South Africa’s do.

As for the South African role, perhaps it might be justified as Africa’s representation alongside the BRICs, as the continent as a whole is as about as large as India or Russia.

We believe that the continent, in aggregate, has similar potential to Brazil or Russia. Whether the rest of the continent, especially some of the more populous nations, would see South Africa as their representative is not for me to opine.

Source: Jim O’Neill, Investment Week, January 6, 2011.

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