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A case of investment “foot and mouth” disease

28 March 2011 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

South Africa is a land of contradiction. On the one hand we aspire to be the best in the world – on the other we fail hopelessly at the most basic of tasks. And ironically it’s through our successes that our failures are laid bare. I’m talking here about

Dempsey offered the following to position the debate. IMF Statistics (2010) show that South Africa ranks 25th out of 182 economies in the world. We’re 4th out of 66 emerging market economies, 20th in the world in terms life offices’ premiums, 15th in the world in terms of collective investments assets under management and 80th in terms of market capitalisation. We boast a number of firsts too. We’re first in the world in terms of market efficiency, oversight and governance (thanks to the JSE) – first in terms of government budgetary processes and transparency (thanks to National Treasury) – and first in the world for accounting standards among listed companies!

Is this good enough for BRIC?

South Africa is an economy of some 50 million people. And, according to FNB economist, Cees Bruggemans, we are on our way to achieving GDP growth of between 3% and 3.5% in 2011 – with a slight acceleration through 2012. This contrasts strongly with the statistics from the established BRIC economies. India’s GDP is four times that of South Africa, Russia’s population is triple our own, and each of the four existing economies is growing at multiples of our 3%! Thabo Khojane of Investec Asset Management reckons we were invited to join the BRIC block on Africa’s potential. “We are experiencing an African revival – and we supply the resources that China needs. China needs Africa, BRIC needs Africa and South Africa is nicely positioned as the voice for Africa,” he said. Africa compares much better against the BRIC admission criteria with its R1 billion citizens and impressive overall GDP growth.

“BRIC symbolises the shift in economic power away from the West in favour of the East,” said Khojane. If we take a macro view this outfit is really about China. China is the second largest economy in the world and is currently growing at a rate at least four times that of Japan, the US and Britain. The Chinese control a third of the world’s currency reserves and are the largest exporter, second largest importer and second largest net creditor in the world. BRIC is China’s opportunity to assert itself on the global stage. Khojane explains: “China desires more control over the global stage – it needs to ensure that the world is stable and that global trade is on the up – and can no longer afford to rely on the US to create such conditions.” As such BRIC offers it the perfect opportunity to assert itself without directly confronting the US.

Foot in mouth and other stories

The panellists weren’t all in agreement on South Africa’s inclusion in the BRIC block. Russell Loubser, outgoing chief executive of the JSE, reckoned it was presumptuous for South Africa to accept its invitation – though he countered there was nothing wrong with being a “small” economy. During his presentation he stressed the need for all stakeholders in the economy to work together to improve our overall ranking. He held up the success of JSE and STRATE, which lifted the country to number one in the world in terms of market efficiency, oversight and governance, as examples of what can be achieved through hard work. “It was not an overnight success,” he said, “but took two decades of hard work!”

To live up to our BRIC expectations the country will have to do more to attract capital investment to our shores. But it’s not going to be easy. Global investors are extremely sensitive to any shifts in investment sentiment. The mere rumour of a foot and mouth (an extremely infectious cattle disease) outbreak in KwaZulu-Natal, for example, recently led to the closure of South Africa’s main meat exporting facility. Loubser used the disease to illustrate the unpleasant effects of policy uncertainty on foreign capital flows to South Africa.

The repeated raising of the nationalisation debate is doing South Africa no favours – and chief executives of foreign mining companies aren’t keen to commit to a country where property and mining rights aren’t protected. “Too many chief executives ask me about the funny goings on in the mining license space,” said Loubser. “If we want to succeed then we must make sure that there’s nothing to discourage entrepreneurs from committing capital resources to our country.”

Africa could be a world super power

The remaining panellists were largely upbeat about South Africa’s inclusion in BRIC. They believe that South Africa will play an important role in developing the potential of the African region. It’s clear that Africa could one day surpass China, India, Brazil and Russia as the dominant emerging market region.

Editor’s thoughts: China didn’t reach its global economic dominance overnight. Over the past two decades the country’s leadership has focused almost entirely on growing its economy and dominating world trade. Do you think our leadership possesses the skills to guide South Africa on a similar journey? Add your comment below, or send it to gareth@fanews.co.za

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The South African authorities are hard at work to ensure the country is removed from the global Financial Action Task Force grey-list by February or June 2025. What do you think about their ongoing efforts?

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But what about the BRICS?
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