South Africa’s entry three years ago to the Bric (Brazil, Russia, India and China) grouping of economies is not a free pass to a high growth trajectory, according to Yuwa Hedrick-Wong, a professor of international business at the University of British Columbia and a global economic adviser to MasterCard.
In April 2010, South Africa became the fifth member of the group, since called the Brics bloc, which is expected to overtake the major economic powers over the next few decades.
But Hedrick-Wong argued that, while emerging markets would continue to emerge, the perception that the Brics and other emerging economies would be the major source of future growth was misplaced. He was speaking at a gathering hosted in Johannesburg yesterday by Frontier Advisory.
The Brics countries, Hedrick-Wong said, had nothing in common, apart from the fact that the four founder members had large populations. And he noted that “lots of young people don’t guarantee growth”.
He said the interests of the countries were mutually contradictory. “Brazil and Russia are resource and energy exporters. India and China are net importers.”
Hedrick-Wong argued that the sharp slowdown in Brics growth in recent times was not simply cyclical but a structural development. The impact of the factors driving the growth of the previous period were fading and the Brics economies would grow more slowly in future.
The reason the earlier rate of growth could not be sustained, he said, was that it had not been inclusive and therefore had not mobilised domestic demand.
While China was trying to stimulate local demand, the process would be slow, he said, and it would not immediately compensate for the drop in demand from slow-growing developed markets.
Having “debunked the myth of the Brics”, Hedrick-Wong said he also wanted to dispel the myth that the US was in decline. The US was still by far the largest economy, he said.
Although other countries had narrowed the gap over recent decades, they had not been able to catch up in terms of gross domestic product (GDP) per capita. While China had become the second-largest economy, its per capita GDP was equal to only 30 percent of that of the US.
He said the reason the US maintained its lead was innovation. While many commentators believe the country will lose out to China and other emerging economies, Hedrick-Wong said its manufacturing sector was “redefining manufacturing” and the sector was booming.
He said non-financial corporates were sitting on a $1.5 trillion (R13.4 trillion) cash pile. And though employment was lower than it was in previous decades, productivity in the US was much higher.
In addition, the US had gained a head start in “the shale gas revolution, which will prompt massive substitution of oil by gas”.
He predicted that, in five years’ time, the US would import oil only from Canada. It would no longer import from the Middle East or Africa.
“So the future growth of the global economy will continue to depend on the US, which will remain the anchor economy in the foreseeable future,” Hedrick-Wong concluded.