South Africa prides itself on punching above its weight in the international arena. One measure of the disparity between the country and the global players it interacts with emerged last week, with the creation of the New Development Bank by the Brics grouping of Brazil, Russia, India, China and South Africa.
The bank, set up to fund infrastructure and “sustainable development projects”, is to be funded by an “initial subscribed capital of $50 billion (R532bn), equally shared among founding members”, according to a Brics statement. And a contingent reserve arrangement will be set up to cushion members faced with currency problems – “a virtual pool of foreign reserves totalling $100bn”, according to the National Treasury.
However, contributions to the contingent reserve arrangement will not be equal. China will provide $41bn, Brazil, Russia and India will put in $18bn each and South Africa only $5bn. There is good reason for the disparate numbers as the contrast in resources is even greater.
While China’s foreign exchange reserves are touching $4 trillion, data from the International Monetary Fund (IMF) show Russia has $410bn worth of hard currency, Brazil $355.7bn, India $283.7bn – and South Africa a paltry $41.3bn. This is bolstered by gold reserves, which bring the number to $49.2bn.
Partly for historical reasons, South Africa is very much a poor cousin in the Brics family when it comes to foreign reserves. The country was starved of capital by credit and trade sanctions in the apartheid era, and a run on the currency in 1998 saw reserves enter the red – a situation that took years to remedy.
Since then, a chronic current account deficit has prevented a speedy accumulation of hard currency. The deficit – a shortfall between income from exports of goods and services and the import bill – was equal to 5.8 percent of gross domestic product (GDP) last year, compared with 3.6 percent in Brazil and India’s 2 percent. China ran a surplus equal to 2 percent of its GDP and Russia had a surplus of 1.6 percent.
The inflows on South Africa’s financial account have allowed for only a small build-up of foreign funds.
In the context of the Brics, South Africa is also a minnow in other respects with GDP worth $351bn last year, according to the IMF. This compares with China at $9.2 trillion, Brazil $2.2 trillion, Russia $2.1 trillion and India $1.9 trillion. The difference in GDP is likely to expand at least in the near future. China’s economy grew 7.6 percent last year, India 4.4 percent, Brazil 2.3 percent, Russia 1.2 percent and South Africa 1.9 percent.
Reserve Bank governor Gill Marcus puts growth this year at 1.7 percent, a downward revision from 2.1 percent forecast earlier and 2.8 percent early in the year. However, she noted, “subdued growth is expected in a number of emerging markets”, including Brazil and Russia.
While this all casts South Africa in a poor light, it is far from being the whole story. One measure of the country’s international standing came last week when it raised $1bn over 30 years and e500 million (R7.2bn) over 12 years. The Treasury noted: “Both transactions were more than three times oversubscribed. The government sees the success of the transaction as an expression of investor confidence in the country’s stable political environment, sound macro-economic policy framework and prudent fiscal management.”
But Finance Minister Nhlanhla Nene sounded a cautionary note: “While we are pleased with the confidence the investors have shown in the sovereign, we cannot afford to be complacent as a country.”