We need a collective push towards governance to benefit Brics economies, writes Nicola Mawson.
First Greece hit the headlines after failing to pay back the money, then it was China’s turn as its government-controlled stock exchange lost the same value as all of Brazil is worth in mere weeks. Now Russia is making the headlines because of an economic crisis that is a catalyst for merger and acquisition activity.
What is happening in Russia is thanks to an increase in bad debt and a lack of capital, which leaves the smaller boys at the mercy of big brothers with deep pockets.
For the first part of this week, headlines were heavily focused on Greece, and that country continues to be a talking point. I suspect this is more because no-one has ever seen what is meant to be a developed economy fail. Frankly, it’s heading for bankruptcy and it’s painful to watch these events unfold.
While the news is sad, and I feel for the Greeks, the situation is really not likely to have an impact on us - after all - we are on the bottom tip of a continent that is much removed from Europe.
And we don’t really trade much with Greece except for, as a portfolio manager pointed out to me this week, to send them tourists and buy olives.
Yes, Europe is our biggest trading partner as a bloc, but Europe also doesn’t trade much with Greece, it’s not like the country makes anything. Instead, it relies on fish, olives and tourists to fuel its economy. And that pipe doesn’t need much of a hit to run dry.
Instead, it’s the emerging markets we should be keeping a close eye on. China, for example. China’s exchange shed billions before anyone even realised there was trouble.
Spillover effects will be limited, for now, because the only local company with any direct link to China is Naspers, and that’s through its about 34-percent stake in Hong Kong-listed Internet giant Tencent.
However, 90 million Chinese play on the stock market - that, I was told, is a bigger number than Communist Party members - and there is a large gambling culture in China. Gambling moved from property speculation to the bourse, and the Chinese government is now urgently trying to put a lid on the fallout, with share suspensions being the order of the day.
Thankfully, the market has seen recent gains, which have benefited emerging markets. I hope to goodness that continues because we really do not need an emerging market fallout.
And what we really don’t need is a fallout in Brazil, especially as Brazil, Russia, India, China and South Africa (Brics) leaders have just been talking about how to move these economies forward.
In fact, South Africa’s alliance with the other four emerging powers has already paid dividends. Just yesterday, President Jacob Zuma noted our trade with the other four countries grew from R268 billion in 2011 to R382 billion last year.
And with our economy pushing hard to try to hit two percent growth this year, we need every cent we can get in. We can ill afford to fall foul of glitches in those economies that we have chosen to be our main trading partners. As a country, China is our single biggest trading partner.
If the bad debt situation in Russia, and the gambling on stocks in China, become issues that start affecting the lives of everyday Chinese and Russian citizens, that will put a damper on consumption spend. When China stops buying our ore, and Russia has no money for what we export to it, that will dent our economy very badly.
We don’t need that.
So, yes, as Zuma said, there is a need for a collective growth drive. We do need to make sure the environment remains conducive for investment and potential investors.
After all, Brics countries are at the forefront of global recovery, with exports to the rest of the world increasing from $1.9 trillion in 2009 to $4.2 trillion in 2013.
But what I think we need more than a collective effort and open boundaries is a concerted shift to sound governance principles that will make sure there is no rot, and that there is a culture of transparency and openness that allows trade to happen in the public eye.
That way we don’t find out too late that economic growth rates have been manipulated, or that a country has less money than it thought.
Because we are at the mercy of other economies, and we simply can’t afford that.
* Nicola Mawson is the online editor of Business Report. Follow her on Twitter @NicolaMawson
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