Building BRICS

Upcoming summit to highlight bloc's role in forging global links and promoting an open world economy

When the leaders of the five BRICS countries - Brazil, Russia, India, China and South Africa - meet in Johannesburg, South Africa, from July 25 to 27, key topics for discussion are expected to include the role of BRICS and other South-South institutions in the global system, alternative models of economic development and the importance of good governance within countries.

Special focus will be put on rising trade tensions between the United States and other countries and on China's goal of safeguarding an open global economy. President Xi Jinping is expected to make proposals on how to deepen BRICS cooperation and build a community with a shared future for mankind, according to Xinhua News Agency.

Clockwise from left: The opening ceremony of the BRICS Business Forum 2017; about 3,000 reporters came to Xiamen for the summit from Sept 3 to 5; in 2017, BRICS countries - Brazil, Russia, India, China and South Africa - convene in the Chinese city of Xiamen for their annual summit. Wei Peiquan, Song Weiwei and Xie Huanchi / Xinhua

The GDP growth rate in BRICS countries from 2010 to 2018 averaged about 5 percent, while US growth averaged about 2 percent, and growth in Europe and Japan was even slower. In his speech at last year's summit, Xi noted that the combined GDP of BRICS members grew by 179 percent, trade by 94 percent and urban population by 28 percent from 2007 to 2017.

According to the Organization for Economic Cooperation and Development, developing countries accounted for 40 percent of the total world GDP in 2000, rising to 49 percent by 2010, and are projected to reach 57 percent by 2030. But global financial institutions such as the World Bank and the International Monetary Fund have not been reformed to reflect this growth, experts say.

"The BRICS' overarching objectives include promoting sustainable development, global governance reforms and intra-BRICS cooperation on a wide range of issues," Cyril Prinsloo, a researcher at the Economic Diplomacy Programme at the South African Institute of International Affairs, told China Daily earlier. "The agenda in 2018 is likely to include priority issues of the South African government, including greater cooperation between BRICS and other African countries, and an increased focus on peace and development efforts."

BRICS countries are also eager to encourage continuing growth in international trade.

"The rise of trade protectionism has dealt a major blow to international trade and global economic recovery," Mauricio Santoro, a professor of international relations at the State University of Rio de Janeiro, told Xinhua. "The BRICS partners and the international community are all paying close attention to China's proposition of safeguarding an open global economy."

Economic relations between China and Africa have grown especially rapidly. China is now the largest investor in Africa, and more than 10,000 Chinese businesses have a presence in Africa, according to data from the Ministry of Commerce. In addition, China's trade with Africa has multiplied 200 times since the start of reform and opening-up in 1978 and almost 50-fold since 2000.

Polls conducted by the Pew Research Center, a US think tank that specializes in public opinion surveys, found that views of China across Africa are positive, with the six countries surveyed - Ghana, Kenya, Nigeria, Senegal, South Africa and Tanzania - averaging 58 percent favorability in 2017.

Thandanani Wah Ziqubu, a South African political activist and recent graduate of the Institute of South-South Cooperation and Development at Peking University, says: "South Africans are proud to be members of the BRICS and to be hosting the summit in Johannesburg. It will be really, really good for African countries and other developing countries to have an alternative to the global institutions set up after World War II.

"The road to development is going to be better if the BRICS and future partners go hand-in-hand as a group," he says. "The Belt and Road Initiative and BRICS are essential in terms of long-term sustainability of growth in South Africa. Right now, we are starting to see the fruits of our relationships with our partners."

According to a McKinsey & Co report from June last year, China has become, in two decades, "Africa's most important economic partner. Across trade, investment, infrastructure financing and aid, no other country has such depth and breadth of engagement in Africa. Chinese 'dragons' - firms of all sizes and sectors - are bringing capital investment, management know-how and entrepreneurial energy to every corner of the continent. In doing so, they are helping to accelerate the progress of Africa's economies."

McKinsey found that 90 percent of Chinese companies in Africa are privately owned, 89 percent of the employees in Chinese companies are African, and trade and infrastructure generate the most significant financial flows between the two sides.

Most of China's investment in Africa has gone into building infrastructure and energy capacity. Between 2004 and 2014, the top four African business sectors receiving Chinese loans were transportation (28 percent), energy (20 percent), mining (10 percent) and communication (8 percent), according to research from the China-Africa Research Initiative at the Paul H. Nitze School of Advanced International Studies, a division of Johns Hopkins University, in Washington, DC.

Liu Qinghai, head of the Center for African Economic Studies at the Institute of African Studies of Zhejiang Normal University, wrote in an article published on China Global Television Network's website: "Chinese investment and loans have focused on developing African infrastructure, rather than on siphoning off the continent's mineral wealth. ... In the near term, African countries get as much, if not more, return on investment from Chinese capital than China does.

"The benefits include improved technology, efficiencies of scale, efficient cost structures, speedy delivery and jobs. A 2017 McKinsey report shows Chinese companies lowered prices for existing products and services by as much as 40 percent. Far from being a predator, China is a partner in building a stronger Africa. Building new infrastructure builds a better future for the continent."

Investment in and trade with Africa are seen as tying in closely with the broader opening-up policies of China, such as the Belt and Road Initiative, and encouraging more use of renminbi in international transactions.

Tu Yonghong, a professor at the International Monetary Institute at Renmin University in Beijing, says that trade cleared with renminbi, instead of the US dollar, is becoming a more important part of China's trade with South Africa, and that it is better for both sides if renminbi can be used because it reduces the currency risk.

She adds that she is working with companies in Zhejiang province who say they are much more likely to invest in Africa if they are able to use renminbi. They don't want to take the currency risk of changing into dollars, she says.

The economic development efforts of BRICS are not limited to the five member countries. At the 2017 BRICS summit, President Xi announced plans to cooperate with more developing countries.

"We should promote the 'BRICS Plus' cooperation approach and build an open and diversified network of development partnerships to get more emerging market and developing countries involved in our concerted endeavors for cooperation and mutual benefits," Xi said.

For example, BRICS members established the New Development Bank to help them and other emerging economies address developmental challenges. Its headquarters opened in Shanghai in 2016, and the bank's Africa Regional Center was opened in Johannesburg in 2017.

Siphokazi Mthathi, executive director of Oxfam South Africa, told China Daily earlier that the opening of the Africa Regional Center is an opportunity to help fund Africa's infrastructure development, as well as a chance for BRICS to ensure that development financing is sensitive to the needs of the poor, the marginalized and women.

Researchers at the Brookings Institution in Washington, DC, say that developing countries are underrepresented in the global financial institutions. "The value of South-South trade now exceeds North-South trade by some $2.2 trillion - over one-quarter of global trade. Low-income countries have also seen unprecedented growth in 'South-South' foreign aid - with China, Brazil and India all becoming larger donors. So these BRICS institutions are partly just the result of a two-decades-long process of greater economic engagement by and among developing nations," wrote Raj M. Desai and James Vreeland in a 2014 study.

"In the meantime, long-standing dissatisfaction with Bretton Woods institutions (the World Bank and the IMF) has also pushed BRICS toward a developing-country alternative to global development finance. ... Although the BRICS comprise over one-fifth of the global economy, together they wield about 11 percent of the votes at the IMF," they wrote.

He Rui, an assistant research fellow at the China Institute of International Studies, says: "The BRICS can play a positive role in the reform of global governance. The UN, the IMF and the World Bank were created after World War II, and they have done a pretty good job for the whole world in terms of development and security issues and for human rights.

"Now we see more emerging markets and economic entities in developing countries," He adds. "They want to have a larger voice in the existing governance system, but we know there are some difficulties in reforming the existing institutions. On the one hand, BRICS will be a part of the process of global governance. On the other hand, it also is an outsider to the existing global governance system."

In addition, He says: "The traditional institutions faced some difficulties about how to push sustainable development in a sustainable way, about how to control the debt of developing countries and about how to give significant shares to developing countries like India and China and even Japan in the 1980s. Also, developing countries benefit a lot from globalization, and most countries want to continue to participate in the globalization process. Now we know globalization is stalling, and maybe developing countries can play a positive role in this issue. But they need a regime. They need a certain kind of institution to have a common voice. I think BRICS can play this role."

In the process of development, problems have arisen - most prominently issues concerning labor laws and the sustainability of international debt.

Wu Ka, deputy director of the Research Center for African Law and Social Development at Zhejiang Normal University, says that many Chinese companies in Africa are not familiar enough with local laws.

"There has been a lot of diplomatic and economic cooperation, but there has not been much legal exchange and cooperation - especially people to people. Lawyers, professors, law students should go to African countries to study local law. Legal cooperation should go ahead of cooperation among nations. Only with good legal cooperation and exchange can China and Africa have a better understanding of each other," he says.

Derrick Wina, a Zambian civil servant and recent graduate of the Institute of South-South Cooperation and Development at Peking University, agrees. He says that during his time in China, he has seen that the Chinese government believes in a win-win situation and mutual respect.

Sydney Mufamadi, the director of the School of Leadership at the University of Johannesburg, has said governance should be prioritized in addressing challenges of development. "Of all manners of crises facing humanity today, quite clearly the issue of governance has once more (become) topmost on the agenda," he told Xinhua.

Peter Kagwanja, president of the African Policy Institute in Kenya, said in a speech to the China-Africa Think Tanks Forum in Beijing on July 4 that China and Africa are following their separate nonhegemonic and win-win paths to development. However, he stresses that infrastructure investment must be profitable and productive so that an unsustainable debt burden is not created. He adds that the September summit in Beijing of the Forum on China-Africa Cooperation should emphasize the need for industrial parks and also examine ways to avoid corruption and political patronage in African projects.

Xie Ping, vice-president of the Export-Import Bank of China, also speaking at the forum, agreed that "if the infrastructure does not match the development level of a country, it will cause a debt crisis".

Peking University economist Justin Lin Yifu, also speaking at the forum, noted that when China's reform and opening-up started in 1978, sub-Saharan Africa's GDP per capita was more than three times that of China. At that time, 84 percent of the Chinese population lived on less than $1.25 per day, the international poverty standard. He said labor-intensive industrialization is a key path toward prosperity and that African countries now have a great opportunity to industrialize. He also emphasized that the Belt and Road Initiative and the China-Africa Partnership Plan will link China with Africa.

He Rui, of the China Institute of International Studies, says the so-called Washington consensus pushed by the World Bank and the IMF - which says that countries need to create good governance, market economics and sound monetary policy before development is possible - is not appropriate for many developing countries.

"How can a country without development support such good governance? Without the promotion of infrastructure investment, without railways or highways, without computers in the offices, how can a country provide good governance? They need to get funds for such projects. Now we see the Asian Infrastructure Investment Bank building infrastructure projects in Asia, and the BRICS New Development Bank has a center in Africa. They will focus on large, long-term new energy projects and some transnational projects and make a difference from the existing institutions," he says.

Chen Mingkun, deputy director of the Institute for Africa Studies at Zhejiang Normal University, says relations in many fields, such as economics, culture, education and diplomacy, are fast developing between China and Africa. As in China, the average person in Africa is hard-working and wants to build a better life. But many Africans lack skills, capital, infrastructure and technology, Chen says.

"Africa will not follow the Chinese development model directly," he says. "But we can learn from each other. We want to let more and more Chinese know the real Africa and also let African people know China and how China developed over the past 40 years.

"Links with China can be a win-win that can build the capacity of African economies," Chen adds.

davidblair@chinadaily.com.cn

( China Daily Africa Weekly 07/20/2018 page1)