EMERG­ING MAR­KETS MUST EX­PAND THEIR GLOBAL NET­WORKS

Brics and other new global struc­tures should not aim to com­pete with West­ern-led in­sti­tu­tions but to col­lab­o­rate and share ex­per­tise, writes Cas Coova­dia

CityPress - - Business -

Iwas re­cently asked whether emerg­ing mar­kets still mat­ter. My im­me­di­ate re­sponse was: “Of course they do!” Emerg­ing mar­kets still mat­ter be­cause they play a crit­i­cal role in eco­nomic growth and trade. But then I started ques­tion­ing the def­i­ni­tion. While the re­spec­tive emerg­ing mar­kets are still cru­cial to global trade, does defining our­selves as “emerg­ing” still serve us? Do we want to re­main a sub­or­di­nate part of the global econ­omy de­fined solely as “emerg­ing”, in con­trast to the es­tab­lished “de­vel­oped mar­kets”?

Be­ing part of the Brics group­ing (Brazil, Rus­sia, In­dia, China and South Africa) de­fines a coun­try as a de­vel­op­ing or emerg­ing econ­omy. But China is the sec­ond-big­gest econ­omy in the world by nom­i­nal GDP and still one of the fastest grow­ing. De­spite its re­cent down­grade, it re­mains firmly in in­vest­ment grade. What is “emerg­ing” about that?

In­dia has the sixth-big­gest and Brazil the eighth-largest GDP, depend­ing whose fig­ures you fol­low.

Sure, per capita GDP is lower in the Brics mar­kets, but the fact re­mains that “emerg­ing mar­kets” con­trol a sig­nif­i­cant por­tion of trade and are ma­jor global play­ers.

Def­i­ni­tions no longer mat­ter – it is about what coun­tries are do­ing to grow trade, drive in­vest­ment and, crit­i­cally, up­lift the peo­ple of their coun­tries.

We now live in a mul­ti­po­lar world. We should be talk­ing about how we iden­tify mar­kets that play crit­i­cal roles in the global econ­omy, fi­nance and trade, and work out why they are suc­ceed­ing.

A coun­try like South Africa needs to build re­la­tion­ships with all large economies, and build al­liances and trade part­ner­ships. We need to par­tic­i­pate in mul­ti­ple global struc­tures.

As a de­vel­op­ing econ­omy, we have a lot in com­mon with In­dia, but our bank­ing sys­tem is more tech­ni­cally so­phis­ti­cated.

In the bank­ing sense, South Africa has more in com­mon with Canada, Aus­tralia and New Zealand.

So, for ex­am­ple within the In­ter­na­tional Bank­ing Fed­er­a­tion, Brics mem­bers can look at ways to im­prove bank­ing sec­tor com­pet­i­tive­ness. There are sev­eral in­ter­na­tional group­ings, all of which pro­vide op­por­tu­ni­ties for co­op­er­a­tion within and be­tween struc­tures.

I feel that emerg­ing mar­kets can ben­e­fit from still greater co­op­er­a­tion and less of a self-serv­ing ap­proach. For me, these are the real ben­e­fits to be gained from mul­ti­lat­eral col­lab­o­ra­tion, and they find fur­ther ex­pres­sion as the in­ter­nal and ex­ter­nal re­la­tions around the Brics conur­ba­tion evolve.

It’s fair to say that Brics is of­ten more of a for­eign pol­icy lever than an eco­nomic one.

Even the Brics New De­vel­op­ment Bank is an at­tempt to es­tab­lish a bul­wark against the hege­mony of the Bret­ton Woods in­sti­tu­tions.

But de­spite this valid ini­tia­tive, it would be naive to ig­nore the re­al­ity of cap­i­tal flows in the global econ­omy. In­vest­ment still orig­i­nates largely in the West – that is where the money is. Cred­i­bil­ity mat­ters in this con­text. One can­not hope to re­place the In­ter­na­tional Mon­e­tary Fund or the World Bank overnight.

Brics and other new global struc­tures should not aim to com­pete with West­ern-led in­sti­tu­tions, but to ex­ist along­side them – to pro­vide an­other op­por­tu­nity for coun­tries and mar­kets to co­op­er­ate, col­lab­o­rate and share ex­per­tise.

And yes, these group­ings can at times be in­voked when it is in a coun­try’s na­tional in­ter­est – as China does.

China is cau­tious as the coun­try’s pol­icy doesn’t ne­glect the IMF or the World Bank. There is no thought of dis­miss­ing these long-es­tab­lished in­sti­tu­tions in favour of the New De­vel­op­ment Bank.

No coun­try banks in iso­la­tion. All mar­kets now op­er­ate in an in­te­grated global econ­omy. Within this, South Africa’s bank­ing sys­tem has proven it­self. In the World Eco­nomic Fo­rum’s 2016/17 Global Com­pet­i­tive­ness Re­port, South Africa was rated 11th in the world in terms of fi­nan­cial mar­ket de­vel­op­ment and sec­ond in the world for the sound­ness of our bank­ing sec­tor.

The sur­vey also rated South Africa first in the world in terms of au­dit­ing and re­port­ing stan­dards. This is at­trac­tive to in­vestors.

As for Africa, cor­po­rates find the con­ti­nent at­trac­tive be­cause of the op­por­tu­ni­ties in food and agri­cul­ture, min­er­als and the youth div­i­dend, but there are risks in ar­eas such as in­fras­truc­ture and gov­er­nance, among oth­ers.

Within that African con­text, South Africa pro­vides an ex­am­ple of an ef­fec­tive, re­li­able fi­nan­cial sys­tem and proven sys­tems of gov­er­nance geared to man­age cap­i­tal flows. This is also at­trac­tive to in­vestors.

So, per­haps, in build­ing the south-south co­op­er­a­tion we en­vis­age, some of the more es­tab­lished bank­ing sys­tems can im­part some of our bank­ing know-how to our coun­ter­parts in other emerg­ing mar­kets.

If we can im­prove bank­ing and raise con­fi­dence in our in­sti­tu­tions, we will en­cour­age in­vest­ment, which fol­lows macroe­co­nomic growth in­di­ca­tors as well as re­li­able fi­nan­cial and gov­ern­ment in­fras­truc­ture.

It re­mains to be seen whether a more so­phis­ti­cated bank­ing sec­tor would lead to greater cap­i­tal flows in emerg­ing coun­tries.

African economies such as Ethiopia, Kenya and Rwanda are ex­pe­ri­enc­ing rapid growth off a rel­a­tively low base, but would in­vestors have even greater con­fi­dence if these coun­tries had a fi­nan­cial sec­tor bet­ter able to ab­sorb, man­age and gov­ern cap­i­tal flows? I be­lieve they would.

For emerg­ing economies, the path to sus­tain­able growth lies in mul­ti­lat­eral co­op­er­a­tion, and the shar­ing of knowl­edge and re­sources to en­hance our ef­fec­tive­ness as in­vest­ment des­ti­na­tions.

In­tramem­ber trade within Brics has cer­tainly grown since the for­ma­tion of the as­so­ci­a­tion. This needs to con­tinue.

Greater as­sertive­ness by emerg­ing coun­tries, sys­tem­atic im­prove­ments and prag­ma­tism can ben­e­fit all as we move to­wards a more eq­ui­table world bal­ance of pow­ers and op­por­tu­ni­ties. Coova­dia is the man­ag­ing di­rec­tor of the Bank­ing As­so­ci­a­tion SA

and serves as the chair of the In­ter­na­tional Bank­ing Fed­er­a­tion

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