South Africa's Role in BRICS: Advancing Global Restructuring

CLASSIFICATION: CONFIDENTIAL Presentation to the Portfolio Committee on International Relations DEPUTY MINISTER E EBRAHIM THE ROLE OF SOUTH AFRICA IN BRICS

TABLE OF CONTENT • Rational of South Africa’s BRICS membership • The role of South Africa in BRICS • - Foreign policy objectives and comparative advantages • Summit theme • Summit outcomes • Pre-Summit meetings • Question and answer session

RATIONAL OF SOUTH AFRICA’S BRICS MEMBERSHIP • “Foreign policymaking in the 21st century is a multidimensional endeavour as states use different avenues to pursue their various interests. There are issues that can best be addressed only through bilateral contacts and there are others that require plurilateral and multilateral forums – this is not contradictory” • Minister Nkoana-Mashabane

RATIONAL FOR SOUTH AFRICA’S BRICS MEMBERSHIP • Global dimension: • The context and rational of South Africa’s BRICS membership was described by • Minister Nkoana-Mashabane as follows: • “The world we live in today has changed significantly since the end of the Cold War. A • new group of economically influential countries such as Brazil, Russia, India and • China (BRICS) are on the ascendancy, and are remapping the contours of • political and economic power in the global system. South Africa’s membership • of BRICS should be located within this context” • “The rationale for South Africa’s approach was in consideration of a matter of crucial • importance to BRICS Member States, namely the role of emerging economies • in advancing the restructuring of the global political, economic and financial • architecture into one that is more equitable, balanced and rests on the important • pillar of multilateralism”

RATIONAL (cont.) • “As South Africa, we should remember that some of the countries that we characterise as emerging powers have been our fellow travelers as Africans in the struggle against colonialism. We have over the decades forged strong ties of solidarity and partnerships with these countries, with a view to promoting development and reconfiguring the structures of power in international relations in favour of developing countries” • The recent global economic and financial crisis demonstrated, more than ever before, that all countries in the world co-exist in an interdependent global network through various relationships which impact on each other in multiple layers and structures. When we focus on globalisation, we always recognise the positive benefits derived from these processes, as well as ponder on the various challenges it also poses. The global crisis has clearly demonstrated that the global system as we know it is undergoing major shifts in terms of leadership and economic power • BRICS provide for a new global template and caucus overriding previous • East-West and North-South constructs and divisions

RATIONAL (cont.) • BRICS profile: 25% of global GDP (PPP); 30% of global land area; 43% of global population and USD 4,4 trillion foreign reserves base • BRICS is likely to account for over 50 percent of global consumption by the middle class - those earning between $16 and $50 per day - by 2050; on the other hand, they also collectively account for around half of global poverty calculated at the World Bank's $1.25 a day poverty line • Depending on whether you measure BRICS economies in dollar terms or in PPP terms, over the next 10 years, the BRICS share of world GDP will increase. In market terms, it is about 20% of GDP, which will increase to about 28% over the next 10 years and even to about one-third by 2030 • In PPP terms, these economies account for more than a third of the world's GDP at the moment. By 2020, it will account for about 37%-38% and could increase to as much as 45% by about 2030

RATIONAL (cont.) • The contribution of BRICS to global economic growth has reached over 50% over the past decade, making it the principal driver of global economic development • The resilience of the major emerging markets to support the global economy through the crisis, notably from a growth perspective, significantly further contributed to support Low Income Countries during the crisis (IMF study) • Large sale infrastructure investment by BRICS which totals approximately • USD 1 trillion per member over the next 3-5 years

RATIONAL (cont.) • It may be recalled that South Africa was the original custodian of the idea of the formation of the “G-8 of the South”, as a counterpoint to the domination of global affairs by the G-8 of the North and to promote the collective interests of developing countries • The global agenda of BRICS countries is highly complementary, as portrayed through the Summit Declarations and the BRICS platform’s substantial influence could advance South Africa’s foreign policy goals

RATIONAL (cont.) • Regional dimension: • Economists such as from Standard Bank, report regularly on the dramatic rise in BRICS-Africa trade and engagement and the importance of such developments in light of their role in ongoing structural diversification of the global economy. They maintain that trade flows between developing countries, notably spearheaded by BRICS countries, are rapidly increasing and have specific implications for Africa since this shift towards new poles of growth includes participation by African countries and increased flows of trade and investment towards the continent. While still not at levels as those with traditional partners, the BRICS engagements have impressed on Africa’s broader investment community • It is asserted that the BRICS countries have moved Africa from the periphery of the global economy into a wider and inclusive centre (also complementing AU/ NEPAD goals)

RATIONAL (cont.) • Africa has 60% of the world’s unused arable agricultural land, a young growing population, a growing middle class with considerable purchasing power • Africa offers the highest returns on investment of any region, and is the second fastest growing region after Asia • In 2010, six of the world’s ten fastest growing economies were in Africa and seven African countries are expected to be in the top 10 over the next five years • Africa’s output is expected to expand by 50% over the next four years, from US$1.6 trillion in 2010 to approximately US$2.6 trillion in 2015. Economic growth is projected to expand by an annual average real rate of 5.5% each year through the five year period • Estimates of the total infrastructure spending need for Sub-Saharan Africa range between $75-100bn a year, more than 12% of the region’s GDP • BRICS-Africa trade is projected to increase threefold from $150 bn in 2010 to US 530 bn in 2015 • BRICS share of Africa’s total trade will increase from one-fifth (2010) to one third over the next five years • BRICS FDI is projected to increase from $60 bn in 2009 to more than $150 bn by 2015

RATIONAL (cont.): Infrastructure • Seeking to overcome infrastructure deficits and set the stage for future growth, countries in Africa are investing aggressively in infrastructure. Buoyed by tourism, recent growth, and investment from China, sub-Saharan countries are spending nearly 8 percent of their GDP on roads, power, aviation, telecommunications, and other sectors. Still, even though $45 billion is going to African infrastructure, projected needs are double that for the next ten years. • (Ernst & Young: Infrastructure 2012) • Infrastructure will need to play an even larger role in the next decade if regions are to meet economic and development objectives, requiring a step-change in the scale of investment which cannot be delivered by the current public and private investment mechanisms • (Amar Bhattacharya & Mattia Romani, LSE)

RATIONAL (cont.): Infrastructure • The estimated financing requirement to close Africa’s infrastructure deficit amounts to USD 93 bn annually until 2020. In as much as this financing requirement is a challenge, African governments have a wide range of policy options that could open new sources of finance • (African Development Bank Group Chief Economist Complex: Africa Infrastructure Diagnostic, 2009)

RATIONAL (cont.) • Domestic dimension: • Minister Nkoana-Mashabane also emphasised that BRICS membership holds prospects for attracting investments in our economy, contributing to the growth of our exports, and creating conditions for employment creation • This is in line with one of our commitments to cast our foreign policy in the mould of our domestic development priorities • Bilateral SA-BRICS trade grew substantially in 2011, powered by significant increases in trade and exports • Bilateral trade between South Africa and China last year grew by 32%, trade with India by 25%, and trade with Brazil by 20% • Bilateral trade with China last year totaled R188-billion, with India R55-billion, with Brazil R18-billion, and with Russia R3.8-billion • South African exports to China grew the most - at 46% - while exports to India grew by 20%, to Brazil by 14%, and to Russia by 7%

Source: the dti R’billions SA-BRICS TRADE 2008-2011

Source: the dti R’billions SA-BRICS Total Trade (Rbn)

SA-BRICS TRADE 2011 Source: the dti R’billions

Increase in SA-BRICS Trade 2011(%) Source: the dti

RATIONAL (cont.) • Domestic dimension: • The country's financial systems are sophisticated and robust and our banking regulations rank with the best in the world, and the sector has long been rated among the top 10 globally • SA has well established relations with India and Brazil through its membership of the Tripartite IBSA relationship • SA’s has a Comprehensive Strategic Partnership with China and a Treaty on Friendship and Partnership with Russia

2. THE ROLE OF SOUTH AFRICA IN BRICS • Cabinet has approved the BRICS Strategy (classified top secret) on 19 September 2012 that included extensive consultation with Government stakeholders and which will guide SA’s strategic engagement in BRICS • This Strategy outlines the envisaged role of South Africa in BRICS • South Africa’s role in BRICS corresponds to: • i) its foreign policy objectives ;as well as • ii) its comparative advantages

2. THE ROLE OF SOUTH AFRICA IN BRICS: Foreign policy objectives - DIRCO’s mission is to promote South Africa’s national interests and values in the world, and to promote human rights, democracy, good governance and champion the African Agenda - DIRCO’s approach is based on continuity and change in the globalising world - DIRCO continues to consolidate its strategic advances and areas of strength in foreign policy, while finding innovative ways of enhancing our performance - Our constructive role in global governance structures as well as our position within organisations such as the AU, G77 and China, and the Non-Aligned Movement (NAM) is appreciated by our BRICS and other like-minded partners - South Africa is also the only African country represented in the G20, which has become an important institution for the reform of the global financial and economic governance architecture; BRICS Leaders meet prior to G-20 Summits

2. THE ROLE OF SOUTH AFRICA IN BRICS: Foreign policy objectives • - BRICS countries have collaborated to increase the share of emerging and developing countries, including the poorest countries to increase their decision making in key global public institutions such as the IMF, and have also made very significant financial contributions in support of the IMF’s mandate to ensure global financial stability and increased economic growth • - In asserting itself in the world as part of the agenda to transform power relations in the global system, the BRICS leaders recently jointly pledged additional funding to the International Monetary Fund for the so-called “firewall • fund” of USD 75 bn; South Africa pledged USD 2 bn which is in line with our vision to transform institutions of global governance • Commentators have suggested that in the post-Washington Consensus era, financial institutions such as the IMF and the World Bank are struggling to articulate a coherent development discourse; BRICS nations are at a stage where they can collectively craft a viable alternative development agenda

2. THE ROLE OF SOUTH AFRICA IN BRICS: Foreign policy objectives • - There are currently two key finance initiatives aimed at promoting intra-BRICS co-operation, i.e. i) the Framework Agreement on Financial Cooperation, signed between five development banks from the BRICS countries; and ii) the Contingent Reserve Pooling Arrangements and Bilateral Swaps • - At the Fourth BRICS Summit two further financial agreements were signed which had two components, i.e. i) the Master Agreement on Local Currency Credit Facilities (MALCCF) and ii) the Multilateral Letter of Credit Confirmation Facility (LCC) • The aim of the agreement is to strengthen and develop trade and economic relations among the financial institutions and enterprises of the BRICS Member Countries by reducing exchange risk arising from cross border trade by extending credit to each other in local currencies. The Mechanism would enable the five countries to reduce dependence on the US dollar, cut trading costs, increase trade and investment flows and push forward internationalisation of their currencies

2. THE ROLE OF SOUTH AFRICA IN BRICS: Foreign policy objectives • - In the margins of the G20 Ministerial in 2011, Nicolas Stern and Joseph Stiglitz presented a paper on how to fund infrastructure development through utilising savings generated by emerging markets and developing countries (EMDCs) through “an International Development Bank for Fostering South-South Investment” • The first rationale is that the Bank would help mobilise resources from within EMDEs by using these countries’ savings to fund infrastructure development in EMDEs • - The second rationale for establishing the Bank is that in order for BRICS to begin having an impact on the international financial system, it needs to create an innovative platform for co-operation between EMDCs

2. THE ROLE OF SOUTH AFRICA IN BRICS: Foreign policy objectives - Following the 4th BRICS Summit in New Delhi which was held on 29 March 2012, BRICS leaders said: “We have considered the possibility of setting up a new Development Bank for mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, to supplement the existing efforts of multilateral and regional financial institutions for global growth and development. We direct our Finance Ministers to examine the feasibility and viability of such an initiative, set up a joint working group for further study, and report back to us by the next Summit” - After the Summit, it was agreed that India (as incumbent chair) and South Africa (as incoming chair) would co-chair the Joint Working Group (JWG) that would prepare this study - South Africa hosted the JWG in January 2013 and finalised the draft reports that BRICS Finance Ministers will consider prior to the Fifth BRICS Summit to with a view to presenting these reports to the BRICS Leaders

2. THE ROLE OF SOUTH AFRICA IN BRICS: Foreign policy objectives • - In terms of the theme for the BRICS Summit, i.e. BRICS and Africa: Partnership for Development, Integration and industrialisation the following should be considered regarding our role in BRICS: • - The strengthening of the AU and its structures is a strategic priority in deepening the continental integration process • - South Africa continued with efforts aimed at revitalising the New Partnership for Africa’s Development (NEPAD) as a strategy for economic development on the African continent • - At the top of our agenda is the need to ensure that our continent economically • develops and politically matures into international systems of governance hence the candidature of Dr Dlamini Zuma to the position of AU Commission Chairperson

2. THE ROLE OF SOUTH AFRICA IN BRICS: Foreign policy objectives - South Africa returned to the UN Security Council (UNSC) after an absence of two years, and in line with our objective of advancing the African Agenda in the UNSC, and cognisant of the importance of the role of regional organisations when the UNSC deals with regional conflicts, South Africa pioneered a resolution on enhancing strategic and political coherence between the UN and the AU - Despite positive progress that has been achieved in the AU/UN relationship, the pressing rationale for a resolution was the glaring disconnect between the two organisations in the wake of the crises in Libya and Cote d’Ivoire as well as differences on the situation in Sudan - In this context, on 12 January, South Africa hosted a high-level summit meeting, which was presided over by President Jacob Zuma wherein the AU Peace and Security Council (AUPSC) and the chairs of the African regional economic communities participated

2. THE ROLE OF SOUTH AFRICA IN BRICS: Foreign policy objectives • - The outcome of this meeting was the unanimous adoption of the important Security Council Resolution 2033, whose strategic thrust is the promotion of political and legislative coherence between the UNSC and the AUPSC in dealing with African peace and security challenges • - South Africa received strong support from our BRICS partners to ensure the adoption of this critical resolution

2. THE ROLE OF SOUTH AFRICA IN BRICS: Foreign policy objectives • - South Africa’s invitation to join the grouping of BRICS takes cognisance of our • country’s contribution to shaping the socio-economic regeneration of Africa, as well as our active involvement in peace, security and reconstruction efforts on the continent • - South Africa’s objectives vis-à-vis BRICS are i) to advance our national interests as outlined in the President’s State of the Nation Address; ii) to promote our regional integration programme and related continental • infrastructure programmes; and iii) to partner with key players of the emerging world on issues related to global governance and its reform • - In terms of its foreign policy role, South Africa enjoys recognition as a dedicated and committed global and regional player • DIRCO Annual report 2011-2012

2. THE ROLE OF SOUTH AFRICA IN BRICS: Comparative advantages • - South Africa’s comparative advantage within BRICS pertains to South Africa’s considerable non-energy in situ mineral wealth (estimated at $ 2.5 trillion or R18 trillion) being the world's largest producer of platinum, chrome, vanadium and manganese, and the third-largest gold miner, as well as offering highly sophisticated mining related professional services, contributes significantly to the BRICS resource pool • - South Africa must also highlight its stable political environment and adherence to the Rule of Law • South Africa continues to play a leading role in conflict prevention, peacekeeping, peace-building and post-conflict reconstruction

2. THE ROLE OF SOUTH AFRICA IN BRICS: Comparative advantages • - South Africa’s financial market development and sophistication, also as a source of exceptionally highly developed professional services and financial expertise, is globally recognized • - With direct access to the rest of the continent and situated between the East, the Americas, Europe and the Middle East, South Africa has many geo- strategic and related structural advantages • - South Africa’s excellence in Science, Technology and Innovation is also recognised, e.g. it being awarded the majority stake in controlling the Square Kilometer Array (SKA) • - South Africa’s role in global governance structures as well as its leadership role within the G77 and China, NAM and the AU is recognised by BRICS members

3. SUMMIT THEME: BRICS and Africa: Partnership for Development, Integration and Industrialisation • The theme acknowledges the various engagement activities of BRICS countries vis-à-vis the African continent where a different epoch was dawning which implied that Africa had to be engaged through different means • BRICS countries had expanded their footprints on the continent and that this was liberating since it had no colonial background or territorial ambitions or influence • BRICS imported skills to developing countries to improve their well-being and the various sectors and also provided African leaders with confidence to manage African affairs and do away with Afro-pessimism, hence the decision to link it to the Summit • Advancing reforms of the International Monetary System to create a more representative, stable and predictable system of international reserve currencies • Promote engagement with other Emerging Markets Developing Countries (EMDC) • Summit outcome documents: eThekwini Declaration and eThekwini Action Plan

4. SUMMIT OUTCOMES • Minister Nkoana-Mashabane hosted the annual meeting of BRICS Ministers of • International Relations/Foreign Affairs on the margins of UNGA68 on 26 September • 2012 in New York • The Minister proposed the following key Summit outcomes/deliverables which was • supported in principle by BRICS counterparts: • the launch of the BRICS-led new Development Bank; • the BRICS Leaders-Africa Dialogue Forum; • the launch of the BRICS Business Council; and • the launch of the BRICS Consortium of Think Tanks

SUMMIT OUTCOMES • Sherpa visits • IMC mandated the BRICS Sherpa to undertake the customary preparatory Sherpa visits to BRICS countries to discuss Summit proposals and preparations. This visit was undertaken by Ambassador Matjila, Director-General of DIRCO and BRICS Sherpa, together with Ambassador A Sooklal, sous Sherpa and a delegation of senior officials from DIRCO and National Treasury from 29 November to 11 December 2012 • BRICS Sherpas were briefed on the i) Summit theme; ii) Summit outcomes; iii) Summit logo; iv) programme proposals and arrangements, and v) communications • Summit theme, i.e. “BRICS and Africa: Partnership for Development, Integration and Industrialisation” received support from all BRICS Sherpas • In terms of the proposed Summit outcomes, BRICS Sherpas indicated their support in principle • Various logistics were also discussed

SUMMIT OUTCOMES • NEW DEVELOPMENT BANK • After the Fourth Summit a Joint Working Group (JWG) was established to prepare the report to Leaders on the feasibility and viability of a BRICS-led new Development Bank and meetings were held in Brazil (August 2012), Japan (October 2012); and Mexico (November 2012); South Africa hosted the final meeting of the JWG in Pretoria on 10-11 January 2013 and BRICS Deputies will now meet in Moscow on 15 February 2013 to consider the draft report that will be submitted to the BRICS Finance Ministers’ meeting to be held on 26 March 2013 prior to the Summit • A Working Group of Central Banks also prepared a draft proposal for a BRICS Contingent Reserve Arrangement which will follow the same process • Minister Gordhan has proposed to host BRICS Finance Ministers prior to the Summit on 26 March 2013 • The meetings of BRICS Finance Ministers on 26 March 2013 will finalise the report that will be submitted to BRICS Leaders as well as the Road Map on the way forward

SUMMIT OUTCOMES • BRICS LEADERS-AFRICA DIALOGUE FORUM • The AU leadership wrote to President Zuma prior to the Fourth BRICS Summit that took place in India in 2012 to request that he champion African interests vis-à-vis BRICS and that he also provide for an opportunity for dialogue • Provision was made already in the Sanya Declaration (para 6) for engagement and cooperation with non-BRICS countries, in particular emerging and developing countries and relevant international and regional organisations • President Zuma will host the post-Summit BRICS Leaders-Africa Dialogue Forum Retreat on 27 March 2013 and the theme is: ““Unlocking Africa’s potential: BRICS and Africa Cooperation on Infrastructure” • Invitations have been send to the AU Chairperson, AU Commission Chairperson, NEPAD HSGOC Chairperson, Political Heads of the 8 RECs and members of the NEPAD HSGOC’s PICI and special guests; Executive Secretaries of the 8 RECs have also been invited by Minister Nkoana-Mashabane

SUMMIT OUTCOMES • BRICS LEADERS-AFRICA DIALOGUE FORUM (cont.) • President Zuma briefed the AU Summit and NEPAD HSGOC on the Retreat and the • relevant decision is cited below: • NOTES WITH APPRECIATION the briefings by H.E. Jacob Zuma, President of the Republic of South Africa on hosting the 6th Brazil, Russia, India, China, South Africa (BRICS) Summit in Durban on 27 March 2013, for the first time on African soil and H.E. BoniYayi, President of the Republic of Benin on Africa’s engagements with the G8 and G20 in 2012 under the auspices of Chairpersons of the Union and HSGOC; • ACCORDINGLY WELCOMES the Summit theme: “BRICS and Africa - Partnership for Development, Integration and Industrialization‟ and the BRICS-African Leaders Dialogue Forum to focus on infrastructure cooperation as well as the expected participation of AU leadership, PICI Champions, RECs, regional and global agencies;

4. BRICS BUSINESS COUNCIL • TISA is preparing the meeting • Draft terms of reference were forwarded in December 2012 to BRICS counterparts • A BRICS Business Council workshop will be hosted in SA on 25 February 2012 to • discuss the concept of the business council and TOR

4. BRICS CONSORTIUM OF THINK TANKS • - Minister Nzimande has joined the IMC and Department of Higher Education and Training (DHET) will anchor the BRICS Academic Forum and Consortium of Think Tanks • - DHET will organise a SA stakeholder mini-conference around 28 or 29 February 2013 to deliberate the Academic Forum themes and SA Think Tank model • - Preparatory workshop of BRICS Consortium of Think Tanks to be held on 8-9 March 2013 prior to Academic Forum from 10-13 March 2013 to finalise concept paper/terms of reference/MoU

5. PRE-SUMMIT MEETINGS • BRICS Academic Forum: 10-13 March 2013 • Meeting of BRICS Trade Ministers: 26 March 2013 • BRICS Finance Ministers: 26 March 2013 • BRICS Business Forum: 26 March 2013 • Annual Forum of BRICS Inter-bank Cooperation Mechanism: 26 March 2013 • New events to be announced: IMC requested that IDTSOT (Directors-General) discuss new proposals to provide recommendations to the IMC

Q&A SESSION

South Africa's Role in BRICS: Advancing Global Restructuring