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A new future, brick by BRIC(s)

September 12, 2018
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Last month at the BRICS summit I was fortunate enough to attend a Russia-South Africa breakfast on future investment opportunities for both countries

The Brics (Brazil, Russia, India, China and South Africa) summit comes at an interesting time. As I alluded to in my last column (The Madness of King Trump, Issue 8), the brewing trade war between the United States of America (USA) and China – and, more recently, the European Union has entered the fray – has already caused preliminary damage as manufacturers seek to mitigate the effects of increased input costs, and possibly a lower demand for exports.

One of the biggest messages in the initial stages of the summit was the decision to take collective action to fight tariffs as an emerging market bloc. As the dominant economy in the Brics bloc by some distance, China, alone, accounts for 67 percent of the total size of the bloc, by nominal gross domestic product (GDP). Furthermore, as the largest destination for our exports, South Africa is especially reliant on the eastern nation.

It is safe to assume that South Africa will play the role of appeaser when it comes to taking sides in the US-China trade war. It may also be safe to assume that as the dominant bloc, the Brics platform may be used as a proxy to gather support for China.

The other strong message coming out of the summit, which is more relevant to this month’s column, is the sentiment that South Africa remains a gateway to the rest of Africa.

This is encouraging from an investment perspective, as over the past two years the country has been struggling to grow fixed investment domestically on the back of higher political volatility. Much of the investment looks to be concentrated into key domestic sectors, such as freight and transportation.

While the situation in South Africa remains weak, positioning the country as the gateway into a potentially lucrative southern and eastern African market makes sense. With a growing middle class and greater appetite for goods, South Africa remains the ideal place to base investment, while also mitigating the domestic political risks.

There is already a tremendous amount of interest in advancing the regional value chain in southern Africa (which I will discuss in my next column).

Unlocking this for the transport industry will have tremendous benefits, as the two-fold approach of fighting protectionism (which Africa has taken leaps toward with the signing of the African Free Trade Agreement), while increasing investment and cooperation, looks to be a potential green shoot on an economy that needs to leverage its competitive advantage.

SAM Rolland is an automotive and transport economist at Econometrix. He is responsible for writing the Quarterly Automotive Outlook at Econometrix, as well as commentary and analysis on vehicle sales and transport price drivers. Prior to joining Econometrix, Rolland spent a number of years as an economist for the National Treasury of South Africa. He has also worked at Bloomberg New Energy Finance as a research analyst in conventional power.

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