Essay: Definition of emerging markets

An emerging economy also known as (EME) can be defined as an economy that has low to middle per capita income. The term was first coined by Antoine W. Van Atmel of the international Finance Cooperation of the World Bank. The term is loosely defined by some countries. Countries that fall into this category are usually from very big countries to small countries. They are called emerging countries because of their developments and reforms for example China and Tunisia because both have embarked on economic development and both have reform programs, and they have both taken the global scene by storm. They are called emerging countries because of their-fast growing economies. They are called emerging markets because they have similar characteristics as developed markets, the only different is they haven’t met the standards of developed markets. They might have been developed markets in the past or they are on their way to being developed.
The economic importance of emerging markets to the developed world
Emerging markets have become key players in the global economy. Emerging markets are important in the global world for they play a substantial and increasing role in the corporate profit pool since most EME companies have become asset classes in the economy which may be accounted for the increasing share in the global economy. Even though emerging markets are less transparent and less well covered than developed markets, most companies which have investors that invest in emerging markets argue that they are the best space core portfolio allocation to invest for the EME equity is vast, with thousands of companies, sectors and industries etc which make these markets major multinationals. The companies have a lot of advantages because they include sectors such as energy, finance and banking, transportation, telecom, housing, utilities, mining and more. Most of these companies that invest in emerging markets have very dominant roles in developed markets. Most emerging companies have strong fundamentals such as healthy corporate profits, positive cash flows, low cost structures, limited leverages and manageable debt profits which make them a compelling equity investment opportunity.
South Africa’s role and importance in the BRICS partnership
South Africa has a huge role to play as a member of BRICS such as helping the rest of the African continent to have its own high standards. This will help the continent to be a greater economic might. It can do this by exploring cross-border expansions in trade and infrastructure, as well as improving domestic productivity. South Africa can also help the rest of Africa by helping the continent improve its technology for this can help mitigate the scale and risk related frictions. It can also help reduce transaction cost, especially the fixed cost component. This can help in reducing the operational risks and it can also reduce theft and fraud. South Africa can assist other African countries by helping them to move away from the brick- and mortar model of banking with high fixed costs toward a mobile phone technology, where most of the costs are variable, which can help overcome the diseconomies of scale. South Africa can also improve Education as well as strengthening trade and infrastructure links. South Africa has the role to deal with the governance problems which carry on plaguing many private and government institutions throughout the continent and undermine not only the market-based provision of financial services. The government can put reforms which can be aimed at fixing market failures. These are the words of Jim O’Neil, Chairperson of Goldman Sachs Asset management. South Africa also has the role to act as regional in the rest of the Continent. South Africa does not only have a bridging role between the BRICS countries and Africa, but it also has the role to build a closer relationship among the BRICS countries and Africa. It also has the role to help African countries to play a greater role in international affairs.
South Africa is important in BRICS because it adds the following values to BRICS:
It is important because of it natural resources which add significantly to the BRICS resource pool. We know that South Africa is rich in minerals which saw it being ranked as the world’s richest country in terms of mineral reserves. The country is also the largest producer of platinum, manganese, the third largest gold-miner, and offers highly sophisticated services. The continents riches Is what has led to the demand for its commodities such as metal, minerals and food from BRICS countries. This has led to growth in the continent making it possible for South Africa to improve its railways, ports and fuel pipelines.
Furthermore, it is important because of its financial market which has greatly contributed to the country being highly recognised by the World Economic Forum, which showed a lot of confidence in the country’s ranking which saw it being fourth place globally on its measure. South Africa’s export structures have also seen great diversity in the economy and its negative trade balance has been lowered compared to 2008 when it was R57 billion to R22.8 billion in 2011. The country’s political history has also worked in its favour because it has been recognised globally. South Africa’s constructive role in global governance structures as well as position in numerals organisations has worked in the country’s favour.
The relative weight South Africa plays as an African broader economy and its own potential for development is also perceived an important economic base for South Africa as a BRICS country. South Africa’s solid industrial foundation, a good investment environment and an internationalised economic system made it an important factor in BRICS. South Africa being a major supplier of precious metals and strategic minerals in the world market also made it important.
It also being the main manufacturing base for these resources in sub-Saharan Africa, with its advantage of technology and management; the rapid development of the information and communications technology industry, and the clean energy and environmental protection industry also contributed. South Africa’s role in fixing the 2008 global economic crisis contributed. The effective measures adopted by the South African government which include the expansion of infrastructure investment, more investment on training the labour force, and stepping up industrial upgrading to a knowledge-based economy contributed. South Africa playing a significant role in conflict resolution, disaster relief and development assistance and peacekeeping made it possible to push forward African solidarity which contributed to South Africa being part of BRICS for this portrayed an image for South Africa as a responsible regional power.
Factors that make it attractive for South Africa to be part of BRICS
South Africa’s vast minerals which are gold, platinum and diamonds worked on its side to be part of BRICS. The following also made it easier for South Africa to be part of BRICS which include its excellent infrastructure, its established corporate footprint, its cultural innovation, easy access to finance for business, a stable macro and micro financial climate, an advanced banking system and functioning regulatory frameworks. Its unique historical background also worked in favour for South Africa and its economic trajectory. There fact that the country shares its concerns in issues involving democracy such as law and order, economic inequality, social and cultural diverse populace, poverty and unemployment.
The fact that South Africa stood firm on the issue that developed countries should bear the burden of climate change. Which led to the establishment of the Green Climate Fund which was said to lead to the emission cuts and which led to the development of technology in developing countries, South Africa was the only country that was committed to the use of renewable resources such as solar, wind and waterpower which most of the other countries were not able to put into practice. South Africa’s development path which has helped to bring forth tremendous political and economic development to the country made it attractive to be part of BRICS. South Africa being able to meet the objectives of building an equal, democratic and progressive country also worked in the country’s favour. South Africa’s social development strategy of governing, as its way of maintaining its democratic system also contributed.
New (specific) trade partnerships/agreements among BRICS partnerships
Some of the trade agreements that have been signed by the BRICS member countries are the establishment of the Development of a New Bank. It was said that the bank’s capital contribution would lead to the improvement of infrastructure which would be both sufficient and substantial. In addition, the leaders also agreed on the contingent reserve agreement. This would help the BRICS countries deal with their short-term liquidity pressures which would help them strengthen their Global financial safety net and also their international defence and this would be done through the CRA. The BRICS countries also agreed to review this in their next meeting of BRICS Finance Ministers and Central Bank Governors in the September 2013 summit. Specific measures were taken between the BRICS countries to increase business, trade, manufacturing, and investment ties between BRICS and Africa. The summit also saw two agreements being concluded which are the BRICS multilateral cooperation which opened doors for Africa in projects such as Co-Financing which would improve infrastructure across the continent.
This has also led to the BRICS multilateral cooperation and Co-financing agreements for sustainable development which will explore and will lead to the establishment of bilateral agreements. This will also see the establishment of cooperation and co-financing both in sustainable development and the Green economy. South Africa has also signed the Comprehensive strategic Partnership Agreement with China in 2010 which was due to South Africa’s achievements within the country and as well as regionally and internationally.
BRICS member countries agreed to build upon their synergies and to work together to intensify trade and investment ‘ows among their countries to advance their respective industrial development and employment objectives. They also agreed on the regular consultations amongst their Trade Ministers and also considering taking suitable measures to facilitate further consolidation of their trade and economic ties. They also agreed on Extending Credit Facility in Local Currency under BRICS Interbank Cooperation Mechanism and the Multilateral Letter of Credit Con’rmation Facility Agreement between their EXIM/Development Banks.
Brazil, as a member of MERCOSUR, has signed a limited scope preferential trade agreement with India in 2004 and with SACU in 2008. A number of trade agreements are also in the pipeline, with the launching of negotiations between China and SACU and subsequently India and SACU.
MERCOSUR and India signed a framework trade agreement on 17 June 2003, which provided for the negotiation of a partial scope agreement signed on 25 January 2004 (annexes were signed on 19 March 2005). The agreement contains disciplines on safeguards, anti-dumping and countervailing measures, technical barriers to trade, and sanitary and phytosanitary measures, as well as dispute settlement procedures and also the Multilateral, Regional and Bilateral Agreement. Brazil adopted coordination, and implementation of trade policy in goods and services which is responsibility for the Chamber of Foreign Trade (CAMEX), created in 1995. The CAMEX is a part of the Government Council of the Presidency of the Republic. Brazil has also extended its preferential regime to the countries of the Andean Community (Colombia, Ecuador, and Venezuela), Cuba and Peru via preferential agreements, and Surinam via a partial scope agreement. In addition to MERCOSUR members, Brazil has extended its tari’ preferences to imports from Bolivia, Chile, and Mexico through MERCOSUR’s free-trade agreements; and to Guyana via the partial scope agreement under the framework of LAIA.
Russia has agreed on the Customs Regulation which provides a uni’ed list of CU-wide exemptions from the customs tari’ rates. The Agreement on General Conditions and Mechanism of Support for the Production Cooperation Development of Enterprises and Industries of CIS Member States which is known as the Ashkhabad Agreement. It was signed by all CIS Members. The Agreement provides for coordinated policies in the sphere of international specialization and industrial cooperation through joint projects and programmes
The Free Trade Agreement with the Republic of Yugoslavia which was applied equally between the Russian Federation and these countries. The original Agreement had not been rati’ed by the Russian Federation and it is still being applied provisionally. The Agreement stipulates that the Parties would liberalize trade in accordance with the provisions of the Agreement and WTO rules in order to create a free trade regime.
Countries which South Africa should seek trade links
Political tension, violence and conflict all these reasons are all that led to African countries not trading with international countries in the past. These had a negative impact on African countries because it led to them having a negative economic growth. The growth of intra- Africa is very important because it can help small businesses to become competitive by helping them to create large scale corporations and they can do so by weeding out big useless corporations that are less productive in the African market. African countries can also strengthen their productive chains and they can transfer technology and they can increase infrastructure which can attract foreign indirect investment. This is key to growth in the African continent. Since the continents internal trade is low, it is very important for the small businesses that are facing difficulties in the economy. South Africa should work hand in hand with African countries because most of its exports are taken to the world’s developed economies like the U.S, U.K and China while they can help develop each other’s economies and this can lead to job creation and they can tackle the problem of infrastructure for we know that infrastructure has always been a problem for most sub-Saharan countries. All this is caused by the conflicts which have reduced the continent’s economic growth, productivity and this has even led to the raise of transport costs. According to the 2010 report by the United Nations Economic Commission it shows that about 30 percent of the African roads are paved and as a consequence it is very expensive to move a car from one country to another, and a good example is Japan to Abidjan which would cost more than 5000 dollars. In order for South Africa and other African countries to be like international markets they have to be able to fully exploit their domestic markets to the fullest. On the bright side of things, increased trade between South Africa and African countries promises growth in the continent. In order for African countries to tackle the border issues, they first have to reduce the high fees that customs offices charge. For the World Bank and International Finance report of 2011 has shown that the sub-Saharan region is the world’s most expensive region to trade with. South Africa can seek trade links with other African countries but they first have to tackle the problems they facing which include lack of adequate road, rail, water, and also physical infrastructure.
South Africa should develop and strengthen economic ties in Africa
South Africa should develop and strengthen most of its ties with Africa because most of its fortunes come mainly from this continent, especially the SADC region because of its manufactured goods and its service companies which make this region the key market for South Africa. Some may argue on the other hand that South Africa being part of BRICS does not have a positive impact in the country because in order for the country to interact with BRICS, they first have to demonstrate the ability to leverage linkages in terms of trade and investment for itself meaning before it can extend its ambition to the rest of Africa. South Africa should consider strengthening its ties with the rest of Africa because most of its policies are considered weak by BRICS which has led to its failure to engage actively in the business sector and at a broader level. South Africa should also strengthen it ties with Africa by dealing with the problems that the countries are facing which include lack of public support. For this problem is affecting most of the African countries. South Africa can strengthen it ties with Nigeria, Kenya, and Ethiopia which their economies are raising. But firstly, South Africa needs to firstly tackle the problems it has with its neighbouring countries for its actions has created doubts for its ability to lead the rest of the continent and this can be traced back to 1973 when South Africa was not able to create a flying zone in Libya.
South Africa needs to place domestic interests so it can protect its comparative advantage in Africa. South Africa should strengthen it ties with Africa for the mere fact that BRICS countries are in Africa to serve their economic interests and South Africa should also do the same. South Africa and the rest of Africa can work together by reducing the cost of trade barriers, improving infrastructure, and dealing with strong labour unions, rising wages and low levels of technical management skills.
Although Africa and BRICS agreed that the BRICS market is an opportunity for Africa to improve its path to infrastructural, social and economic development, the economic bloc is however, been used in the wrong way. Although China is investing in Africa’s natural resources in exchange for paving the way for infrastructure by building roads and universities etc. This relationship is made difficult by the West. America for it continues its ‘race for natural resources with’ China. Africa at the end suffers because these superpowers compete to extract resources from Africa at the cheapest price.
Donald Kaberuka last year said ‘Africa is being ripped off big time’ by multinational corporations for they do not get compensations for their resources, in exchange for the industrial development which takes profit from Africa. Africa is not being treated as a fair partner in the BRICS market and it is not benefitting. ‘Don’t come to Africa and help, come and make because the highest return on investment is in Africa,’ Mr Ibrahim said, and he is right; business is what Africa needs more than philanthropy.
‘It is essential that Africa is now able to do business in the BRICS market to the same extent that BRICS nations do business in Africa.’ Famous words by Donald Kaberuka, the former CEO of the united Bank Africa.
African Banks should be allowed to operate in China because China is also being allowed. The relationship has to go both ways. Africa needs to invest in companies that can process materials, create jobs in Africa and also create an attractive consumer market that will make it easier for BRICS countries to know that Africa is in a position to engage in trade. BRICS needs to allow the new entrepreneurs to invest in their countries just as they also investing in ours.
My opinion
I personally believe that South Africa needs to look beyond the BRICS market, for the mere fact that the African continent needs to grow and for the continent to grow, the African countries need to work together. Since South Africa is rich in minerals, the country can work with other African countries to improve railways, ports and fuel pipelines. South Africa and other African countries can also improve the growth of intra-trade, for it is very important for the establishment of small businesses in the continent which can lead to the creation of jobs .The continent can also improve their productive chains, technology and can also increase infrastructure which will attract foreign indirect investment in the continent.
South Africa needs to strengthen it ties with African countries because most of its fortunes come mainly from the continent, especially the SADC region because of its manufactured goods and services, which make this region the key market for South Africa. The African countries can also reduce the cost of trade barriers, improving infrastructure and dealing with strong labour unions.
South Africa needs to put its leadership first before its responsibility in BRICS. It has to put integration, development and industrialisation on the continent. This can be achieved through the Development Bank of Southern Africa, as well through the Industrial Development Co-operation agencies. South Africa can open up opportunities which would focus on Africa’s fast growing economies which include Kenya, Nigeria, Ethiopia and Egypt. This approach would give South Africa more authority in Africa. South Africa can place this in its BRICS agenda. In conclusion, South Africa should increase its markets and its exports across the continent which would lead to a sustained African economic growth.