'South-South cooperation needs BRICS'

Three of its members set good examples in labour market practices

Is BRICS an idea whose time has passed? Investment bankers certainly think so. This grouping of Brazil, Russia, India and China - with South Africa joining in 2010 - came into fashion over a decade ago. These countries were expected to become the future engines of global growth, catching up with the US and the European Union. However, these prospects now appear bleak with China's growth slipping from double-digits during the last decade to 7.9 per cent. India, too, has experienced a sharp slump from an average of 7.6 per cent to five per cent. Brazil and Russia are sluggish at 1.4 per cent and 2.1 per cent, respectively.

With dismal growth expected to persist in the near-term, the hype surrounding the much-vaunted geopolitical and strategic significance of BRICS has evaporated. The BRICS countries, too, are not cohesive enough to raise its global profile - given the sheer dominance of China, which accounts for 55 per cent of the group's gross domestic product, and the anxieties that it generates. The latest Durban Summit sought the establishment of a development bank, but there was no agreement on whether the seed capital should be as high as $100 billion as desired by China.

The acronym, thus, might appear passe. But it should be emphasised that it comprises Asia's two leading giants and the largest economies in sub-Saharan Africa and Latin America. These economies have a major impact in their respective regions as "role models", despite the group's limited success in changing the global architecture of governance. But one area where this grouping remains relevant is in fostering South-South cooperation, especially in Africa. Individual BRICS members are also centres for policy innovation, relevant to the promotion of inclusive development and poverty reduction in the South.*

BRICS are the growth drivers for many low-income countries in Africa. This grouping is ranked among the top-investing countries there. In 2010, the BRICS share in the foreign direct investment (FDI) inward flows to Africa reached 25 per cent. It also accounts for a quarter of the total value of green-field projects in 2012, according to the United Nations Conference on Trade and Development. BRICS FDI projects are also in manufacturing and services. Brazil, which has more people of African descent than any country outside of Africa, is raising its profile by playing a key role in the expansion of the ethanol industry in Angola, Ghana and Mozambique.

The labour market experiences and social protection measures, especially in Brazil, China and South Africa, offer valuable examples to the South. Brazil's growth may be slow, but the rate of open unemployment is also low at 5.6 per cent when compared to India and South Africa (which has the highest rate of 24.9 per cent). Brazilian employers have difficulty in filling up job vacancies. The economy has created 12.5 million formal jobs during the last eight years, according to The Economist - a contrast to the pervasive informality of job creation in the Indian labour market.

Alexandre de Freitas Barbosa and Amilton Moretto in their essay argue that Brazil "stands out for the dynamism of its labour market, which has stepped up the generation of formal employment... while simultaneously reducing poverty and inequality. Yet, inequality is still considerably higher in Brazil than China and India... the Brazilian poverty profile has become increasingly urban in contrast to the situations in China and India. In comparison with South Africa, what should be stressed is Brazil's capacity to raise employment levels and reduce the informality rate".*

Brazil's success in this regard stems from empowerment at the grass-roots level and the coming together of diverse social groups, including organised labour culminating in the rise of Luiz Inacio Lula da Silva as president. There was a huge expansion of education, besides higher minimum wages and cash transfer policies to disadvantaged groups that played a major role in the reduction of poverty and income inequality. (Also see: Daron Acemoglu and James Robinson's recent book "Why Nations Fail: The Origins of Power, Prosperity and Poverty", Profile Books.)

China's rapid growth is slowing down. One reason is the exhaustion of labour surpluses in the agricultural countryside. Although income inequalities have widened of late, the crossing of the so-called "Lewis Turning Point" in terms of unlimited supplies of labour at a constant wage may actually help in remedying this problem at the bottom end of the labour market, argues Du Yang in Rodgers' edited publication*: There are frequent labour shortages. Wages are rising for unskilled workers. As employers compete for scarce labour, new social protection programmes are on the anvil.

South Africa's trade unions may be weakened by high levels of unemployment, but the country has one of the best-developed social protection systems among the cohort of all middle-income economies in the world that ensure that growth is less unequal. Such examples from the BRICS fold offer valuable examples on how to promote job creation with social protection, better align economic and social goals that help in the reduction of poverty and income inequalities in the South.

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* Aligning Economic and Social Goals in Emerging Economies: Employment and Social Protection in Brazil, China, India and South Africa, edited by Gerry Rodgers, Academic Foundation 2013.
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