Nigeria could 'very soon' be the next African BRIC
It is 10 years since the idea of the BRIC nations of Brazil, Russia, India and China came into being, and this year they added a new member - South Africa - to the group.
With an African country now part of this economically significant group, BBC World Service's Business Daily programme brought together the finance ministers from two of the biggest players on the African continent.
Ngozi Okonjo-Iweala is Nigeria's finance minister and Pravin Gordhan, is South Africa's finance minister. Ed Butler first asked Pravin Gordhan how important he thought the development of the BRICS group was.
Full transcript below
Pravin Gordhan: We are BRICS. And the significance is that in terms of the kind of transition that the globe is undergoing economically and geopolitically, the BRICS concept and the BRICS family constitute a very important development in the evolution of the globe towards multi-polarity, and being an element of BRICS as a part of the African continent ensures that the continent itself features in the new dynamic that is unfolding currently.
Ed Butler: But why does South Africa get to be a member of this exclusive club?
Pravin Gordhan: Because at the moment it's the largest economy on the African continent. It has many strengths as do many of our partner countries in the African continent. But we have a very sound financial system. We have a growing and dynamic economy that of course will become more dynamic in the next five to 10 years. And we play and make an important contribution to African growth as does our counterpart in Nigeria as well.
Ed Butler: Ngozi Okonjo-Iweala, are you feeling a bit left out?
Ngozi Okonjo-Iweala: Well, we don't like to feel left out because we know we are going to get there. I mean Nigeria has all the fundamentals to be one of the BRICS. And I think that I always have this one saying that 'if you are not in Nigeria - and with all due respect and support to my colleague Pravin - you are not in Africa' because our fundamentals, that we are the largest country in terms of population, we are growing at a very respectable rate of 7% and better for the past couple of years, and we have got both the natural resource base but also the human resource base to be able to do better.
And I think that when we take care of several of the constraints that is holding our economy back, for instance we have constraints on power which is holding our industry back. When we solve those problems, we are going to be in the low double digits and that will parachute Nigeria into the BRICS.
Ed Butler: Yeah, I mean absolutely and there is talk I believe of Nigeria maybe even overtaking South Africa as the largest African economy in the next few years. Do you think that, again speaking for Nigeria, that South Africa is truly representing you and the other African economies at these BRICS meetings? I mean do you feel represented?
Ngozi Okonjo-Iweala: Well, we are very happy that South Africa is there and we have excellent collaboration. I mean Pravin and I collaborate very well and we meet among the African finance ministers to try and transmit our concerns to South Africa. So we are happy they are there. We think that it's good. That doesn't mean that we don't think other African countries like ourselves need to belong.
But we keep in close touch, and I think it will be good at a time when the continent is on a growth trajectory that is far better than many other parts of the world. The continent is growing at 5% and better now. I think they need to get Nigeria in there as well.
Ed Butler: What do you think, Pravin?
Pravin Gordhan: We agree. Nigeria is a very important partner and a very dynamic economy and like all of us that have constraints in one form or another, but there is nobody in the world that doesn't have constraints. We all have very high aspirations for our economies growing faster and more equally, for more massive job creation in our economies, for a better balanced world in which the traditionally developed economies and the emerging and developing economies to benefit in better ways than we have been doing up to this point in time.
And of course competition and cooperation is part of the 21st Century dynamic. We will work with Nigeria and Nigeria will work with us, as we certainly do currently, certainly at the level of finance ministers, and we will compete as well. But we see competition as a very healthy thing, both for the benefit of our individual countries and peoples but also for the continent as a whole.
Ed Butler: But Mr. Gordhan, I mean I have looked at the statistics. Your country produces something like what, $350-400bn a year in GDP. Russia which is the smallest of the four main BRIC countries is producing $1.4 trillion. I mean you are not really on the same sheet, are you?
Pravin Gordhan: No, we don't even pretend to be, but that's not the issue you see. If you want to continue to look for differences, we can find many differences amongst the BRICS countries and there is really perhaps even a point which you would say there is no basis because every one of the BRICS countries are distinct from the other. And depending on the criteria you choose, you can either find similarities or differences.
The key issue is, is this world changing towards a multi-polar world? Are the emerging economies beginning to play a more dynamic role? For the last three the emerging economies have contributed more than 50% to the GDP growth of the globe. The contribution of developed economies has been miniscule notwithstanding the size of their GDPs at this point in time.
Do developing countries make an important contribution to production in the world? Yes, they do, certainly South Africa makes a smaller contribution, China a much bigger contribution, Russia and Brazil less so. So over 60% of the world's production takes place in the east and south. Does the developing world consume as much as the developed world? No, because more than 60% of the consumption is actually taking place in the developed world.
So those are the imbalances that we actually are experiencing as we are experiencing imbalances in respect of creditors and debtors in today's world as well. So the real issue around BRICS is the symbolism that it reflects in respect of changes that are taking place economically and the kind of transition that is now inevitable towards a very different kind of economic order in the world. And humble South Africa is privileged to be part of that Africa 'learnt' to control debts process, not just for itself, but nor do we claim that we represent anybody else in the fullest sense of the word. So countries like Nigeria and Egypt will make very important contributions as we go forward.
Ed Butler: All right. Ngozi Okonjo-Iweala, I mean this is the point, isn't it, South Africa are always, rather humbly, seems to be representing Africa whether it's in the World Cup in football or rugby or anything else. It somehow is Africa when it comes to the international table. Do you feel a little bit like, I don't know, somebody else should be given this honour?
Ngozi Okonjo-Iweala: Well, the way I feel is that the world needs to look towards the dynamics of what's happening with growth and development on the continent and not towards the statics of the past. And when you look towards dynamics, I think that we need more African countries at the table, and therefore that's why I think that Nigeria very soon merits a place alongside South Africa at these gatherings.
It's good we have got one of our countries there and it's good we have very good relations. You see that a lot of investment in Nigeria comes from South Africa. We have very tight collaboration. But, as Pravin said, competition is there. And I feel that as Nigeria's economy, the structural factors are cleared up and we compete, we should be at that table too. Yes, so our aspiration is to be at that table and I know we will be.
Ed Butler: Jim O'Neill of Goldman Sachs who actually coined the BRIC term originally talks about the "Next 11," doesn't he, beyond Brazil, China, Russia and India, the next eleven emerging economies. That would I suppose in due course start to embrace countries like yours?
Ngozi Okonjo-Iweala: Yes, there has been a lot of work done by Jim O'Neill of Goldman Sachs and Willem Buiter of Citigroup, and in each of these analyses about the next group of countries that should be looked at for dynamic global growth and expanding economies, Nigeria comes into those. It is estimated that by 2050 Nigeria may have the third-largest population in the world. It's for all these reasons that my president, President Jonathan is at the moment really focusing on a programme that transforms the economy so we can remove those structural factors that are holding us back.
Primarily, if you poll our businesses, 53% of them in the last World Bank poll said the biggest problem is power, electricity and access to finance. So we have to address these problems square on. So these analyses make clear that Nigeria will make it provided it deals with these issues and that's why we are focusing on dealing with those structural issues.
I just want to say one thing. A clear problem for us that we are looking at is that of job creation. I mean there is really no point just growing if you are growing in a way that is not inclusive, in a way that doesn't create jobs for young people. So we are focusing more on growth in the non-oil sector because we believe that that is where jobs will come from. And I am proud to say that our non-oil sector including agriculture is growing at 7% to 8% also. So we have hope that this will really help us parachute into those ranks.
Pravin Gordhan: I want to disagree with Ngozi that even the BBC's approach needs to change a little bit. Looking at GDP numbers is not enough. We are living through a very important phase where there are important paradigmatic changes that are taking place; that the key issue both in the developed and developing world is whether current growth models create jobs, whether current growth models in particular absorb young people, in our context whether current growth models absorb unskilled young people and give them hope for the future, and more importantly the inclusivity element which says we need to have growth models that produce less inequality.
You have had a report in Britain over the past week through the Pay Commission which reflects upon the pay differences between ordinary workers and executives in the private sector, which show a massive divide developing in society. And I think the future lies with the BRICS countries, with Nigeria and others who are going to put a lot more effort into ensuring that we create a different economic and social model which creates less social tensions and creates greater social justice and inclusivity in terms of the economic models.
Ed Butler: Mr Gordhan, I mean if I could just put in I suppose the obvious question at this stage in economic history, which is at what point or to what extent is Europe preying on all of your minds at the moment? I mean the future of the eurozone does seem to be rather hanging like a sword of Damocles over the rest of the global economy, doesn't it? How is it going to affect you if Europe does take a plunge?
Pravin Gordhan: Well, the United States affected all of us post 2008 and all of our economies lost tax revenues, all of our economies had job losses, all of our economies had enterprises either closing down or stuttering in one form or another. And the new epicentre of the crisis in Europe and the eurozone in particular is having a damaging spillover effect on our economies, partly because they are major trading partners, but more importantly Europe is actually dictating the risk mind sets and investment mind sets at this stage.
Which means that each time European leaders refuse to or unable to make the right decisions in respect of the size of the EFSF or in terms of capitalizing their banks or in terms of allowing the European Central Bank to intervene or not to intervene either in favour of banks or the sovereigns, we have capital flows moving either into our economies or rapidly out of our economies to so called safe havens.
And this has major disruptive effects on our economies, our currencies depreciating one day appreciating the next day, and that kind of volatility is not useful. But European leaders don't seem to be hearing the rest of the world. They don't seem to have the political capacity to both manage their own backyards on the one hand and ensure that they don't damage the rest of the world on the other hand.
Ed Butler: In Nigeria, could that go into reverse in the current climate, do you think Ngozi?
Ngozi Okonjo-Iweala: Just before I address that, I just want to echo what Pravin has just said. I mean we are very worried. These days when I talk about our economy and the African economies, I always start by prefacing what is happening in the globe. And Pravin is absolutely right. If you take Nigeria for instance, 60% of the demand for our product comes from Europe and the US at the moment, although we are trying to diversify markets as well.
And so what happens there is of a direct consequence to us and I think it translates exactly through volatility; volatility in the prices of the commodities and products that we export, and volatility in our currencies, even in our stock market. At the time of the last crisis, we had a great impact on our stock market as people flew, there was a flight to safety and a flight to cover positions that were exposed in Europe and lot of people withdrew their money from the stock market, and all that kind of volatility is really not helpful to us.
Ed Butler: So it's not just the fate of the relatively wealthier Europeans at stake here?
Ngozi Okonjo-Iweala: No. I think that's what needs to be recognized that when these decisions are being made, you mustn't forget the other countries in the world who are your trading partners and the developing countries that are also contributing strongly. We need to look at how can we make more use of their dynamism in order to support the rest of the world and to help ameliorate what's happening in Europe and US at the moment.
Ed Butler: Mr Gordhan, is China, Russia, Brazil going to bail you out of this problem?
Pravin Gordhan: I don't know. I think the word 'bailout' applies at your end of the world, not at our end of the world, with great respect.
Ngozi Okonjo-Iweala: We are bailing people out not the others.
Pravin Gordhan: We are. And that's the point I just wanted to make. It's the developing countries that are bailing the developed part of the world out at this point in time. And what we are now having is the sinking developed world, which is pulling the rest of the world down rather than managing their situation in a way in which the floating effect, that and the buffering effect that the developing countries' economies have been providing over the last few years being sustained. That buffering effect is in fact being damaged. So all of our economies are now sliding, whether we are in China, in Brazil, in India or wherever we might be. And that is going to have massive consequences in terms of the overall global outlook.
So we hope that at some stage soon sense will prevail that self-interest takes a backseat and that mutual interest begins to become a more dominant part of the considerations that will be taken into account. Otherwise, we are forsaking all the wonderful opportunities we have to put billions of people on a better footing in terms of their lives, and create a situation where we have a really depressing decade ahead of us.
Ngozi Okonjo-Iweala: May I add to that one thing, very humbly I also want to submit that the developed countries can look at some of the lessons that come from the work that the developing countries have done or doing, and ask the question, why are these economies now rebounding and sustaining growth. It's because many of our economies, even in Africa, have gone through some of the challenges that the developed world is now going through. We have learned lessons. We have learned how to manage our economies in order to produce and promote sustained growth now.
And I think that if you look at the BRICS, you look at what has happened in countries in East Asia. There is a lot to be learned about managing the financial sector. There was a lot to be learned from the lessons from the East Asian financial crisis. Even from Africa after two or three decades of lost growth, we have learned which policies make for good policies. We have learned to keep our debt at a sustainable level and to be consistent in terms of the way we manage our macro economy, and I think there are a few lessons there from the financial sector and from macro that could be offered.
12 Dec 2011
- From the section Business