There is no better example of the spectacular fall of the Brics concept than the tragic unravelling of South Africa’s hopes to finally make the world’s economic top table. Despite being blessed with abundant natural resources and having miraculously weathered the transition from the hateful system of apartheid to multi-ethnic democracy, South Africa is one of those maddening places that always seems about to make it, but never quite does.
In this case, the frustrating under-achievement of the hapless government of Jacob Zuma is primarily to blame. A recent Afrobarometer survey found that public distrust of the South African President has increased drastically, from 37 per cent in 2011 to 66 per cent in 2015. Likewise, public approval of his lacklustre performance has steeply declined, from 64 per cent in 2011 to only 36 per cent in 2015.
The cause of this political cratering is the Zuma government’s tragi-comic mismanagement of the South African economy. The low point may have been reached in December 2015, when the country had three finance ministers in less than a week. The first, Nhlanhla Nene, a respected non-political figure, was removed by Zuma precisely because he stood in the way of the wild spending plans favoured by the President, often reeking of corruption.
One of Nene’s many objections to Zuma’s feckless spending concerned the chairperson of South African Airways, Dudu Myeni, who pushed for the state carrier to buy airplanes from an unnamed middleman. For standing in the way of business as usual, Nene was pushed out.
Zuma then briefly replaced Nene with a compliant lackey, an undistinguished backbencher of the ruling party, the African National Congress (ANC), named David van Rooyen. The rand promptly went into a swoon, losing 9 per cent of its value. Temporarily shocked out of his lethargy, Zuma quickly replaced van Rooyen with Pravin Gordhan, a solid, well-respected policy-maker who had held the finance post before. But serious countries simply cannot behave like this and thrive in our competitive era.
The contrast with next door Botswana could not be greater. Since winning independence from Britain in 1966, the country has been a poster child for both political stability and economic prosperity. Blessed as is South Africa with a wealth of resources, Botswana has largely avoided its neighbour’s descent into corruption, instead enriching its citizens as the second largest diamond producer in the world. Income per capita has fully quadrupled over the past 35 years. Over the past decade, Botswana has averaged a very healthy annual growth rate of 5 per cent.
However, for all that Botswana is an unambiguously good news story, several clouds loom on the horizon. It has never managed to move beyond its dependence on the diamond trade – diamond mining accounts for one-quarter of Botswana’s economy – leaving the country almost entirely at the mercy of just one major industry.
Recently, the global diamond trade has sputtered, due primarily to a downturn in demand in China, as Xi Jinping’s anti-corruption drive has gathered steam and outward displays of public wealth (an image diamonds certainly convey) are now very much out of fashion. This has hit the industry hard. Diamond prices have fallen by close to 30 per cent, socking the Botswanan economy, which grew by only around 2.5 per cent in 2015.
An even more worrying middle-term problem looms: the country is likely to run out of diamonds over the next 15 to 20 years. As Botswana currently manufactures almost nothing and exports little besides the precious stone, the economic model that has brought the country such success is quickly winding down. New industries and novel sources of export earnings are the main challenge for Botswana over the next generation, if its gilded reputation is to be upheld in the future.
The twin tales of South Africa and Botswana make it increasingly clear that not all emerging markets are created equal. Investors must analytically disaggregate them if the promise of the rising world is to be realised and its peril overcome.