By By Johnson Qobo
BRICS during its XV Summit held in South Africa in August, welcomed six countries to the bloc, two of them are African countries; namely Egypt and Ethiopia. The main export commodity of Ethiopia is gold, while Egypt’s main export commodity is oil.
The two countries join South Africa in the bloc totalling to three African countries in the bloc. Over 30 African Heads of States attended the summit showing interest in joining BRICS. Countries from the global South have also shown interested in joining the bloc as well.
BRICS member states trade amongst themselves without the use of the American dollar. The countries will trade with their own country currencies. Meaning, if Brazil wants to pay for goods in South Africa, it will buy the rand in order to pay for the good and services, the same with South Africa, it will buy the real in order to pay for the goods and services in Brazil.
In simple economics, the more demand there is for the country’s currency there more their currency gets strong and the parity between the exchange rate narrows and pushes inflation down. This is good for the overlooked African countries to trade on a global scale with their own currency instead of the dollar.
Moreover, through the BRICS Development Bank which invests more in building infrastructure, Africa can benefit from it as it is also pushing for intra-trade through the African Continental Free Trade Area (ACFTA) and do away with trade red tapes. ACFTA is aiming at building rail that connects the African states, which will boost trade in the continent.
Global demand will grow, and foreign companies from BRICS member states will invest in the countries and create jobs; and the multiplier effect will kick in. Poverty can be reduced significantly and Africa will develop at a very fast rate.
However, Africa needs to wary about some factors that are repulsive to investors; higher relative economic growth rate is attractive to foreign investors, the countries need to come up with fiscal policies that will allow and prompt growth their individual economies. High inflation on the other hand, is an economic scarecrow.
Political climate: Investors usual prefer to invest in a politically stable country; the current coup trend in Africa is not helping at all, coupled by civil unrests. High inflation rates are just a mirror of the country’s political climate. For instance, Zimbabwe’s inflation rate is currently 175.8% and we all know what the political climate is like the country.
It becomes risky for international companies to invest in country that is politically unstable because their investment might be worth nothing should war breakout, inflation skyrockets and their profits will be eroded overnight.
Joining BRICS can be beneficial for Africa, as countries trade in their currencies, the parity in exchange rate narrows and touring the countries of the member states will be much cheaper, which will encourages tourism and raise the traffic between the member states.
BRICS is to announce the possibility of having its own currency in the next summit to be held next year in Russia. The BRICS currency may be pegged to that of member state for ease of trade. This could boost the individual economies in the bloc.
There are many benefits that come with joining the BRICS bloc that we cannot exhaust now. But as for me, I give African countries a thumbs up in joining BRICS.
