Brexit has been triggered. Donald Trump is busy implementing a protectionist economic strategy that will help him deliver on campaign promises to secure American jobs at any cost. South Africa’s credit status has been downgraded to junk by ratings agency S&P. It might seem like events in South Africa are not as critical to the global economy as the transformation under way in western economics, but South Africa highlights the delicate position of several emerging markets in uncertain economic waters.
Economists are torn over how emerging markets will grapple with the changes in major economies such as the United States and the United Kingdom. While the UK has signalled its desire to sign a rash of new free-trade agreements with countries around the world (including the GCC), it is clear that populist elements are pushing leaders to consider protectionist trade measures. Such measures could increase regional competition among emerging markets. Competition in the services and manufacturing industries among large economies in Africa, for example, has increased substantially since the 2008 financial crisis. If the West decides to create barriers to trade, such intra-emerging market competition is bound to increase. Competition is always a good thing.
South Africa’s recent political turmoil, however, underlines a major challenge in the emerging world. The crisis stems from political infighting inside the ruling African National Congress and president Jacob Zuma’s repeated attempts to solidify his own political power through the appointment of ministers loyal to him. This week, Mr Zuma ignored the advice of many economists and fired his respected finance minister Pravin Gordhan, which in turn sparked an international crisis in confidence and led to the country’s credit status downgraded to junk.
Emerging markets used to be bastions of hope (just think of the discussion about Turkey’s economy in the late 2000s), but politics was always a possible foil to economic growth. As the West turns inward, countries such as Turkey, South Africa and Brazil have an opportunity to demonstrate their core value. Nothing positive will emerge if politics gets in the way.
