Meaningful G-20 co-ordination is inherently limited. It is a disparate group of states with little convergence on domestic governance norms, ranging from the Group of Seven (G-7) democracies to the Chinese and Saudi autocracies, with a variety of middle-power developed and developing states in between. Co-ordination hangs on whether economic interests are sufficiently aligned; sacrifice for the greater global good is unlikely.
Consequently, much depends on the key powers’ unilateral policy preferences, as shaped by their domestic economic situations. These diverge substantially, as the “austerity versus growth” debate shows.
Looking back, opting, as the US, did not to go overboard in raising tax rates and cutting spending, proved wise. Going at it in the wrong way, as Europe did, cost them dearly.
Here, armed with very low government debt levels initially, SA conversely could afford to run stimulatory fiscal policy. But the emphasis would have to be on capital expenditure rather than government consumption, which would be punished by unsentimental markets. For this reason, some belt-tightening is now advised.
The “high politics” of geopolitical tension can also intrude into the “low politics” of economic policy co-ordination, particularly with so many heads of state in one place.
This summit takes place in the eye of the Syrian storm. There is a palpable risk that the “mini-Cold War” between the US and Russia, epitomised by the Edward Snowden saga, could heat up in the crucible of Middle East politics. Even if the bombs do not drop this week, tension is rising and the danger of disruptions to global oil supplies is escalating. All this makes for strained discussions — hardly an environment conducive to cutting deals in the global interest.
Fortunately, finance ministers and central bankers are at the G-20’s core, so the agenda revolves around financial regulation, macroeconomic co-ordination and governance of the World Bank and the International Monetary Fund (IMF).
The financial-regulation agenda is in relatively good shape. Basel 3 guidelines, a product of G-20 direction via the Financial Stability Board, have been concluded, although implementation lies ahead.
In South Africa’s case, the new guidelines are consequential, obliging the banks to constrain growth in long-term assets, such as home loans, in favour of accumulating medium-term ones.
This partly explains the recent surge in unsecured lending, raising important regulatory and political questions. In the context of financial regulation, the G-20’s apparent consensus to crack down on tax avoidance by multinational companies deserves closer attention.
To what extent will it dovetail with Judge Dennis Davis’s tax-reform commission here, for example? And how could this affect the attractiveness of South Africa’s investment environment for multinationals at a time when the country is increasingly regarded as risky?
The macroeconomic co-ordination agenda has been in bad shape since the relatively successful 2009 London summit. The acute crisis conditions then were conducive to mutual agreement. Who can forget the triumphant role that China played as the potential saviour of the teetering western financial system?
In St Petersburg, discussions will focus on new crisis conditions, centred on those emerging markets that are highly exposed to large withdrawals of capital in the wake of the US Federal Reserve’s “tapering” of quantitative easing. Given South Africa’s “twin deficits”, we fall squarely in this camp, with a deteriorating domestic political-economy environment not helping. This includes widespread strikes in key export sectors amid increasing worker unrest; an imploding trade union movement offering the prospect of more worker disorder; revocation of investment treaties with key trading partners; and so on.
As addicted to foreign capital as South Africa is, in a Fed-tapering world, structural reform should be top of mind, not promoting regulatory uncertainty in the mining sector and elsewhere; micro-meddling and rising protectionist tendencies.
Incidentally, as the US has not resolved its budgetary impasse and is unlikely to do so soon, it cannot concur with the agreed governance reforms to the IMF and World Bank. This will fuel the desire of Brics (Brazil, Russia, India, China and South Africa) to forge ahead with the Brics-led development bank, which will be discussed on the margins of the summit.
The good news is that one pillar of the macroeconomic co-ordination agenda does seem to be moving in the right direction, again for domestic reasons. The new Chinese leadership seems determined to wean the economy off its export-and investment-led growth model, to one centred more on Chinese consumers. This apparent new focus on boosting domestic consumption is likely to result in substantial financial reforms and further exchange-rate strengthening down the line.
In turn, this would help to reduce trade frictions with the rest of the world and provide some breathing room to South Africa’s manufacturing sector. Further, if the Chinese leadership is able to implement the proposed market reforms to the state-owned behemoths that dominate key industrial sectors, that would also reduce international trade frictions over time.
This is important because, sadly, trade remains the G-20’s unwanted stepchild.
The Doha round of World Trade Organisation negotiations has been dead in the water for years and will not be revived in Bali’s December ministerial meeting. As trade ministers are peripheral to the G-20 process and heads of state seem to have limited influence over them, a fix does not appear to be in sight.
Consequently, the developed world has turned to the negotiation of “mega-regional” free-trade arrangements, notably the transatlantic and transpacific talks. If successful, these agreements, which are driven by the G-7, could lead to substantial intrabloc trade and investment gains. That would re-energise the European Union and Japanese economies and propel a new cycle of productivity enhancements and competitiveness. The agreements would also solidify the western liberal democracies’ norm convergence.
By contrast, the Brics are notably absent from these deals. South Africa seems to be stuck in the quicksand and is not taking decisive measures to build international competitiveness.
Moreover, as trade conflict has been at the heart of human security for millennia, one can only speculate as to the long-term consequences of these geopolitical alignments. These are serious issues and South Africa has to deeply ponder the potential implications.
So fasten your seatbelts. Even if the St Petersburg summit does not deliver much, the atmospherics around it could be compelling — even for navel-gazing South Africans.
Read these SAIIA papers:
- The G-20 and Africa: A Critical Assessment, by Daniel Bradlow (April 2013)
- The Burdens of Multilateral Engagement and Club Diplomacy for Middle-Income Countries: The Case of South Africa in the Brics and the G-20, by Mzukisi Qobo and Memory Dube (December 2012)
- South Africa’s Role in the BRICS and the G-20: China’s View, by Wang Yong (December 2012)
- Values Versus Interests in the G-20’s Global Economic Governance Effort: A South African Perspective, by Peter Draper (December 2012)
SAIIA also held a briefing on the G-20 for the media on 29 August 2013.