BRIC The Changing Faces of Global Power
Submitted By Abhishek Kumar Roll No: 01 MICA-EDC
More than 30% of total world demand in the past five years originated in the BRICs economies. On almost every scale. The acronym has come into widespread use as a symbol of the shift in global economic power away from the developed G7 economies toward the developing world. compared with 5% in
The BRICs¶ share of global trade continues to climb rapidly. Russia.
Trade among the BRICs has also accelerated.486 trillion dollars. Growth and Trade: Between 2000 and 2005. it is now double its level in 2001. Russia. At Close to 15%. Goldman Sachs Report excerpt:
1. China ² BRIC
Brain child of Goldman Sachs and is acronym for emerging and fast growing economies of Brazil.Brazil. These four countries are among the biggest and fastest growing emerging markets. Facts to support BRIC claims. they would be the largest entity on the global stage. the BRICs contributed roughly 28% of global growth in US Dollar terms and 55% in Purchasing Power Parity (PPP) terms. with intra-BRICs trade now nearly 8% of their total trade. This acronym was coined by Jim O'Neill in a 2001 paper entitled "The World Needs Better Economic BRICs".
. India. According to this paper these countries encompass over 25% of the world's land coverage and 40% of the world's population and hold a combined GDP (PPP) of 18. including a growing trade and investment relationship between Brazil and China. New trading patterns have emerged. India and China.
The BRICs are increasingly important counterparts to the US current account deficit. real exchange rates in each country have appreciated over the last two years. BRICs market capitalisation continues to climb. China is the one exception. 3.
Despite this reserve accumulation. Markets:
BRICs stock markets have generally performed very strongly since 2003. China is the dominant contributor. Real exchange rate appreciation was and remains an important part of our projected paths out to 2050. where the idiosyncrasies of the local market have led to lacklustre performance. reflecting the group¶s key role in the global supply of savings.
The BRICs are an increasingly important destination for global FDI. with Brazilian. but Russia.2. The BRICs¶ aggregate current account surplus is now nearly a quarter of a trillion US Dollars. India and Brazil have also accumulated substantial reserves.
BRICs¶ current accounts are in healthy surplus. Their 15% share of the global total is up nearly three times from 2000 levels. China provides a warning that the local market may not be the best investment vehicle for the local growth story. Russian and Indian indices all up by around 150% over that period. according to latest estimates. to more than 3% of the global total. Capital Flow:
The BRICs now hold more than 30% of world reserves. Even more striking is the fact that BRICs¶ FDI total flows have raised more than six fold since 2000. or close to 6% of the BRICs¶ GDP. currently at close
in our view. providing a big tailwind for investors in BRIC assets. Russia holds the G8 chair¶s position for the first half of 2006. so is their political clout. Brazil. only strengthens the case for a formal reform of the G8. and Russian and Chinese equity offerings were a key feature of the global equity calendar in 2005.
Taken together.and it will overtake Japan (today the world's second-largest economy) by 2032. the July 2005 summit included the heads of state of India. China has been invited to G8 summits for several years.to 4% of the global total. The BRICs have also begun to exercise their political muscle in other fields.
4. Mexico and many African countries. in practice it has begun to widen its scope. Although the G8 is still formally dominated by the US. BRIC and world by 2050:
China's economy will surpass Germany in the next few years. The rapid growth of the BRICs since the start of the decade. This dynamic still has a long way to run. the BRICs could be larger than the United States and the developed economies of Europe within 40 years.
India's growth rate will be the highest²not China's -. and the 2003 and 2004 summits included leaders from the Middle East and Africa.
The BRICs account for 18% of global oil demand and their share is moving steadily higher.
. Politics: As the BRICs¶ economic impact is growing. including energy security. Europe and Japan. Japan by 2015. with the next decade in particular the likely point of maximum pressure on energy and other natural resources.
BRICs¶ currencies could appreciate by 300% over the next 50 years. and the United States by 2041. intellectual property and agricultural policy.
Russia. In order to compete.
However. November 2010: Standard Chartered Plc. It should be noted that of the four countries. The BRIC thesis recognizes that Brazil. and has over taken Japan's in July 2010.y
By 2025. respectively. And then China's economy will be twice as large as the US by 2030 and account for 24 percent of global output. Following the end of the Cold War or even before. and domestic entrepreneurship. India and China have changed their political systems to embrace global capitalism Goldman Sachs predicts that China and India. domestic consumption. up from 9 percent in 2010. will become the dominant global suppliers of manufactured goods and services while Brazil and Russia will become similarly dominant as suppliers of raw materials. these countries have simultaneously stressed education.Goldman Sachs now believes that the Chinese economy will overtake the United States by 2027. That's equal to the combined populations of Germany. Brazil remains the only nation that has the capacity to continue all elements.
. the BRICs have the potential to form a powerful economic bloc to the exclusion of the modern-day states currently of ³Group of Eights´ status. a year earlier than expected. the governments comprising BRIC all initiated economic or political reforms to allow their countries to enter the world economy. Thus. Goldman Sachs has now become more bullish on the BRICs since it published its original report. Goldman Sachs' thesis thus documents how commodities. and resource supplying simultaneously. Cooperation is thus hypothesized to be a logical next step among the BRICs because Brazil and Russia together form the logical commodity suppliers to India and China. Brazil is dominant in soy and iron ore while Russia has enormous supplies of oil and natural gas. services. BRICs will bring another 200 million people with incomes above $15. its influence on the world economy will be bigger and quicker than was implied in 2003. The latest prediction after Global Financial Crisis occurs. says. The size of China's economy overtook Germany's economy in 2007. China will overtake the US to become the world's largest economy by 2020. foreign investment. meaning manufacturing. France and the United Kingdom. and companies have diffused outward from the United States across the world.And with India accounting for 10 of the 30 fastest-growing urban areas in the world and 700 million people moving to cities by 2050.000 into the world's economy. work. technology.
Brazil. but some commentators state that China's and Russia's large-scale disregard for human rights and democracy could be a problem in the future. remains one of the world¶s most efficient agro-exporters. India. Without China. after feebler attempts to diversify. There is also the issue of population growth. only one had an investment-grade credit rating. Russia. Brazil's and China's populations will begin to decline in several decades. There are many uncertainties and assumptions in the BRIC thesis that could mean that any or all of these four countries will not live up to their promise. China¶s size and openness to trade give it as much economic clout as the rest put together. Human rights issues do not inform the foreign policies of these two countries to the same extent as they do the policies of other large states such as Japan. they have accumulated vast foreign exchange reserves. soft cheese that is primarily known for the wine that goes with it. the BRICs are just the BRI. is chiefly notable to investors and trading partners for its software and business services. despite a sprinkling of manufacturers. The population of Russia is beginning to shrink fast. a Russian debt default and Brazilian currency crisis rocked the world economy. China is the muscle of the group and the Chinese know it. the BRIC might almost have been chosen for their disparate abilities rather than their similarities. essentially just sells oil and gas. The preeminence of China and India as major manufacturing countries with unrealised potential has been widely recognised. the EU states and the USA.
. There is also the possibility of conflict over Taiwan in the case of China and smaller democracies that lie in the vicinity of these two authoritarian giants will no doubt be affected by human rights issues being relegated to a lower global priority. Yet along with this growth has come an unbalancing of the global economy. Only 12 years ago. similar in population but poorer and economically more insular.Analysis: The BRIC contributed about half of global growth between 2000 and 2008 ± sharply higher than in the previous decade. today. India. now all do.
Like a boy band or a street gang.
The story of their rapid progress is familiar but still dramatic. A decade ago. a bland.
have further aggravated any economic ties. Two are manufacturing based economies and big importers (China and India). This impedes progress by limiting government finances.with their demographic windows closing in several decades as well. and social policies that allowed it to resume consistent growth.
. lowest unemployment rates in decades. and consistent international trade surpluses . Factors such as international conflict. but in economic and political terms nothing else (apart from the fact that they are all big emerging markets) links the four.that led to the accumulation of reserves and liquidation of foreign debt (earning the country a coveted investment grade by the S&P and Fitch Ratings in 2008). for there might be a decrease in the overall labour force and a negative change in the proportion of workers to retirees. outbreaks of disease and terrorism are all factors that are difficult to predict and that could have an effect on the destiny of any country. Brazil's economic potential has been anticipated for decades. civil unrest. Finally. and limiting potential domestic economic demand. Only in recent years has the country established a framework of political. In 1998. but two are huge exporters of natural resources (Brazil and Russia). India's relations with its neighbour Pakistan have always been tense. but it had until recently consistently failed to achieve investor expectations. unwise political policy. economic. Other critics suggest that BRIC is nothing more than a neat acronym for the four largest emerging market economies. increasing social unrest. The result has been solid and paced economic development that rival its early 70's "miracle years". mostly over the longheld dispute over Kashmir. This may have implications for those countries' future. there was a nuclear standoff between Pakistan and India. The BRIC countries have enormous populations of extremely impoverished people. as reflected in its expanding capital markets. Border conflicts with Pakistan.
and become much less useful. the all-encompassing term ³emerging market´ covers a multitude of countries whose individual economies are incredibly diverse. investments in emerging markets are assuming more and more importance. India and Mexico. According to a recent report on key emerging markets from Spanish bank BBVA. but also a host of tiny island states such as Grenada. It includes not only major economies such as those of China. However.BRIC and its Extension: Mexico and South Korea are currently the world's 13th and 15th largest by nominal GDP.
BRICs or EAGLE?
The concept of BRICs has become outdated as the four countries¶ economies have diverged over the past decade. recent solid economic growth led to Goldman Sachs proposing to add Mexico and South Korea to the BRICs. Any term comprised of country names will inevitably date fairly quickly.
. Vanuatu and the Seychelles. with Jim O'Neill pointing out that Korea "is better placed than most others to realize its potential due to its growthsupportive fundamentals. While South Korea was not originally included in the BRICs. changing the acronym to BRIMCK.
A further eleven countries²Nigeria.
. the three other BRICs have been gaining weight and importance globally and within sectors. Vietnam. Poland. Colombia. is the extent to which these economies have an impact on the global economy.Now. Malaysia. Combined. as these are caused by technological transformation and capital. Bangladesh. scientific and strategic information flows ± as shown by the history of capitalism. Argentina. with very modest growth rates over the last years. it is unlikely to indicate global economic development trends. Peru and the Philippines²are identified by BBVA as having the potential to join the EAGLEs if their economies grow more than expected. BBVA has proposed the use of the term EAGLE to cover the world¶s Emerging and Growth-Leading Economies. Barring Brazil. South Africa. Conclusion: The justification for the BRIC acronym. according to its original proponent. Thailand. The member states of this exclusive EAGLEs club are:
y y y y y y y y y y
China India Brazil Russia South Korea Indonesia Mexico Turkey Egypt Taiwan
These ten countries are each expected to contribute more to global economic growth than the average of G7 members. as well as their capacity to shape the future of other developing nations. the ten EAGLEs are expected to account for 50% of all global growth in the next 10 years.
The global economy is not just an economic space for the exchange of goods and services. the production of ideas and concepts to support those physical flows. this dynamic process is not exclusive to a specific centre. the truth is that the dominant economies¶ impact on BRIC is more decisive than normally admitted. The latter set the basic parameters on which the economy is based. However. cultural. an arena for the exchange of ideas. It is not only about consumer markets and direct investment sources. in which the intellectual domination of the so-called developed Western world looks set to remain throughout the foreseeable future.
Looking at the overall picture for the global economy. despite the BRIC¶s decisive economic impact. From this point of view.
BRICs two former socialists have authoritarian characteristics that represent a legacy of centuries of totalitarian states.
Despite arguments about the decoupling of the main emerging economies from the G7 and other developed nations¶ economic cycles. It is also the most integrated society in language. essentially. Therefore. this feature by itself says nothing about the other factors behind a complex relationship that goes beyond GDP and exports. Of all the members.
. The path and economic destination of the BRIC and other emerging economies cannot be different from those followed by developed nations. The other two members have had democratic trajectories -with faults in terms of functioning and social justice ± and are the market economies closest to capitalist organization patterns. it is inconceivable to consider that developing or emerging nations could be independent from the core of the global economy. ethnic and possibly religious terms. These forces include not only the flow of goods and services. where each nation can have greater or lesser ³physical´ interaction.Basically. but forms of economic organization and above all. the same forces that have transformed the world since the 16th century are still shaping the contemporary world. but shared by several centres producing and spreading ideas and practical knowledge. the BRICs group do not have an economic existence per se and is purely a creation of the ³economic spirit´. Brazil has the most advanced capitalist structures and the most modern society. and into reciprocal interdependency ± not between the BRICs but between each of them and their various economic partners. It is.
as they were less than three decades ago.
. when competing projects were trying to win peoples¶ hearts and minds. education.and more favourable conditions for modernization.without institutional ruptures .which in principle enables a more efficient political administration . Today¶s main dilemmas are about political priorities and alternative economic measures to be chosen by heads-of-state for solving the ageold problems that afflict mankind: hunger. as there seems to be reasonable consensus and collaboration among the world¶s researchers and scientists about the challenges of medicine. security and welfare. Neither are they technical. unemployment. it also contributes to greater cohesion around national goals.
The main issues dividing the world today are no longer ideological. Although social democratization can slow growth and adaptation to new environments. health. physics and biology.