The power of the BRICs

Brazil, Russia, India and China – collectively known as the BRICs, or BRIC countries – now feature in almost every conversation about the global economy.

They are often described as the eventual pillars of the world economy and it’s easy to see why.

They are big, together representing around a quarter of the world’s territory and 40% of the world’s population.

Each country has an annual GDP (gross domestic product, meaning total economic output) of over US$1 trillion, far outstripping any other developing country.

And finally, they’ve had long sustained periods of growth over the last decade, and have weathered the recent global financial crisis much better than rich nations.

More than just size though, the BRICs represent opportunity.

Large populations mean large and relatively young workforces. This in turn provides cheap, highly-skilled labour (especially in India and China – now the world’s biggest exporter), plus a highly lucrative and growing consumer market to sell to.

The BRICs rank among the largest internet and mobile phone users worldwide and will account for over 70% of growth in worldwide car sales over the next decade.

Brazil and Russia have an abundance of natural resources (soy and iron ore in Brazil; oil and natural gas in Russia).

And increasingly, the BRICs are seeking to expand economic ties amongst themselves, while also serving as growth markets for smaller regional countries as well.

Most significantly, the BRICs are flush with foreign cash reserves (40% of the world’s total) which they’re using for a shopping spree of the world’s cheap recession assets.

So are the BRICS shaping a new world and economic order, or are they a flashy, temporary phenomenon built on weak foundation?

In 2001, Jim O’Neill, the Goldman Sachs economist who invented the ‘BRIC’ term, predicted that within 50 years the BRICs would become the new leaders of the world economy, eclipsing in size the combined economies of today’s leaders (Japan, Europe and the US).

Nearly a decade later and the BRICs have outpaced these initial predictions. For instance, China now has the fourth largest economy and is predicted to match the United States by 2027.

The BRICs’ combined economy could grow as big as the G7’s by 2032, seven years earlier than initially forecast.

And on top of being economically powerful, the BRICs have also sought to expand their collective importance and influence politically.

They’ve held two major political summits, the first in Russia in 2009 calling for a multi-polar (multi-power) world order, and the second in April in Brazil, featuring discussions on Iran and development (their meeting at last weekend’s G20 summit was cancelled at the last-minute).

More significantly, the BRICs have tried to influence some of the world’s most important political conversations.

They imposed considerable weight during negotiations for a global climate change treaty in Copenhagen in December, which is especially telling given that China, Russia and India, respectively are the world’s first, third and fourth largest emitters of carbon dioxide.

And in the aftermath of the global economic crisis, the BRICs have been a strong voice calling for changes to international financial rules and institutions.

In the process, they have gained the respect and attention of other developing countries, having opened up to the world economy without selling out to rich country businesses, as per the “Washington consensus.”

Finally, the BRICs, long recipients of international assistance, have become donors.

China recently became the World Bank’s third largest shareholder. And it’s an ever-dominant force in Africa, flooding its markets with inexpensive Chinese-made goods, while providing cheap loans, aid and infrastructure in return for access to the continent’s natural resources.

Even so, the BRICs’ still face serious challenges.

They first must weigh up their individual ambitions with that of the group. Economically, the BRICs compete as much among themselves as they do with G7 countries.

This competition for overseas markets and scarce natural resources to fuel their economic engines will only intensify with pressure from climate change obligations and population growth.

They will also have to compete more and more with the BRICs+: countries such as South Korea, Indonesia, Mexico and South Africa, which are also seeking to position themselves as global economic players.

Politically, China and Russia are seen as dictatorships, but hold permanent seats on the UN Security Council which the democracies of Brazil and India do not.

Finally, they are all plagued with large-scale corruption and internal conflicts (Kashmir, Chechnya, Tibet and Brazil’s Indians).

There is no denying the gains the BRICs have made in recent years, but there is also no denying their challenges.

Their success in confronting these challenges will determine whether in 40 years from now they will tower over everyone else as the world’s economic giants.

By The Casual Truth

Photo – The BRIC leaders (from left to right) Prime Minister Manmohan Singh (India), President Dmitry Medvedev (Russia), President Hu Jintao (China) and President Luiz Inacio Lula da Silva (Brazil).