Analysis of the BRIC Nations In his 2001 technical paper “Building Better Economic BRICs,” Jim O’Neill, an economist in the Global Economic Department of Goldman Sachs, coined the term BRIC, an acronym for Brazil, Russia, India and China. According to research conducted by O’Neill, the BRIC nations are unique in their accelerated growth compared to other developing nations in the world. The four BRIC nations have the potential to overtake many of the more mature economies of the world within the next 30 years. The acronym BRIC has transformed into more than just a word, if not a brand.
In an attempt to capitalize on the success of the BRIC nations, BRIC business strategies, BRIC business courses, BRIC investment funds, and numerous other plans claiming to employ methodology mimicking that of BRIC nations have been developed. This study first discusses the relationship of the BRIC nations as a whole, proceeds to review the events which have taken place since the origination of the term “BRIC”, and concludes with an in-depth analysis of each BRIC nation on an individual basis. Overview of BRIC As previously stated, the BRIC nations were first grouped together in late 2001 by Goldman Sachs.
After the attacks on September 11, 2001, despite the many non-economic differences between them, the decision was made to group Brazil, Russia, India and China based upon their economic similarities. It was becoming apparent that countries outside of the western world were quickly developing the ability to become a global power. Brazil, Russia, India, and China were already labeled as emerging markets, and each were beginning to grow economically, but the new term evidenced a new respect for the potential that each had.
The most prominent attributes shared by the BRIC nations were that each had large populations, underdeveloped economics, and governments willing to enter the global markets (Tett 2010). In sum, the BRIC nations account for over 42% of the world’s population. Half of the population in the BRIC nations is under 30 years of age (Young 2006). These demographics are one of the primary reasons that rapid growth is possible. The large, young populations provide a massive, energetic workforce resulting in tremendous job competition and have allowed the BRIC nations to produce huge quantities of goods and develop export based economies.
Over the last decade, these countries have rapidly increased their exports and have commanded a growing presence in the world market place (O’Neill 2007). In addition to their comparatively youthful populations, each of the BRIC nations has abundant resources. Brazil and Russia both have capitalized on raw materials and natural resources produced from their land, while India and China have developed an extensive manufacturing network to produce mass produce goods to send into the global marketplace. Both aspects have geared the BRIC countries to lead the emerging economics in growth and GDP (Claymore 2009).
Over the past decade, burgeoning surpluses in international trade, large reserves in foreign currency, and increases in consumption, both global and domestic, have strengthened the economic similarities of Brazil, Russia, India, and China. Although the BRIC nations are far from identical, the similarity in their economies is incredible. Unique Characteristics The term BRIC was not created simply to attach a catchy name for a group of countries with similar projected growth. The grouping was based upon significant analysis of common trends and parallels.
Some of these parallels, as shown in Exhibit 1, have been summarized into five over-arching traits that Brazil, Russia, India, and China each display. [Exhibit 1 about here] Over the past decade, BRIC nations have undergone more extensive economic development than the other emerging economies of the world. However, the result of this rapid growth has been both positive and negative. Generally, the infrastructure of BRIC nations has failed to keep pace with the economic advancement and the development of that infrastructure is currently far behind that of the United States and the more developed parts of Europe.
That failure comes despite the fact that construction is at an all time high in BRIC nations, evidencing the problematic, and perhaps unobtainable, need for enormous rate of infrastructure development. Mitch Beedie (2007) of Power Technology said, “Along with the consequent increasing demand for high-priced goods, residents of the BRIC nations are now starting to demand more transport and more expensive and comfortable homes. Residential accounts for over 90% of building consumption in developing countries. ” Beedie goes on to discuss the increase in construction has also caused an increase in energy and power demands.
With limited resources in the world, Beedie also stated, “BRIC suppliers have taken a third of the energy supply market. ” BRIC Summit Each of the BRIC nations relies upon international trade to support their recent growth in exports and employment. In an effort to unite their development, the countries each sent representatives to meet in Yekaterinburg, Russia, in of June 2009, to discuss their common goals of a “greater voice” in international financial institutions, a “more diversified” global monetary system, and ways to reduce reliance upon the United States (Kramer 2009).
Arguably the primary goal of the Yekaterinburg meeting was to determine ways to gain financial independence from the United States. The sovereignty funds of the BRIC nations alone own around 40 percent of global sovereign reserves. Three of the BRIC nations, Brazil, India and China, have weathered the current global financial crisis substantially better than the major developed economies and better than the economy of the world taken as a whole (Elliott 2009).
However, even Brazil, India and China were significantly affected by the fall in commodity prices, by the collapse in the American real estate market, and by foreign investors fleeing the BRIC stock exchanges in fear that a global recession would end the growth exhibited by the BRIC nations only a few years before. Overall equity performance in these countries fell by 50% in just three months in 2008 (Eghbal 2008). In order to reduce the volatility of their equity markets resulting from events in the United States and European Union, the BRICs must strengthen their capital markets.
In an effort to do so, the representatives present at the Yekaterinburg conference “suggested a move away from the dollar’s role in global commerce and a called for greater representation of developing countries in global financial institutions” (Kramer 2009). This conference not only provided evidence that the BRICs were willing to globalize their economies and to cooperate in order to provide a more hospitable environment for each of the BRIC economies, as opposed to taking actions based solely upon the perceived benefit to their own nation. Further, the group agreed to have another meeting in 2010 in Brazil to continue discussions.
If these summits become an annual tradition, it is likely that the BRIC nations will become more united both economically and, potentially, politically. Projected Growth The reasoning for the grouping of the BRICs was based upon the potential for economic growth. Although almost a decade has past since the term was coined, most of this growth has yet to be realized. The original grouping of the BRIC nations was largely based upon the fact that the economies of Brazil, India, Russia and China were identified by Goldman Sachs as having the potential to overtake the economies of the six richest countries in the world by 2040 (Dreyer 2006).
Although that forecast is an important reason for the grouping, the impressive projections of future growth of the BRIC nations do not end there. As shown on Exhibit 2, the income per capita of residents of the BRIC nations has growing steadily each year since 2000, and is projected to continue growing rapidly. [Exhibit 2 about here] Additionally, as depicted in Exhibit 3, the projected growth of the global domestic products (GDP) of the BRICs, VISTA, and the nations comprising the Group of Seven, a group of developed nations which meet several times a year to discuss and enact various economic policies.
While each of these groups is projected to increase their GDP in the next 40 years, the BRIC nations are expected to substantially outpace the GDP growth of the other two groups. [Exhibit 3 about here] However, while the GDP and per capita income are projected to sky-rocket in the future, some economic indicators have already substantially improved in these emerging nations. Economic Development Over the last few years the standard of living in the BRIC nations has vastly improved. The need for more power and the increased demand for convenience goods have brought about more infrastructures being built in these countries.
But the advancement each nation is experiencing is quite different from the others. There is hardly anything in common between these countries in terms of economic development (Moore and Seninsky 2009). Brazil recent development policies have included a focus on more exports and a state-led industrial policy. The country struggles with a fiscal inequity of wealth distribution and efforts are being made to raise education levels; this alone will not be enough to decrease the number of Brazilians living in poverty.
Russia began a long term development program in 2007 which focused on moving towards high-tech manufacturing by promoting public private partnerships to increase investments. Due to their dependency on oil and gas exports, their plan has been scaled back in the current global economic environment (Ghosh 2009). India’s economic development has been led by the success of IT services, but it still faces major challenges due to the limited infrastructure and low overall education level of the population. A plan to expand rural infrastructure and to increase funding for education has been approved but the results will not be immediate.
China has perhaps the most advanced economic development of the four nations. Its progress is primarily driven by manufacturing and investments in infrastructure, but rising income inequalities, environmental degradation, and a rapidly increasing energy demand has raised strong criticisms (Ghosh 2009). Overall, all of the BRIC nations are seeking more economic development in the coming years. They are all looking to improve their overall standard of living and further develop their infrastructure. An in-depth look at each nation individually will provide more specific details.
Brazil Brazil maintains the largest economy in Latin America and a large part of its economy is based upon energy exports. As a result, the Brazilian economy tends to fluctuate with the global oil market. Recent crude oil discoveries and development of reserves off the Brazilian coast have resulted in increased exports and have helped to stabilize the economy (Katz 2010). The bulk of the economic growth of Brazil has happened subsequent to 2004 and has resulted in increased employment and wages in the country. The Brazilian overnment has been working to reduce the budget deficit, reduce the national debt, and, in an effort to combat inflation pressures, maintained interest rates above the level of inflation of real, the national currency of Brazil. The policies enacted by the Brazilian government help to make Brazil become more monetarily sound without sacrificing domestic growth in demand (Hutchinson 2009. ) Despite the recent increase in fiscal responsibility exhibited by the Brazilian government, the nation continues to struggle in industries outside of energy exporting.
This failure is, in large part, due to the reluctance of the Brazilian president to make the structural changes necessary to generate stronger economic activity across multiple sectors. In order to develop a more diverse economy, Brazil must take advantage of the current period of high commodity prices and use the capital it obtains from exporting those commodities to restructure its economy. Further, after improving the diversity of its economy, Brazil should safeguard the diversity by improving the governance of the nation and investing in the infrastructure needed to maintain a robust economy (Turkeltaub and Lloyd 2006).
If the infrastructure and governance of Brazil are improved to support a massive economy, over the next decade the Brazilian economy will continue to grow and prosper, and, if the government succeeds in developing that economy in areas outside of energy exporting, Brazil has the potential to develop into a significant global power. Russia Since the collapse of the Soviet Union, Russia has struggled to return to its former status as a world power.
Their primary advantage is the plentiful natural resources, particularly crude oil and natural gas, which the country produces roughly 20% of the global supply of each NEED CITE. Russia has also been working to increase their foreign direct investments and have succeeded in doubling those investments since 2005 (Claymore 2008). The rise of Vladimir Putin, first as President and later as Prime Minister of Russia, has resulted in substantial economic reform in the last decade. The GDP of Russia has more than doubled and has recently climbed to eighth in the world (Katz 2010).
However, Russia still has significant challenges set out for them due to an economy highly dependent on petroleum prices and severely outdated infrastructure. Although it has attempted to develop an economic system similar to that of most capitalistic markets, it has largely failed in eliminating the corruption present in the former Soviet Union and, as a result, investors have lack confidence in the potential to reform. Political turmoil has recently dominated the Russian relations with neighboring countries, further damaging investor confidence (Katz 2010).
In order to regain its former status as a global superpower, Russia must ensure investors that their money will remain safe when it is invested in Russia by stifling the corruption present in its economic and political systems and maintaining a peaceful relationship with its neighbors. India India’s most important asset is its population, many of whom are well-educated and speak English. As a result of this education and communication ability, India boasts one of the most developed information technology sectors outside of the United States, and that sector is projected to continue growing.
Many customer support and technology operations have been outsourced to India from the United States and other developed nations and that outsourcing has provided thousands of jobs for Indians. More recently, India has seen the creation of a large number of small and medium-sized businesses that compete successfully in global markets (Turkeltaub and Lloyd 2006). As a result of this increase in local businesses and the influx of technology related jobs, the poverty levels have decreased almost 10% since 1997 (Claymore 2008).
However, like Brazil and Russia, India has lingering problems. Much of the needed economic reform in India is hindered by corrupt and ineffective government leaders. Further, although attempts have been made to develop a basic infrastructure, a large part of the Indian population continues to live in slums. Unique to the Indian culture among the BRICs is the caste system, an organization which imposes limitations on the upward mobility on many people who might be qualified for jobs in the Indian economy.
The caste system, by limiting the job opportunities of many talented individuals, restricts the ability of the Indian economy to maximize the use of its talented population and therefore restricts economic growth. The caste system is a significant Indian problem that is enhanced because it is engrained in the culture and its unlikely to be uprooted regardless of the effects it may have upon the economy (Kadokura 2006). China China can be realistically viewed as the leader of the BRIC nations. For the past 30 years, China has been reforming its economy to better suit foreign trade and investment.
This reform has results in the development of a market-oriented economy which has experienced rapid growth. China is the largest BRIC member by both population and GDP. The value of the Chinese foreign exchange reserves and gold holdings is approximately $2 trillion dollars (Claymore 2008). Because of its growth in the last quarter-century, China can already claim to be a major global power. Chinese officials, recognizing the value of an educated workforce, are committed to developing world-class universities, largely with a focus on science and engineering (Turkeltaub and Lloyd 2006).
The increase in overall education level of the population has resulted in increased wealth and consumption of luxury goods. Although it has attempted to combat the focus of its economy on the manufacturing industry, the continuing dominance of that industry has left the country dependent on exports and with serious pollution concerns. Because of the large population and consumption and the fact that China is relatively lacking in natural resources, China remains largely dependent upon other countries for raw materials and energy sources (Kadokura 2006).
However, despite the issues discussed above, China is still projected to surpass the United States nominal GDP by 2030, as shown in Exhibit 4. [Exhibit 4 about here] Conclusions The BRIC nations were originally grouped together because of their projected economic growth; however, as discussed above, that projected growth is a result of five key factors, most of which are exhibited in each BRIC. Despite their potential for massive growth, each of the BRIC nations face unique problems in certain aspects of their culture, infrastructure or government which must be conquered in order for their potential to be realized.
The BRIC nations have shown that they desire an increased global presence and are willing to cooperate to obtain that presence. For now, the BRIC nations are based simply on projections derived from indicators of the potential for growth. If the BRICs are successful in harnessing their newfound cooperation and controlling the issues that plague their economies or governments, the projections may become reality and the BRIC nations could emerge as the new global superpowers. References Beedie, M. 2007. Rise of the BRIC Nations. Power Technology. Website: http://www. powertechnology. com/features/feature1417/ (Nov 1). Claymore. 2009.
Four Unique Countries, a Collective History of Economic Growth and Progress. Claymore. Website: http://claymore. com/common/pages/search-results? st=kw&sv=BRIC (Jan 22). Dreyer, I. 2006. BRIC Countries Revisited. Global Conditions. Website: http://globalconditions. wordpress. com/2006/12/04/bric-countries-revisited/ (Dec 4). Eghbal, M. 2008. BRIC Economies Withstand Global Financial Crisis. Euromonitor International. Website: http://www. euromonitor. com/BRIC_economies_withstand_global_financial_crisis (Nov 7). Elliott,E. 2009. First BRIC Summit’s New Global Economic Vision. Foreign Policy Blog. Foreign Policy Association. Website:.