BRIC
From Includipedia, the inclusionist encyclopedia
BRIC or BRICs are terms used in economics to refer to the combination of Brazil, Russia, India, and China.
General consensus is that the term was first prominently used in a thesis of the Goldman Sachs investment bank.[1] The main point of this 2003 paper was to argue that the economies of the BRICs are rapidly developing and by the year 2050 will eclipse most of the current richest countries of the world. Finally, because of the popularity of the Goldman Sachs thesis "BRIC" and "BRIMC"[2][3] (M for Mexico), these terms are also extended to "BRICS" (S for South Africa), "BRICA" (GCC Arab countries – Saudi Arabia, Qatar, Kuwait, Bahrain, UAE)[4] and "BRICET" (including Eastern Europe and Turkey)[5] have become more generic marketing terms to refer to these emerging markets.
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[edit] The BRIC thesis
Goldman Sachs argues that the economic potential of Brazil, Russia, India, and China is such that they may become among the four most dominant economies by the year 2050. The thesis was proposed by Jim O'Neill, global economist at Goldman Sachs. These countries are forecast to encompass over thirty-nine percent of the world's population and hold a combined GDP [PPP] of 15.435 trillion dollars. On almost every scale, they would be the largest entity on the global stage. However, it is important to note that it is not the intent of Goldman Sachs to argue that these four countries are a political alliance (such as the European Union) or any formal trading association, like ASEAN. Nevertheless, they have taken steps to increase their political cooperation, mainly as a way of influencing the United States position on major trade accords, or, through the implicit threat of political cooperation, as a way of extracting political concessions from the United States, such as the proposed nuclear cooperation with India.
[edit] Dreaming with BRICs: The Path to 2050 (2003)
The BRIC thesis[6] (defended in the paper Dreaming with BRICs: The Path to 2050) recognizes that Brazil, Russia, India and China[7] have changed their political systems to embrace global capitalism. Goldman Sachs predicts China and India, respectively, to be the dominant global suppliers of manufactured goods and services while Brazil and Russia would become similarly dominant as suppliers of raw materials. 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. Thus, the BRICs have the potential to form a powerful economic bloc to the exclusion of the modern-day G8 status. Brazil is dominant in soy and iron ore while Russia has enormous supplies of oil and natural gas. Goldman Sachs' thesis thus documents how commodities, work, technology, and companies have diffused outward from the United States across the world.
Following the end of the Cold War or even before, the governments comprising BRIC all initiated economic or political reforms to allow their countries to enter the world economy. In order to compete, these countries have simultaneously stressed education, foreign investment, domestic consumption, and domestic entrepreneurship. According to the study, India has the potential to grow the fastest among the four BRIC countries over the next 30 to 50 years. A major reason for this is that the decline in working age population will happen later for India and Brazil than for Russia and China.
[edit] Follow-up report (2004)
The Goldman Sachs global economics team released a follow-up report to its initial BRIC study in 2004.[8]The report states that in BRIC nations, the number of people with an annual income over a threshold of $3,000, will double in number within three years and reach 800 million people within a decade. This predicts a massive rise in the size of the middle class in these nations. In 2025, it is calculated that the number of people in BRIC nations earning over $15,000 may reach over 200 million. This indicates that a huge pickup in demand will not be restricted to basic goods but impact higher-priced goods as well. According to the report, first China and then a decade later India will begin to dominate the world economy. Yet despite the balance of growth, swinging so decisively towards the BRIC economies, the average wealth level of individuals in the more advanced economies will continue to far outstrip the BRIC economy average. Goldman Sachs estimates that by 2025 the income per capita in the G6 will exceed $35,000, whereas only about 24 million people in the BRIC economies will have similar income levels.
The report also highlights India's great inefficiency in energy use and mentions the dramatic under-representation of these economies in the global capital markets. The report also emphasizes the enormous populations that exist within the BRIC nations, which makes it relatively easy for their aggregate wealth to eclipse the G6, while per-capita income levels remain far below the norm of today's industrialized countries. This phenomenon, too, will affect world markets as multinational corporations will attempt to take advantage of the enormous potential markets in the BRICs by producing, for example, far cheaper automobiles and other manufactured goods affordable to the consumers within the BRICs in lieu of the luxury models that currently bring the most income to automobile manufactures.
India and China have already started making their presence felt in the service and manufacturing sector respectively in the global arena. Developed economies of the world have already taken a serious note of the fact.
[edit] Second Follow-up report (paper No. 152 (2007)
This report compiled by lead athours Tushar Poddar and Eva Yi gives insight into "India’s Rising Growth Potential". It reveals updated projection figures attributed to the rising growth trends in India over the last four years. Goldman Sachs assert that "India’s influence on the world economy will be bigger and quicker than implied in our previously published BRICs research". They noted significant areas of research and development, and expansion that is happening in the country, which will lead to the prosperity of the growing middle-class.
"India has 10 of the 30 fastest-growing urban areas in the world and, based on current trends, we estimate a massive 700 million people will move to cities by 2050. This will have significant implications for demand for urban infrastructure, real estate, and services
In the revised 2007 figures, based on increased and sustaining growth, more inflows into foreign direct investment, Goldman Sachs predicts that "from 2007 to 2020, India’s GDP per capita in US$ terms will quadruple", and that the Indian economy will surpass the United States (in US$) by 2043.[9]
[edit] Criticism
A criticism is the understatement of GDP growth in China over the next 45 years; which predicts growth falling far below normal development. This contradicts the rapid economic growth that has already taken place in the country and the experience of countries like Japan catching up with western GDP per capita, which China has been growing faster than in a similar period of development. 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. The preeminence of China and India as major manufacturing countries with unrealised potential has been widely recognised, but some commentators state that China's and Russia's disregard for human rights and democracy could be a problem in the future,[citation needed] as is the possibility of conflict over Taiwan in the case of China. Likewise, the population of Russia is steadily declining, and this may have implications for its future. Brazil's economic potential has been anticipated for decades, but it has so far consistently failed to achieve investor expectations. Finally, India's relations with its neighbors, particularly with Pakistan, have always been frosty. Not 10 years ago, in 1998, was there a nuclear standoff between Pakistan and India. Border conflicts with Bangladesh and Pakistan, mostly over the longheld dispute over Kashmir, has further aggravated any economic ties. The BRIC countries have enormous populations of extremely impoverished people. This impedes progress by limiting government finances, increasing social unrest, and limiting potential domestic economic demand. Factors such as international conflict, civil unrest, unwise political policy, 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. Finally, the economic emergence of the BRICs will have unpredictable consequences for the global environment. Indeed, proponents of a set carrying capacity for the Earth may argue that, given current technology, there is a finite limit to how much the BRICs can develop before exceeding the ability of the global economy to supply them and of the environment to support them.
[edit] The agreement
Various sources (see external links below) refer to a purported "original" BRIC agreement that predates the Goldman Sachs thesis. Some of these sources claim that President Vladimir Putin of Russia was the driving force behind this original cooperative coalition of developing BRIC countries. However, thus far, no text has been made public of any formal agreement to which all four BRIC states are signatories. This does not mean, however, that they have not reached a multitude of bilateral or even trilateral agreements. Evidence of agreements of this type are abundant and are available on the foreign ministry websites of each of the four countries. Trilateral agreements and frameworks made among the BRICs include the Shanghai Cooperation Organization (member states include Russia and China, associate members include India) and the IBSA Trilateral Forum, which unites Brazil, India, and South Africa in annual dialogues. Also important to note is the G-20 coalition of developing states which includes all the BRICs.
[edit] Marketing
The BRIC term is also used by companies who refer to the four named countries as key to their emerging markets strategies. In reality, the use of this acronym often obscures a lesser role given to Brazil, and sometimes to Russia too. In reality Russia and Brazil are dwarfed by both China and India in 2050, and the rest of Asia combined are also much larger in terms of GDP than either Russia or Brazil. Nevertheless the BRIC acronym has been widely adopted. By comparison the reduced acronym IC (English "ick") would not be attractive, although the term "Chindia" is often used. The BRIC's study specifically focuses on LARGE countries, not necessarily the wealthiest or the most productive and was never intended to be an investment thesis. If investors read the Goldman's research carefully, and agreed with the conclusions, then investors would gain exposure to Asian debt and equity markets, rather than to Latin America. According to estimates provide by the USDA, the wealthiest regions outside of the G6 in 2015 are Hong Kong, South Korea and Singapore. Combined with China and India, these five economies are likely to be the world's five most influential economies in 2015 outside of the G6.
On the other hand, when the "R" in BRIC is extended beyond Russia and is used as a loose term to include all of Eastern Europe as well, then the BRIC story becomes more compelling. At issue are the multiple serious problems which confront Russia (declining population, potentially unstable government, environmental degradation, critical lack of modern infrastructure, etc), and the comparatively much lower growth rate seen in Brazil. However, Brazil's lower growth rate obscures the fact that the country is more wealthy than China or India on a per-capita basis, has a more developed and global integrated financial system and has an economy potentially more diverse than the other BRICs due to its raw material and manufacturing potential. In terms of GDP per capita (see Nationmaster website listed below), Brazil ranks 65th, Russia 59th, China 86th and India 118th. By comparison Korea currently ranks 36th, Singapore 25th, and Hong Kong 27th.
Brazil's stock market, the Bovespa, has gone from approximately 8,700 in September 2002 to over 55,000 in September 2007. Government policies have favored investment (lowering interest rates), retiring foreign debt and expanding growth.
The British author and researcher Mark Kobayashi-Hillary is editing a new book titled 'Building a Future with BRICs' for European publisher Springer Verlag that examines the growth of the BRICs region and its effect on global sourcing. Contributors to the book include Nandan Nilekani, and Shiv Nadar and publication is in October 2007.
[edit] CEMENT
Other critics suggest that BRIC is nothing more than a neat acronym for the four largest emerging market economies, but in economic and political terms nothing else (apart from the fact that they are all big emerging markets) links the four. Two are manufacturing based economies and big importers (China and India), but two are huge exporters of natural resources (Brazil and Russia). Two have growing populations (Brazil and India), and two have shrinking populations (China and Russia). Two are democracies (Brazil and India), one is a quasi-democracy (Russia) and one is a one-party state (China). The Economist, in its special report on Brazil, expressed the following view: "In some ways Brazil is the steadiest of the BRICs. Unlike China and Russia it is a full-blooded democracy; unlike India it has no serious disputes with its neighbors. It is the only BRIC without a nuclear bomb. The Heritage Foundation's "Economic Freedom Index", which measures factors such as protection of property rights and free trade ranks Brazil ("moderately free") above the other BRICs ("mostly unfree").[10]
In a not-so-subtle dig critical of the term as nothing more than a shorthand for emerging markets generally, critics have suggested a correlating term, CEMENT (Countries in Emerging Markets Excluded by New Terminology). Whilst they accept there has been spectacular growth of the BRIC economies, these gains have largely been the result of the strength of emerging markets generally, and that strength comes through having BRICs and CEMENT.[11]
[edit] See also
[edit] References
- ^ Specifically, Jim O'Neill, head of global economic research at Goldman Sachs in his 2003 Dreaming with BRICs
- ^ Le Figaro, newspaper, interview with expert Jim 0'Neill (French)
- ^ United Nations University
- ^ http://thestar.com.my/news/story.asp?file=/2007/2/23/apworld/20070223082158&sec=apworld
- ^ http://www.cnhuaye.com/steel/en/news_2.asp?id=67
- ^ http://www.gs.com/insight/research/reports/99.pdf
- ^ Five Years of China’s WTO Membership. EU and US Perspectives on China’s Compliance with Transparency Commitments and the Transitional Review Mechanism, Legal Issues of Economic Integration, Kluwer Law International, Volume 33, Number 3, pp. 263-304, 2006. by Paolo Farah
- ^ http://www2.goldmansachs.com/hkchina/insight/research/pdf/BRICs_3_12-1-05.pdf
- ^ http://www.usindiafriendship.net/viewpoints1/Indias_Rising_Growth_Potential.pdf
- ^ http://www.economist.com/surveys/displaystory.cfm?story_id=E1_RJVNQGG
- ^ http://www.ft.com/cms/s/7761deb2-88bc-11db-b485-0000779e2340,dwp_uuid=cc9f419c-4bb1-11da-997b-0000779e2340.html
[edit] External links
- Russian IPO Information
- Goldman Sachs: The BRICs Dream: Web Tour, July 2006
- Grant Thornton International Business Report emerging markets (BRIC) focus
- Thomas Harr, Senior Analyst, Danske Bank: BRIC The Major Issues; June 2006
- Kristalina Georgieva, Country Director Russian Federation, World Bank: BRIC Countries in Comparative Perspective, 2006
- Article on Brics from the Danish National Bank with extensive statistics and comaprisons with G7 countries and Denmark
- Businessweek article on Goldman Sach's predictions regarding BRIC
- Goldman Sach's predictions for BRIC - pdf
- CIA 25 Year Forecast
- BRICS+G: Sustainability and Growth in Brazil, Russia, India, China, South Africa and Germany
- Mario Profaca's blog on current BRIC developments
- A pile of BRICs or Asian CHIKS?
- Current valuation of BRIC markets versus GDP growth
- Nationmaster GDP per capita
- BBC Documentary Archive - four part audio documentary
- HSBC BRIC Products
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