BRICS (ENCYCLOPEDIA)

Abstract

The acronym for the combined economies of Brazil, Russia, India, China and South Africa. These five countries are among the fastest growing emerging markets over the last years. Only a few decades ago, the countries were considered marginal, now are characterized by high growth rates of Gross Domestic Product (GDP), with resources and availability of inputs. These resources and inputs can influence, with their increase, the economic balance of power in the world. Despite its strange origins and some serious challenges confronting it, the bloc of countries that has emerged into the international arena under the acronym BRICS has the potential for being a positive force in world affairs. The acronym describes the countries with the most economic potential for growth in the first half of the 21st century, based on features like size of population and therefore potential market, demography, recent growth rates and embrace of globalization. These economies are characterized by a common economic history (see Goldstein 2011): a period of specialization in primary sector (1870-1913), a period of industrialization for import substitution (1945-1980), a period of liberalization (1991 - 1992) and for the main role of the state as development driving. BRICS is not likely to become a serious political organization of states, but is an instrument of cooperation between five economies. The BRICS countries meet annually in summit where they discuss about multilateral cooperation agreements, strategic partnerships, use of foreign exchange reserves and about creation of a BRICS Development Bank that could challenge the dominance of the World Bank and the International Monetary Fund (IMF).

History

The term was first used in 2001 in a Goldman Sachs report, “Building Better Global Economics BRICs”. The original BRIC group of countries evolved from an acronym coined by Jim O’Neill, Goldman Sachs economist, when forecasting future economic trends and the future roles of Brazil, Russia, India and China in overtaking the advanced industrial economies and facilitating a shift in global economic power. In 2011 the group expanded following South Africa’s inclusion, to become the BRICS. The term has become a more generic marketing terms referring to these emerging markets. O’Neill suggests in his thesis that these countries may become among the four most dominant economies of the 21st century. In a process that has surprised many so far, this initial statement caught the imagination of the global financial community, mainstream media and international investors. In the paper of 2001, O’Neill explains to the economic development prospects of emerging powers able to influence future trends in the global economy. After 2001, the term become part of international relations to identify a group of emerging countries that meets regularly to discuss economic and political issues.

The group had its first summit meeting in July 2009 in Russia. In 2010 South Africa was included (at the instigation of China). The enlarged BRICS have since had summit meetings in Brazil, in 2010; China in 2011; India in 2012; and Durban, South Africa, in 2013. They have recently acted in concert in several international platforms like G20 and United Nations, other economic initiatives include agreement to denominate bilateral trade in each other's currencies (currency swap agreement between China e Brazil), and plans for a Development Bank. There have also been declarations in favor of a shared approach in foreign policy. The most important result of the last meeting of 2013 in Durban is the creation of the BRICS Development Bank. Its goal is to provide funding for infrastructure projects, and create a "Contingent Reserve Arrangement" worth $100 billion which will help member countries counteract future financial shocks.

In the recent years, the BRICS have expanded their involvement in the continent. South Africa has demonstrated huge potential in terms of economic development prospects, abundant natural resources, growing consumer power and favorable demographics, but is not an emerging economy like Brazil, Russia, India and China. The reasons behind BRICS countries’ involvement in Africa include their appetite for the continent’s natural resources, Africa’s large and untapped agricultural sector as well as the opportunity for investments and transfer of technology and knowledge.

BRICS in World Economy

The BRICS GDP in 1992 corresponded approximately to 5.4% of the world economy, while in 2012 is about 18%. The BRICS countries share in common that, in the past years, their growth rates have been on average higher than advanced countries. According Goldman Sachs they will reach 40% of the world GDP in 2050. The five countries share also by a favorable demographic situation (about 40 % of the world population), international capital and foreign direct investment (FDI), main equipment inputs, reallocation of resources from  sectors of low productivity (i.e. agriculture) to more dynamic sectors (i.e. industry and services).

Brazil, Russia and South Africa, characterized by great quantities of raw materials are the main exporting countries of oil and gas in the world. India and China, which are characterized by the development of the manufacturing industry, are the main countries exporting cheap goods to the industrialized West.

Brazil

Brazil ranks as the sixth largest economy in the world. It is one of the most important producers of steel and oil. The main sectors of the economy are the agribusiness, the oil, the telecommunications and the automotive. Trade agreements with China allowed Brazil to have a financially reliable partner, a balance of payments in surplus and an increase in consumption. The causes of economic growth affected the nineties, when it reduced the foreign debt ratio - GDP to 20%, thanks to a currency devaluation that has attracted a lot of foreign capital in the country. The Real, the official currency of Brazil, in recent years has strengthened its assessment on the dollar.

Tab.1 Brazil GDP growth rate (2008-2013)

 

Source: www.tradingeconomics.com


Russia

The international prices of raw materials, fuels and agricultural products (major exports) support the country economy. Russia currently holds the eighth nominal global GDP level however, the outlook for the Russian economy is not comparable to Brazil, India or China. The weakness factors are the lack of a network of small and medium size enterprises and of infrastructure, but especially the widespread corruption (despite the ratification of the OECD Convention on Combating Bribery of Foreign Public Officials in January 2012). Also in 2012, the country has joined the World Trade Organization (WTO).

Tab.2 Russia GDP growth rate (2008-12)

Source: www.tradingeconomics.com 


India

In the past decade the country has passed through a period of accelerated growth, becoming in 2011, according to data from the International Monetary Fund (IMF), the third largest economy in the world in terms of PPP (Purchasing power parity). The economy of India is very diversified, from the agricultural sector to the advanced industrial sector. The services sector represents approximately 60% of GDP, agriculture 17%, and manufacturing 16%. India, thanks to the wide spread of the English language in all its regions, attracts foreign investment in the information technology sector. India also plays an important role in various multilateral organizations, including the Association of Souheast Asian Nations (ASEAN), the South Asian Association for Regional Cooperation (SAARC), the WTO and the United Nations.

Tab.3  India GDP growth rate (2008-12)

Source: www.tradingeconomics.com


China

(see People’s Republic of China, Socialist Market Economy, China’s Banking System)

In twenty years, the PRC has achieved impressive economic developments, with and annual GDP average growth near 10%. Growth has transformed China from a third world country in a leader of the world economy. In the recent decades, the PRC has been able to overcome a serious global economic crisis. The economic development of China is one of the most important phenomena of the world economic history since World War II. Today, China is the first holder of the United States Bonds and the largest funder of its sovereign debt. Among developing countries the PRC is the first that receive Foreign Direct Investment (FDI). Since 2013, the PRC is the largest exporter and importer of goods in the world with the balance of trade in surplus of about $200 billion. 

Tab.4 China GDP growth rate (2008-12)

Source: www.tradingeconomics.com


South Africa

The country produces 33% of the GDP of Sub-Saharan Africa, three quarters of the GDP in Southern African Development Community (SADC) and  it is currently the 25th country in the world for GDP. The banking sector is one of the strengths of the country, and it is the top in international rankings for competitiveness, in fact, South Africa is one of the areas that showed the most growth rates in finance assets. The economy is also characterized by the high development of the industrial and service sectors, by important presence of mineral resources (the main export). South Africa is equipped with infrastructure and manufacturing sector characterized by a high level of productivity. One of the main competitive advantages of the country is the size of domestic market with a purchasing power of the burgeoning middle class.

Tab.5  South Africa GDP growth rate (2008-12)

Source: www.tradingeconomics.com 


References

BECKER U. (2013) The BRICS and Emerging Economies in comparative perspective, Oxon, Routledge

CASSIOLATO J. – VITORINO V. (2011) BRICS and Development Alternatives: Innovation System and Policies, London, Anthem Press

GOLDESTEIN A. (2011) BRIC. Brasile, Russia, India, Cina alla guida dell’economia globale, Bologna, il Mulino (http://www.mulino.it/edizioni/volumi/scheda_volume.php?vista=scheda&ISBNART=15061)

MAGRI P. – QUERCIA P. (2011) “I BRICS e noi. L’ascesa di Brasile, Russia, India e Cina e le conseguenze per l’Occidente”, Istituto per gli Studi di Politica Internazionale, ISPI, Roma (http://tinyurl.com/q4yk5tv)

O’NEILL J. (2001), “Building better economic BRICs”, in GOLDMAN SACHS Global Economic Paper, No. 66, 30 November

SCAFFARDI L. (2012) BRICS: Paesi emergenti nel prisma del diritto comparato, Torino, Giappichelli


Editor: Giovanni AVERSA