Whatever happened to the BRIC economies?
In the early 2000s, economists were enthralled by the BRIC countries – Brazil, Russia, India, and China. At the time, they were considered the fastest growing emerging economies and together, their populations exceeded 40% of the world’s total. At the time, they promised to equal and then surpass the West in terms of economic power. What’s happened to them in the two decades since?
Where did the term BRIC come from?
The term BRIC was first coined in a 2001 paper written by former Goldman Sachs economist (and now cross-bench member of the House of Lords) Jim O’Neill. At the time, the countries did not constitute a club or formal grouping. It was simply an acronym to group together countries that seemed likely to play an increasingly influential role in the global economy. The original paper argued that international economic co-operation should reflect this changing reality. Subsequently, South Africa was added to the acronym, to become BRICS.
The BRIC countries then evolved into an intergovernmental organisation
In 2009, the BRICS formed an economic and political club, with their governments meeting annually at formal summits and co-ordinating multilateral policies. The most recent BRICS summit – the 14th – was hosted by China last July. The BRICS are considered the main rival to the G7 bloc of leading advanced economies.
Formal BRICS initiatives include:
- The New Development Bank – also known as the BRICS Development Bank. Operated by the five BRICS states, the bank’s primary focus is lending for infrastructure purposes, in countries both within and outside the bloc. There are currently dozens of projects worth billions in progress around the world.
- BRICS Contingent Reserve Arrangement (CRA). This is a mechanism for providing support through additional liquidity and other means to BRICS countries during times of economic crisis. The aim is to create a competitor to the Western-dominated IMF.
- The BRICS payment system. The BRICS are hoping to create an international payment system to rival the Society for Worldwide Interbank Financial Telecommunication or SWIFT system.
And maybe a BRICS currency too?
The five member states are exploring the potential of a BRICS reserve currency. This would be based on a basket of their respective domestic currencies – the Chinese yuan, the Russian ruble, the Indian rupee, the Brazilian real, and the South African rand. The objective would be to shift reliance away from the US dollar. Even before Russia invaded Ukraine, there were de-dollarisation initiatives across the non-Western world, with Russia and China pursuing policies of local currency promotion.
The BRICS are expanding
Since South Africa joined the group, numerous other countries have expressed interest in joining the BRICS. These include Argentina, Egypt, Iran, Nigeria, Saudi Arabia, Thailand, and Turkey. Unlike the EU (for example), there is no formal process to join the group, but any hopeful government must receive unanimous backing from all existing BRICS members to receive an invitation.
Not everyone is a fan of the BRICS
Some observers believe that the idea of the BRICS is confected – that their cohesion as a group is overstated and in reality, there isn’t a huge amount of common ground between them. For example, in some areas, the strategic interests of China and India appear to be at odds, which creates a tension within the group. Some felt the term was as much a Goldman Sachs marketing initiative as anything else.
Another potential issue is that, while the acronym BRICS might imply some level of parity, the group is imbalanced. It contains one economic superpower (China), one potential economic superpower (India), and three commodity exporters (Brazil, Russia, and South Africa), which have struggled to prosper without strong global commodity prices. They also have very different political systems, from vibrant democracies in India and Brazil to entrenched oligarchy in Russia, to a national communist government in China.
When the BRICS concept first emerged, there were debates about which countries should or should not be included in the next generation of emerging powers. Some thought the MINT countries – Mexico, Indonesia, Nigeria, and Turkey – might be next. Others felt that focusing on large middle-income countries overlooks many smaller ones – such as New Zealand, Norway, Qatar, and Singapore – which have achieved high levels of income and development and project power in unconventional ways.
Aside from China, the BRICS have not grown as forecast
The original Goldman Sachs paper argued that the BRICS were the next big thing in economic terms. Has that come to fruition? Let’s look at each country in turn:
Post-Communism, the extent to which Russia could be described as ‘rising’ is debatable, given that its economy has remained small in global terms. Even today, its GDP is almost half the UK’s, despite a population more than twice the size and the largest, most resource-rich territory on the planet. Far from growing, Russia’s economy is about a quarter smaller now than its peak in 2011, in large part because of declining commodity prices. And since Russia’s invasion of Ukraine, the West has imposed sanctions which will clearly limit its growth prospects in the near term.
India’s growth has been impressive, but its relative share of global GDP has actually shrunk since the term BRICS was coined. Today, its economy is about one-fifth the size of China’s. However, India’s economic outlook remains strong, thanks to a youthful population, a rising middle class, and an established enterprise culture. Around two thirds of the Indian population are under the age of 35. Post-Covid, with many global companies looking to diversify supply chains away from China, India could be a key beneficiary of this shift. Narendra Modi’s government has introduced reforms which have helped business, including simplifying the Indian tax system.
The main story of the BRICS has been China’s staggering rise. Its development has been sustained over such a long period that it has genuinely reshaped the distribution of global economic power. When the BRIC acronym was first used, China accounted for about half of the BRICs’ GDP. Today, it accounts for about 75%. China’s GDP now is about $18 trillion, compared to India’s $3.2 trillion, Russia’s $1.7 trillion, Brazil’s $1.6 trillion, and South Africa’s $400 billion. (By comparison, the US – the world’s biggest economy – has a GDP of $25 trillion. The UK’s is $2.7 trillion).
Since the pandemic, the Chinese Communist Party’s zero Covid strategy – and growing public anger towards it – meant that China’s attractiveness to investors took a hit. (The CCP has now dialled down the policy.) The supply chain disruptions and travel restrictions caused by Covid caused a number of Western businesses to reduce their operations in China. China is also facing a demographic slowdown – its population fell last year for the first time since the 1960s, and its population is ageing – which could affect future growth prospects.
The optimism that greeted the end of apartheid and the formation of democratic government in 1994 has somewhat faded, amid infrastructure, economic, and social problems. Since the BRIC acronym was first used, South Africa has seen its national level of debt increase and its fiscal deficit become more of a burden. The unemployment rate – 32% – is high by international standards. Some have argued that South Africa wasn’t necessarily a rising economy but was added to the BRICS to ensure African representation within the group.
A lack of investment in key infrastructure has hampered the economy. For example, the country faces regular electricity rationing, and some businesses use their own private generators to keep the lights on.
Similar to Russia, Brazil’s economy is heavily dependent on commodity exports and with commodity prices having been relatively subdued in the last decade or so, economic growth has been lacklustre. As in many Western countries, including the UK, Brazilian politics has been turbulent in recent years, particularly under President Jair Bolsonaro, whose leadership saw accelerated Amazon deforestation. Still, Brazil has many advantages – as well as massive mineral resources, it’s the world’s largest exporter of coffee, oranges, and sugar cane, and is home to the world’s largest commercial livestock herd. With a new President – Luiz Inácio Lula da Silva – the challenge now is to bring inflation and interest rates down and to restore economic stability after a rocky few years.
Two decades on, the BRICS have followed divergent paths – which is not surprising, given their lack of cohesion in the first place. The big growth story has been China, and to some extent, India, while Russia, Brazil, and South Africa have faltered for different reasons. The acronym is used much less now than when it was first conceived, as excitement has faded. Symbolically, Goldman Sachs – which coined the term in 2001 – closed its BRICS market fund in 2015, merging it with a broader emerging markets fund. Time will tell whether a genuine alternative economic and trading bloc emerges from the BRICS.
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