BRIC

The four BRIC countries: Brazil, Russia, India and China.

BRIC leaders in 2008 - Manmohan Singh, Dmitry Medvedev, Hu Jintao and Luiz Inácio Lula da Silva

In economics, BRIC or BRICs is an acronym that refers to the fast growing developing economies of Brazil, Russia, India, and China. The acronym was first coined and prominently used by the bank holding company Goldman Sachs in 2001. Goldman Sachs argued that, since they are developing rapidly, by 2050 the combined economies of the BRICs could eclipse the combined economies of the current richest countries of the world.

Goldman Sachs did not argue that the BRICs would organize themselves into an economic bloc, or a formal trading association, like the European Union has done. However, there are strong indications that the "four BRIC countries have been seeking to form a political club" or "alliance", and thereby converting "their growing economic power into greater geopolitical clout". One of the recent indications was from a BRIC Summit meeting in 2008, in the Russian city of Yekaterinburg between the foreign ministers of the BRIC countries.

The BRIC thesis

File:Saopaulo noite.jpg

Sao Paulo, Brazil.

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 encompass over twenty-five percent of the world's land coverage, forty 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. These four countries are among the biggest and fastest growing Emerging Markets.

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.

(2003) Dreaming with BRICs: The Path to 2050

Moscow, Russia.

The BRIC thesis (defended in the paper Dreaming with BRICs: The Path to 2050) recognizes that Brazil, Russia, India and China 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 states currently of "Group of Eight" 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.

(2004) Follow-up report

Bombay, India.

The Goldman Sachs global economics team released a follow-up report to its initial BRIC study in 2004.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 six most populous EU countries 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.

(2007) Second Follow-up report

Hong Kong, China.

This report compiled by lead authors 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. It states that the four nations as a group will overtake the G7 in 2032.

The BRIC numbers

The Economist publishes an annual table of social and economic national statistics in its Pocket World in Figures. Extrapolating the global rankings from their 2008 Edition for the BRIC countries and economies in relation to various categories provides an interesting touchstone in relation to the economic underpinnings of the BRIC thesis. It also illustrates how, despite their divergent economic bases, the economic indicators are remarkably similar in global rankings between the different economies. It also suggests that whilst economic arguments can be made for linking Mexico into the BRIC thesis, the case for including South Africa looks considerably weaker. A Goldman Sachs paper published later in December of 2005 explained why Mexico wasn't included in the original BRICs. According to the paper, among the other countries they looked at, only Mexico and perhaps Korea have the potential to rival the BRICs, but they are economies that they decided to exclude initially because they looked at them as already more developed. According to that paper, Mexico becomes the sixth-largest economy, ahead of Russia.

Global giants

Painting BRIC by numbers

Lists	Brazil	Russia	India	China
Countries by total area	5th	1st	7th	3rd / 4th (disputed)
Countries by population	5th	9th	2nd	1st
Countries by GDP (nominal)	10th	11th	12th	4th
Countries by GDP (PPP)	9th	7th	4th	2nd
Countries by exports	21st	11th	23rd	2nd
Countries by imports	27th	17th	16th	3rd
Countries by current account balance	29th	5th	154th	1st
Countries by received FDI	16th	12th	29th	5th
Countries by foreign exchange reserves	7th	3rd	4th	1st
Countries by external debt	25th	20th	29th	22nd
Countries by public debt	47th	117th	29th	98th
Countries by electricity consumption	10th	3rd	7th	2nd
Countries by number of mobile phones	5th	4th	2nd	1st
Countries by number of internet users	5th	11th	4th	1st

BRIC in 2050

BRIC countries in bold

Gross Domestic Product [2007]

Gross Domestic Product [2050]

Rank Country GDP (millions of USD) 1 United States 13,807,550 2 Japan 4,381,576 3 Germany 3,320,913 4 China 3,280,224 5 United Kingdom 2,804,437 6 France 2,593,779 7 Italy 2,104,666 8 Spain 1,439,983 9 Canada 1,436,086 10 Brazil 1,313,590 11 Russia 1,289,535 12 India 1,100,695 13 Mexico 1,022,816 14 South Korea 969,871 15 Australia 908,990 16 Netherlands 777,241 17 Turkey 659,276 18 Sweden 454,839 19 Belgium 453,283 20 Indonesia 432,944 21 Switzerland 427,074 22 Poland 422,090

Rank Country GDP (millions of USD) 1 China 70,710,000 2 United States 38,514,000 3 India 37,668,000 4 Brazil 11,366,000 5 Mexico 9,340,000 6 Russia 8,580,000 7 Indonesia 7,010,000 8 Japan 6,677,000 9 United Kingdom 5,133,000 10 Germany 5,024,000 11 Nigeria 4,640,000 12 France 4,592,000 13 South Korea 4,083,000 14 Turkey 3,943,000 15 Vietnam 3,607,000 16 Canada 3,149,000 17 Philippines 3,010,000 18 Italy 2,950,000 19 Iran 2,663,000 20 Egypt 2,602,000 21 Pakistan 2,085,000 22 Bangladesh 1,466,000

Gross Domestic Product per capita [2007]

Gross Domestic Product per capita [2050]

Rank Country GDP per capita (in USD) 1 United Kingdom 46,099 2 United States 45,725 3 Canada 43,674 4 France 42,034 5 Germany 40,400 6 Italy 35,745 7 Japan 34,296 8 South Korea 20,015 9 Mexico 9,717 10 Turkey 9,569 11 Russia 9,075 12 Brazil 6,938 13 Iran 3,981 14 China 2,483 15 Indonesia 1,925 16 Egypt 1,739 17 Philippines 1,626 18 Nigeria 1,161 19 India 942 20 Pakistan 909 21 Vietnam 829 22 Bangladesh 463

Rank Country GDP per capita (in USD) 1 United States 91,683 2 South Korea 90,294 3 United Kingdom 80,234 4 Russia 78,576 5 Canada 76,002 6 France 75,253 7 Germany 68,253 8 Japan 66,846 9 Mexico 63,149 10 Italy 58,545 11 Brazil 49,759 12 China 49,650 13 Turkey 45,595 14 Vietnam 33,472 15 Iran 32,676 16 Indonesia 22,395 17 India 20,836 18 Egypt 20,500 19 Philippines 20,388 20 Nigeria 13,014 21 Pakistan 7,066 22 Bangladesh 5,235

The BRIC term

The Sao Paulo Stock Exchange is the second largest in the Americas and the third largest in the world

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.

Also, because of the popularity of the Goldman Sachs thesis "BRIC", this term has sometimes been extended to "BRICK" (K for South Korea), "BRIMC" (M for Mexico), "BRICA" (GCC Arab countries – Saudi Arabia, Qatar, Kuwait, Bahrain, Oman and the United Arab Emirates) and "BRICET" (including Eastern Europe and Turkey) have become more generic marketing terms to refer to these emerging markets.

Marketing

The Bombay Stock Exchange is the oldest stock exchange in Asia.

The BRIC term is also used by companies who refer to the four named countries as key to their emerging markets strategies. By comparison the reduced acronym IC 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 they would gain exposure to Asian debt and equity markets rather than to Latin America. According to estimates provided by the USDA, the wealthiest regions outside of the G6 in 2015 will be 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 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 wealthier 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. Many other Eastern European countries, such as Poland, the Czech Republic, Slovakia, Hungary, Romania, Bulgaria, and several others were able to continually sustain high economic growth rates and do not experience some of the problems that Russia experiences or experience them to a lesser extent. In terms of GDP per capta in 2007, Brazil ranks 64th, Russia 54th, China 105th and India 131th. By comparison South Korea currently ranks 28th, Singapore 21st, and Hong Kong 27th.

Brazil's stock market, the Bovespa, has gone from approximately 9,000 in September 2002 to over 70,000 in May 2008. Government policies have favored investment (lowering interest rates), retiring foreign debt and expanding growth, and a reformulation of the tax system is being voted in the congress. 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, with publication scheduled for October 2007.

Criticism

A criticism is that the BRIC projections are based on the assumptions that resources are limitless and endlessly available when needed. In reality, many important resources currently necessary to sustain economic growth, such as oil, natural gas, coal, and other fossil fuels might soon experience a peak in production before enough renewable energy can be developed and commercialized, which might result in slower economic growth than anticipated, thus throwing off the projections and their dates. 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.

Another 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 South Korea 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, as is the possibility of conflict over Taiwan in the case of China. Likewise, the population of Russia is steadily declining and aging, and Brazil's and China's populations will begin to decline in several decades, and with their demographic windows closing in several decades as well. This may have implications for those countries's future, for there might be a decrease in the overall labor force and a negative change in the proportion of workers to retirees.

Brazil's economic potential has been anticipated for decades, but it had until recently consistently failed to achieve investor expectations. Only in recent years has the country established a framework of political, economic, and social policies that allowed it to resume consistent growth. The result has been solid and paced economic development that rival its early 70's "miracle years", as reflected in its expanding capital markets, lowest unemployment rates in decades, and consistent international trade surpluses - that led to the accumulation of reserves and liquidation of foreign debt (earning the country a coveted investment grade by the S&P and Fitch Ratings in 2008). How long such positive factors will stay in place remains to be seen, specially with upcoming presidential elections and possible political changes.

Finally, India's relations with its neighbors, particularly with Pakistan, have always been frosty. Ten years ago, in 1998, there was 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.

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 liberal democracies (Brazil and India), one is a limited, "sovereign 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").

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.

BRIMC and BRICK

Mexico and Korea are currently the world's 13th and 14th largest economies in terms of nominal GDP and are both experiencing GDP growth of 5% every year, a figure comparable to Brazil from the original BRICs. Jim O'Neill, expert from the same bank and creator of the economic thesis, stated that in 2001 when the paper was created, it did not consider Mexico, but today it has been included because the country is experiencing the same factors that the other countries first included present. While Korea was not originally included in the BRICs, recent solid economic growth led to Goldman Sachs proposing to add Mexico and Korea to the BRICs, changing the acronym to BRIMCK, with Jim O'Neill pointing out that Korea "is better placed than most others to realize its potential due to its growth-supportive fundamentals.

A Goldman Sachs paper published later in December of 2005 explained why Mexico and Korea weren't included in the original BRICs. According to the paper, among the other countries they looked at, only Mexico and Korea have the potential to rival the BRICs, but they are economies that they decided to exclude initially because they looked at them as already more developed. However, due to the popularity of the Goldman Sachs thesis, "BRIMC", "BRICK" and "BRIMCK" are becoming more generic marketing terms to refer to these six countries.

In their paper "BRICs and Beyond", Goldman Sachs stated that "Mexico, the four BRIC countries and Korea should not be really thought of as ëemerging markets in the classical sense", adding that they are a "critical part of the modern globalised economy" and "just as central to its functioning as the current G7".

The term is primarily used in the economic and financial spheres as well in academia. Its usage has grown specially in the investment sector, where it is used to refer to the bonds emitted by these emerging markets governments.

Mexico

It is primarily the same as the BRICs, with Goldman Sachs argues that the economic potential of Brazil, Russia, India, Mexico and China is such that they may become among the five 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 forty percent of the world's population and hold a combined GDP [PPP] of 14.951 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 five 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.

Korea

Despite being a developed country, Korea has been growing at a speed comparable to Brazil and Mexico. More importantly, it has a significantly higher Growth Environment Score (GES) than all of the BRICs or N-11s, Goldman Sachs' way of measuring the long-term sustainability of growth. Experts such as William Pesek Jr. from Bloomberg argue that Korea is "Another `BRIC' in Global Wall", suggesting that it stands out from the Next Eleven economies. A reunited Korea is likely to happen before 2050, which would raise the country's population to over 75 million, larger than the UK and France from the G7. Cheap, skilled labor from the North combined with advanced technology and infrastructure in the South, as well as Korea's strategic location connecting three economic powers, is likely going to create an economy larger than the bulk of the G7. Nonetheless, without reunification, South Korea will overtake Canada by 2025 and Italy by 2035 according to their paper "The N-11: More Than an Acronym". Economists from other investment firms argue that Korea will have a GDP per capita of over $90,000 by 2050, virtually identical to the United States and the second highest among the G7, BRIC and N-11 economies, suggesting that wealth is more important than size for bond investors, stating that Korea's credit rating will be rated AAA sooner than 2050.

References

• Emerging Markets Emerging Markets

Further reading

• Elder, Miriam, and Leahy, Joe, et al., Who’s who: Bric leaders take their place at the top table, Financial Times, London, September 25, 2008
• O'Neill, Jim, BRICs could point the way out of the Economic Mire, Financial Times, London, September 23, 2008, p.28.
• Mark Kobayashi-Hillary, 'Building a Future with BRICs: The Next Decade for Offshoring' (Nov 2007). ISBN 978-3-540-46453-2.

See also

• PIGS, another informal grouping consisting of Portugal, Italy, Greece and Spain.

External links

• Goldman Sachs: The BRICs Dream: Web Tour, July 2006
• Grant Thornton IBR - Emerging markets: reshaping the global economy. May 2008
• Grant Thornton IBR - Emerging markets (BRIC) focus. 2007
• 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
• "Mapping the Global Future: Report of the National Intelligence Council's 2020 Project" - National Intelligence Council report and Forecast
• BBC Documentary Archive - four part audio documentary