BRIC Middle Class
No matter how long it takes to emerge from the economic recession the world is now in, there's no doubt after things get better, that over the next couple of decades BRIC middle classes will drive the global economics and prosperity for the next several decades.
The American consumer has been the chief mover of the global economy for a long time, but that is about to change, and the recession and the emerging and growing middle classes in Brazil, Russia, India and China will lead the way going forward; especially China and India.
Once things turn around we'll see these middle class people desire and buy up many products and services, and there'll be unprecedented growth for some time; although there will always be temporary slowdowns in general, but the overall curve should go up for the most part in these nations.
According to McKinsey & Co., the urban Chinese middel class will spend close to $2.3 trillion a year by 2025, while India's middle class should grow from 5 percent today to over 40 percent of the nation over the next 20 years. Brazil and Russia will also contribute significantly to this growth, marking an unprecedented opportunity at prosperity and growth.
The majority of emerging markets avoided the worst of the economic crisis, which originated in the mortgage-backed bonds that the U.S. sold to the developed world. Their economies have declined far less dramatically, and contrary to the U.S. or Europe, many are projected to grow this year. So it’s no surprise that consumers in emerging-market countries want more of the products those in the West take for granted.
Those companies and individuals investing in the BRICs should enjoy success when they focus on sectors like banking, finance, real estate, retail, consumer goods, commodities and entertainment.
This isn't a short-term strategy to employ when engaging the BRICs, but rather those with an long-term outlook should do very well by investing in BRIC nations and economies.
BRIC Middle Class
Tuesday, August 25, 2009
Friday, August 21, 2009
BRIC Business | Rethink Them?
BRIC Business
An economic crisis will always bring out the best and worst, and the strenght and weakness of any economy, and the current economic crisis has provided fresh fuel to the debate over the feared decline of the West and rise of the East. The so-called BRICs – Brazil, Russia, India, and China – are often touted as the inevitable economic winners. But when you look behind the numbers, it suggests that the proclamation that these countries have won is far too premature.
The numbers at this time don't reinforce the assertions, and The World Bank’s dark forecasts see global GDP falling a record 2.9 percent in 2009, along with deteriorating current account balances, increased debt, soaring unemployment, gyrating stock markets and tumbling business confidence. Yes, there may be a few spots of recovery. China’s stimulus efforts – a quick expansion of fixed investment and credit to the state sector generated by huge foreign reserves – seem to have had a predictable positive, if likely short-term, effect. Perhaps broader, but still modest, recoveries in 2010 and 2011 are in the cards. And there is the looming risk of inflation to have to deal with, which could undermine China especially.
But the way to full recovery is not clear at this time. The global economy is at some kind of tipping or inflection point, a moment of paradigm shift. If the Anglo-American model of finance capital is yet another god that failed, so too the alternatives: Japanese networked capitalism, Euro-dirigisme, or various flavors of state capitalism (perhaps combined, as in China, with authoritarian politics) have not been widely embraced.
At this point, enter the BRICs. Before the severity of the looming economic storm was clear, the BRICs were the sweethearts of the investment sector. They were first lumped together in an influential Goldman Sachs research report in 2001. Goldman forecast that their ongoing GDP growth could outpace the rest of the world, with the GDPs of China and India surpassing those of the major Western economic powers before mid-century. To be sure, these “emerging markets” were not seen as risk free, but with their scale – continental powers with large populations and records of substantial economic growth – they looked attractive. Especially to punters playing the markets. If Goldman liked them, how could you go wrong?
But there’s more to economic prowess than GDP statistics and stock market indices. This is not to gainsay the BRICs’ – especially China and India’s – economic momentum and remarkable development. Visitors to China cannot be but wowed by what metropolitan colossi Beijing and Shanghai have become. India’s IT prowess dominates. But sustainable growth and economic leadership will ultimately have to be based on business environment fundamentals. International metrics that go beyond GDP suggest the BRICs have a long way to go.
Take, for beginners, corruption, the negative element that eats away at business confidence, rule of law and fair dealing. None of the BRICs rank very high in the 180-country survey published by Transparency International. Brazil and India come in at 80th and 85th place, roughly comparable to Burkina Faso, Saudi Arabia and Panama. Russia, unsurprisingly, is close to the bottom, ranking 147th – Kenya and Syria are neighbors. China does best, at 72nd place – right down there with Mexico. And if the current murky scandal involving China’s steel industry which has ensnared executives from Australia’s Rio Tinto shows anything, it’s that corruption of China’s legal system can eat business confidence away.
If there’s corruption, then it’s not so easy to do business there. The World Bank studies “the ease of doing business” in 181 countries. Brazil, Russia and India stand between 120 to 125 in those league tables. China comes in a little better, in 83rd place – a little higher than Belarus, a little lower than Kenya. The most difficult issues? Dealing with the local authorities in Russia and China; enforcing contracts in India’s clogged legal system, and, interestingly, taxes in Brazil.
None of the BRICs lead the World Economic Forum’s most recent “Global Competitiveness Report” (GCR). This sophisticated survey pulls together a large range of business environment variables, including social and political stability, economic concerns, technological sophistication and management quality. Of the 134 countries ranked, China comes in at 30th place (comparable to Spain); India and Russia land at 50th and 51st places respectively (about the same as Italy); and Brazil checks in at 64th place, close to Turkey and Kazakhstan. The GCR points out that all of these environments are plagued by bureaucracy, corruption, changeable business policies and problems with finance. (Not that the G-8 countries are 100% clean here either!).
And if social stability is a metric, then the fires that have fueled tragic communal violence in India and, more recently, China have to be a concern. You don’t push too hard against entrenched interests in Russia, where arbitrary arrest and even murder can be the outcome.
Should we really be surprised? From these perspectives, the BRICs don’t look that strong. These countries are all, in one way or another, still developing. Brazil and Russia rank in the middle of the United Nations’ Human Development Index; China is just a little below and India, is almost at the bottom. Russia and China face demographic challenges. China is growing older, while Russia has even more major population problems – it’s declining.
Their economic, social and political systems differ in a major way: Brazil’s economy is based on agriculture; India’s on services; Russia’s on price-sensitive energy resources, and China on manufactures for export. China and Russia have had problematic political relations; the disputed borders between China and India are still hot. What do they share? Growth potential. And a desire to take the U.S. dollar down a notch. Is that enough to assert that the answer to the world’s problems be found with the BRICs?
BRIC officials seem to think so. In the run up to the April 2009 G-20 meeting in London they pushed their own agenda, calling for new international finance rules, reform of the IMF and the World Bank, and resurrection of the Doha round. Overall, they are pushing for a multi-polar economic order, one less dominated by the US.
The Russians called for a new international currency backed by IMF SDRs (Special Drawing Rights) – an idea also picked up by Brazil and China. Indian Prime Minister Manmohan Singh said that the eyes of the world were on India in the “hope that India would be an engine of growth for the world economy.” Chinese officials touted their own “stimulus package” and quick action, noting the superiority of China’s command system “when it comes to making vital policy decisions.”
But at a “BRIC Summit” held in Yekaterinburg in July, there was less fire – a BRIC agenda did not surface. Still, the idea of a new international reserve currency hasn’t gone away.
We focus on these things not to criticize the BRICs individually but rather to put a little more reality into the important discussion of world economic recovery. First, they can hardly be considered a cohesive group. Second, sustainable leadership demands a sound business environment. On that score, the BRICs have a long way to go.
To be sure, their equity markets seem to be doing ok (China’s seems to be a bubble). But there’s more to the economy of any country than GDP projections and speculative bets about the future of a few leading companies.
But after all of this, we still have to remember that America had a lot of false starts and ups and downs in its early years or prosperity, so that shouldn't change for China or the other BRIC nations any time soon. Russia will struggle the most of all of them, while China and India will continue to lead them. Brazil, because it depends primarily on commodities, will do well when demand starts to increase again, and they could be right up there, and possibly surpass China and India as far as percentag of growth goes. Russia could do that too if it was in better position and strength, but it has a long way to go before that is a reality.
BRIC Business
An economic crisis will always bring out the best and worst, and the strenght and weakness of any economy, and the current economic crisis has provided fresh fuel to the debate over the feared decline of the West and rise of the East. The so-called BRICs – Brazil, Russia, India, and China – are often touted as the inevitable economic winners. But when you look behind the numbers, it suggests that the proclamation that these countries have won is far too premature.
The numbers at this time don't reinforce the assertions, and The World Bank’s dark forecasts see global GDP falling a record 2.9 percent in 2009, along with deteriorating current account balances, increased debt, soaring unemployment, gyrating stock markets and tumbling business confidence. Yes, there may be a few spots of recovery. China’s stimulus efforts – a quick expansion of fixed investment and credit to the state sector generated by huge foreign reserves – seem to have had a predictable positive, if likely short-term, effect. Perhaps broader, but still modest, recoveries in 2010 and 2011 are in the cards. And there is the looming risk of inflation to have to deal with, which could undermine China especially.
But the way to full recovery is not clear at this time. The global economy is at some kind of tipping or inflection point, a moment of paradigm shift. If the Anglo-American model of finance capital is yet another god that failed, so too the alternatives: Japanese networked capitalism, Euro-dirigisme, or various flavors of state capitalism (perhaps combined, as in China, with authoritarian politics) have not been widely embraced.
At this point, enter the BRICs. Before the severity of the looming economic storm was clear, the BRICs were the sweethearts of the investment sector. They were first lumped together in an influential Goldman Sachs research report in 2001. Goldman forecast that their ongoing GDP growth could outpace the rest of the world, with the GDPs of China and India surpassing those of the major Western economic powers before mid-century. To be sure, these “emerging markets” were not seen as risk free, but with their scale – continental powers with large populations and records of substantial economic growth – they looked attractive. Especially to punters playing the markets. If Goldman liked them, how could you go wrong?
But there’s more to economic prowess than GDP statistics and stock market indices. This is not to gainsay the BRICs’ – especially China and India’s – economic momentum and remarkable development. Visitors to China cannot be but wowed by what metropolitan colossi Beijing and Shanghai have become. India’s IT prowess dominates. But sustainable growth and economic leadership will ultimately have to be based on business environment fundamentals. International metrics that go beyond GDP suggest the BRICs have a long way to go.
Take, for beginners, corruption, the negative element that eats away at business confidence, rule of law and fair dealing. None of the BRICs rank very high in the 180-country survey published by Transparency International. Brazil and India come in at 80th and 85th place, roughly comparable to Burkina Faso, Saudi Arabia and Panama. Russia, unsurprisingly, is close to the bottom, ranking 147th – Kenya and Syria are neighbors. China does best, at 72nd place – right down there with Mexico. And if the current murky scandal involving China’s steel industry which has ensnared executives from Australia’s Rio Tinto shows anything, it’s that corruption of China’s legal system can eat business confidence away.
If there’s corruption, then it’s not so easy to do business there. The World Bank studies “the ease of doing business” in 181 countries. Brazil, Russia and India stand between 120 to 125 in those league tables. China comes in a little better, in 83rd place – a little higher than Belarus, a little lower than Kenya. The most difficult issues? Dealing with the local authorities in Russia and China; enforcing contracts in India’s clogged legal system, and, interestingly, taxes in Brazil.
None of the BRICs lead the World Economic Forum’s most recent “Global Competitiveness Report” (GCR). This sophisticated survey pulls together a large range of business environment variables, including social and political stability, economic concerns, technological sophistication and management quality. Of the 134 countries ranked, China comes in at 30th place (comparable to Spain); India and Russia land at 50th and 51st places respectively (about the same as Italy); and Brazil checks in at 64th place, close to Turkey and Kazakhstan. The GCR points out that all of these environments are plagued by bureaucracy, corruption, changeable business policies and problems with finance. (Not that the G-8 countries are 100% clean here either!).
And if social stability is a metric, then the fires that have fueled tragic communal violence in India and, more recently, China have to be a concern. You don’t push too hard against entrenched interests in Russia, where arbitrary arrest and even murder can be the outcome.
Should we really be surprised? From these perspectives, the BRICs don’t look that strong. These countries are all, in one way or another, still developing. Brazil and Russia rank in the middle of the United Nations’ Human Development Index; China is just a little below and India, is almost at the bottom. Russia and China face demographic challenges. China is growing older, while Russia has even more major population problems – it’s declining.
Their economic, social and political systems differ in a major way: Brazil’s economy is based on agriculture; India’s on services; Russia’s on price-sensitive energy resources, and China on manufactures for export. China and Russia have had problematic political relations; the disputed borders between China and India are still hot. What do they share? Growth potential. And a desire to take the U.S. dollar down a notch. Is that enough to assert that the answer to the world’s problems be found with the BRICs?
BRIC officials seem to think so. In the run up to the April 2009 G-20 meeting in London they pushed their own agenda, calling for new international finance rules, reform of the IMF and the World Bank, and resurrection of the Doha round. Overall, they are pushing for a multi-polar economic order, one less dominated by the US.
The Russians called for a new international currency backed by IMF SDRs (Special Drawing Rights) – an idea also picked up by Brazil and China. Indian Prime Minister Manmohan Singh said that the eyes of the world were on India in the “hope that India would be an engine of growth for the world economy.” Chinese officials touted their own “stimulus package” and quick action, noting the superiority of China’s command system “when it comes to making vital policy decisions.”
But at a “BRIC Summit” held in Yekaterinburg in July, there was less fire – a BRIC agenda did not surface. Still, the idea of a new international reserve currency hasn’t gone away.
We focus on these things not to criticize the BRICs individually but rather to put a little more reality into the important discussion of world economic recovery. First, they can hardly be considered a cohesive group. Second, sustainable leadership demands a sound business environment. On that score, the BRICs have a long way to go.
To be sure, their equity markets seem to be doing ok (China’s seems to be a bubble). But there’s more to the economy of any country than GDP projections and speculative bets about the future of a few leading companies.
But after all of this, we still have to remember that America had a lot of false starts and ups and downs in its early years or prosperity, so that shouldn't change for China or the other BRIC nations any time soon. Russia will struggle the most of all of them, while China and India will continue to lead them. Brazil, because it depends primarily on commodities, will do well when demand starts to increase again, and they could be right up there, and possibly surpass China and India as far as percentag of growth goes. Russia could do that too if it was in better position and strength, but it has a long way to go before that is a reality.
BRIC Business
Saturday, August 15, 2009
BRICs Drive Export Demand
BRIC Driving Export Demand
With the U.S. consumers expected to hold back on spending for some time, the world continually is looking for the rebound from the BRIC countries in order to generate increasing demand for exports, which will help their domestic economies.
According to a recently released Goldman Sachs report, they assert the BRICs will account for around 50 percent of export demand as their domestic consumption grows; presumably from their emerging middle classes.
The report reiterated what we already know here, that China would perform particularly strong, more than likely accounting for 30% of the world’s consumption growth next year, which is more than the combined growth of the G3 — United States, Japan and Germany — as they slowly move out of recession.
Goldman Sachs, which dubbed the term BRIC in 2001, said the emergence of the BRIC consumer is an important development that will create demand and hence support the export markets of developed economies, and I would add that this will be going on for some time to come.
The report added that consumption in the BRIC economies would be supported by a shift in spending power from the richest countries towards a growing middle-income bloc in the emerging markets. Consumption would likely receive a further increase when the fast economic growth in China and India finally reaches their rural populations.
As these domestic economies emerge, the type of products they consume is also likely to slowly move away from low-value-added products, like agricultural goods, to those at the higher end, such as cars, office and telecom equipment.
The Goldman economists estimate that Chinese retail sales, a key indicator of consumption, rose 17.6% in the year ended June, with food and beverages products posting the biggest gains, although it remains to be seen whether this is a real rebound once their stimulus money runs it course and potential inflation arises. Retail sales in Brazil, while lower than in 2008, remained well supported and would likely increase in the third quarter as demand for commodities increase.
India does not measure retail sales, but individual components, such as vehicle sales are used to measure the consumer for consumption demand. Goldman said auto sales had increased in a big way, and were now selling quicker than before the crisis.
Russia, after years of strong growth, was the only BRIC country where retail sales growth had suffered, and is slowly losing the luster connected to being included with BRIC at this time. Sales in the year to June fell 6.72% on the back of a plunge in non-food products.
While most agree the BRIC countries will have an increasingly important role to play in the worldwide economy, not all are sure they can drive demand, but I think that's ludicrous based on China alone.
BRIC Driving Export Demand
With the U.S. consumers expected to hold back on spending for some time, the world continually is looking for the rebound from the BRIC countries in order to generate increasing demand for exports, which will help their domestic economies.
According to a recently released Goldman Sachs report, they assert the BRICs will account for around 50 percent of export demand as their domestic consumption grows; presumably from their emerging middle classes.
The report reiterated what we already know here, that China would perform particularly strong, more than likely accounting for 30% of the world’s consumption growth next year, which is more than the combined growth of the G3 — United States, Japan and Germany — as they slowly move out of recession.
Goldman Sachs, which dubbed the term BRIC in 2001, said the emergence of the BRIC consumer is an important development that will create demand and hence support the export markets of developed economies, and I would add that this will be going on for some time to come.
The report added that consumption in the BRIC economies would be supported by a shift in spending power from the richest countries towards a growing middle-income bloc in the emerging markets. Consumption would likely receive a further increase when the fast economic growth in China and India finally reaches their rural populations.
As these domestic economies emerge, the type of products they consume is also likely to slowly move away from low-value-added products, like agricultural goods, to those at the higher end, such as cars, office and telecom equipment.
The Goldman economists estimate that Chinese retail sales, a key indicator of consumption, rose 17.6% in the year ended June, with food and beverages products posting the biggest gains, although it remains to be seen whether this is a real rebound once their stimulus money runs it course and potential inflation arises. Retail sales in Brazil, while lower than in 2008, remained well supported and would likely increase in the third quarter as demand for commodities increase.
India does not measure retail sales, but individual components, such as vehicle sales are used to measure the consumer for consumption demand. Goldman said auto sales had increased in a big way, and were now selling quicker than before the crisis.
Russia, after years of strong growth, was the only BRIC country where retail sales growth had suffered, and is slowly losing the luster connected to being included with BRIC at this time. Sales in the year to June fell 6.72% on the back of a plunge in non-food products.
While most agree the BRIC countries will have an increasingly important role to play in the worldwide economy, not all are sure they can drive demand, but I think that's ludicrous based on China alone.
BRIC Driving Export Demand
Thursday, August 13, 2009
Are BRICs Really that Powerful?
BRIC Business News
During the current economic crisis has provided fresh fuel to the debate over the decline of the West and emergence of the East. The so-called BRICs – Brazil, Russia, India, and China – are often looke upon as the inevitable economic winners. A glance behind the numbers, though, suggests proclaiming these countries victors may be a little too early. Some like Russia may not be included at all if major changes aren't made soon.
The numbers aren’t that great. The World Bank’s dark forecasts see global GDP plunging a record 2.9 percent in 2009, along with deteriorating current account balances, increased debt, soaring unemployment, chaotic stock markets and declining business confidence. Yes, there may be a few positives concerning recovery. China’s stimulus efforts – a rapid expansion of fixed investment and credit to the state sector fueled by massive foreign reserves – seem to have had a predictable positive, if probably short-term, effect. Although there is the possibility of a broader, but still mild, recoveries in 2010 and 2011 .
But the path to full recovery is not clear in any way. The global economy is at some kind of tipping or inflection point, a moment of paradigm shift. If the Anglo-American model of finance capital is yet another god that failed, so too the alternatives: Japanese networked capitalism, Euro-dirigisme, or various strains of state capitalism have not been widely accepted.
Before the depth of the coming economic storm was clear, the BRICs were the sweethearts of the investment community. They were first lumped together in an influential Goldman Sachs research report in 2001. Goldman projected that their continuing GDP growth could be faster than the rest of the world, with the GDPs of China and India surpassing those of the major Western economic powers before the middle of the 21st century. To be sure, these “emerging markets” were not seen as without risk, but with their scale – large populations and records of substantial economic growth – they looked very attractive.
But there’s more to economic prowess than GDP statistics and stock market indices. This is not to gainsay the BRICs’ – especially China and India’s – economic momentum and remarkable development. Visitors to China cannot be but wowed by what metropolitan giants Beijing and Shanghai have become. India’s IT prowess dominates. But long term growth and economic leadership will ultimately have to be based on business environment basics. International metrics that go beyond GDP suggest the BRICs have a long way to go, and they're right.
For example, corruption, the acid that eats away at business confidence, rule of law and fair dealing. None of the BRICs rank very high in the 180-country survey published by Transparency International. Brazil and India come in at 80th and 85th place, roughly comparable to Burkina Faso, Saudi Arabia and Panama. Russia, unsurprisingly, is almost at the bottom, ranking 147th – Kenya and Syria being near them. China does best, at 72nd place – right down there with Mexico. And if the current murky scandal involving China’s steel industry which has ensnared executives from Australia’s Rio Tinto shows anything, it’s that corruption and the opacity of China’s legal system can rust business confidence away.
If there’s corruption, then it’s not so easy to do business there, as there is no way of doing business in a predictable manner. The World Bank studies “the ease of doing business” in 181 countries. Brazil, Russia and India stand between 120 to 125 in those tables. China comes in somewhat better, in 83rd place – a little higher than Belarus, a little lower than Kenya. The most difficult issues? Dealing with the local authorities in Russia and China; enforcing contracts in India’s clogged legal system, and, interestingly enough, taxes in Brazil.
And if social stability is a metric, then the fires that have fueled tragic communal violence in India and, more recently, China (which also suffers from tens of thousands “mass incidents” of citizens protesting corruption) have to be a concern. You don’t push too hard against entrenched interests in Russia, where arbitrary arrest and even murder can be the outcome.
Should we really be surprised? From these points of view, the BRICs don’t look that strong. These countries are all, in one way or another, still developing. Brazil, India and China have large problems of income distribution (more unequal than even the US), issues exacerbated by large but low productivity agricultural sectors and urban squalor. Brazil and Russia rank at midpoint in the 179 country United Nations’ Human Development Index; China is just slightly below and India, alas, is almost at the bottom. And Russia and China face demographic challenges. China is aging. Russia has even more severe population problems – it’s disappearing.
Having said that, we do have to remember the days of America and the wild west where very similar situations were part of the mix. The only difference was the strong Christian influence which helped temper much of this. The BRICs, in general, don't have that as part of the matrix, with the excpetion - to a small degree - of Brazil.
But could they be considered a bloc? Their economic, social and political systems differ considerably: Brazil’s economy is based on agriculture; India’s on services; Russia’s on price-sensitive energy resources, and China on manufactures for export. China and Russia have had problematic political relations; the disputed borders between China and India are still hot (and let’s not forget New Delhi’s concerns about the cozy relationship between Beijing and Islamabad). What do they share? Growth potential. And a desire to take the Yankee dollar down a peg. Is that sufficient to suggest that the answer to the world’s woes be found with the BRICs?
BRIC officials seem to think so. In the run up to the April 2009 G-20 meeting in London they pushed their own agenda, calling for new international finance rules, reform of the IMF and the World Bank, and resurrection of the Doha round. Overall, they are pushing for a multi-polar economic order, one less dominated by the US.
The Russians called for a new international currency backed by IMF SDRs (Special Drawing Rights) – an idea also picked up by Brazil and China. Indian Prime Minister Manmohan Singh said that the eyes of the world were on India in the “hope that India would be an engine of growth for the world economy.” Chinese officials touted their own “stimulus package” and quick action, noting the superiority of China’s command system “when it comes to making vital policy decisions.”
But at a “BRIC Summit” held in Yekaterinburg in July, there was less fire – a BRIC agenda did not surface. Still, the idea of a new international reserve currency hasn’t gone away. The problem there are the consequences of being a world reserve currency, which these countries probably aren't ready to, or willing to take on.
We raise these matters not to criticize the BRICs individually but rather to put a little realism into the crucial discussion of world economic recovery. First, they can hardly be considered a cohesive group. Second, sustainable leadership requires a sound business environment. On that score, the BRICs have a way to go.
To be sure, their equity markets seem to be doing well enough. But there’s more to an economy than GDP projections and speculative bets about the future of a few leading companies.
While some think the BRICs are overly hyped, I don't think that's the case in the long term; with the possible exception of Russia. They will play a huge role the economics of the world, and if nothing else, the populations of China and India, along with their growing middle classes guarantee that.
BRIC Business News
During the current economic crisis has provided fresh fuel to the debate over the decline of the West and emergence of the East. The so-called BRICs – Brazil, Russia, India, and China – are often looke upon as the inevitable economic winners. A glance behind the numbers, though, suggests proclaiming these countries victors may be a little too early. Some like Russia may not be included at all if major changes aren't made soon.
The numbers aren’t that great. The World Bank’s dark forecasts see global GDP plunging a record 2.9 percent in 2009, along with deteriorating current account balances, increased debt, soaring unemployment, chaotic stock markets and declining business confidence. Yes, there may be a few positives concerning recovery. China’s stimulus efforts – a rapid expansion of fixed investment and credit to the state sector fueled by massive foreign reserves – seem to have had a predictable positive, if probably short-term, effect. Although there is the possibility of a broader, but still mild, recoveries in 2010 and 2011 .
But the path to full recovery is not clear in any way. The global economy is at some kind of tipping or inflection point, a moment of paradigm shift. If the Anglo-American model of finance capital is yet another god that failed, so too the alternatives: Japanese networked capitalism, Euro-dirigisme, or various strains of state capitalism have not been widely accepted.
Before the depth of the coming economic storm was clear, the BRICs were the sweethearts of the investment community. They were first lumped together in an influential Goldman Sachs research report in 2001. Goldman projected that their continuing GDP growth could be faster than the rest of the world, with the GDPs of China and India surpassing those of the major Western economic powers before the middle of the 21st century. To be sure, these “emerging markets” were not seen as without risk, but with their scale – large populations and records of substantial economic growth – they looked very attractive.
But there’s more to economic prowess than GDP statistics and stock market indices. This is not to gainsay the BRICs’ – especially China and India’s – economic momentum and remarkable development. Visitors to China cannot be but wowed by what metropolitan giants Beijing and Shanghai have become. India’s IT prowess dominates. But long term growth and economic leadership will ultimately have to be based on business environment basics. International metrics that go beyond GDP suggest the BRICs have a long way to go, and they're right.
For example, corruption, the acid that eats away at business confidence, rule of law and fair dealing. None of the BRICs rank very high in the 180-country survey published by Transparency International. Brazil and India come in at 80th and 85th place, roughly comparable to Burkina Faso, Saudi Arabia and Panama. Russia, unsurprisingly, is almost at the bottom, ranking 147th – Kenya and Syria being near them. China does best, at 72nd place – right down there with Mexico. And if the current murky scandal involving China’s steel industry which has ensnared executives from Australia’s Rio Tinto shows anything, it’s that corruption and the opacity of China’s legal system can rust business confidence away.
If there’s corruption, then it’s not so easy to do business there, as there is no way of doing business in a predictable manner. The World Bank studies “the ease of doing business” in 181 countries. Brazil, Russia and India stand between 120 to 125 in those tables. China comes in somewhat better, in 83rd place – a little higher than Belarus, a little lower than Kenya. The most difficult issues? Dealing with the local authorities in Russia and China; enforcing contracts in India’s clogged legal system, and, interestingly enough, taxes in Brazil.
And if social stability is a metric, then the fires that have fueled tragic communal violence in India and, more recently, China (which also suffers from tens of thousands “mass incidents” of citizens protesting corruption) have to be a concern. You don’t push too hard against entrenched interests in Russia, where arbitrary arrest and even murder can be the outcome.
Should we really be surprised? From these points of view, the BRICs don’t look that strong. These countries are all, in one way or another, still developing. Brazil, India and China have large problems of income distribution (more unequal than even the US), issues exacerbated by large but low productivity agricultural sectors and urban squalor. Brazil and Russia rank at midpoint in the 179 country United Nations’ Human Development Index; China is just slightly below and India, alas, is almost at the bottom. And Russia and China face demographic challenges. China is aging. Russia has even more severe population problems – it’s disappearing.
Having said that, we do have to remember the days of America and the wild west where very similar situations were part of the mix. The only difference was the strong Christian influence which helped temper much of this. The BRICs, in general, don't have that as part of the matrix, with the excpetion - to a small degree - of Brazil.
But could they be considered a bloc? Their economic, social and political systems differ considerably: Brazil’s economy is based on agriculture; India’s on services; Russia’s on price-sensitive energy resources, and China on manufactures for export. China and Russia have had problematic political relations; the disputed borders between China and India are still hot (and let’s not forget New Delhi’s concerns about the cozy relationship between Beijing and Islamabad). What do they share? Growth potential. And a desire to take the Yankee dollar down a peg. Is that sufficient to suggest that the answer to the world’s woes be found with the BRICs?
BRIC officials seem to think so. In the run up to the April 2009 G-20 meeting in London they pushed their own agenda, calling for new international finance rules, reform of the IMF and the World Bank, and resurrection of the Doha round. Overall, they are pushing for a multi-polar economic order, one less dominated by the US.
The Russians called for a new international currency backed by IMF SDRs (Special Drawing Rights) – an idea also picked up by Brazil and China. Indian Prime Minister Manmohan Singh said that the eyes of the world were on India in the “hope that India would be an engine of growth for the world economy.” Chinese officials touted their own “stimulus package” and quick action, noting the superiority of China’s command system “when it comes to making vital policy decisions.”
But at a “BRIC Summit” held in Yekaterinburg in July, there was less fire – a BRIC agenda did not surface. Still, the idea of a new international reserve currency hasn’t gone away. The problem there are the consequences of being a world reserve currency, which these countries probably aren't ready to, or willing to take on.
We raise these matters not to criticize the BRICs individually but rather to put a little realism into the crucial discussion of world economic recovery. First, they can hardly be considered a cohesive group. Second, sustainable leadership requires a sound business environment. On that score, the BRICs have a way to go.
To be sure, their equity markets seem to be doing well enough. But there’s more to an economy than GDP projections and speculative bets about the future of a few leading companies.
While some think the BRICs are overly hyped, I don't think that's the case in the long term; with the possible exception of Russia. They will play a huge role the economics of the world, and if nothing else, the populations of China and India, along with their growing middle classes guarantee that.
BRIC Business News
Wednesday, August 5, 2009
Are BRIC Really Leading Recovery?
BRIC Markets Business
How a little time changes everything, as potential investment in China and Asia has swung from extremely negative sentiment to a huge emotional uplift as the Shanghai stock market index has exploded by over 90 percent so far in 2009. The influx of capital from brokerage firms into the market makes the rally unsustainable based on economics, as eventually the rally will correct, but in the meantime the rally has made people a lot of money.
For several years Beijing has been struggling to keep deflate and inflate its stock market, and unfortunately has been using the same misguided printing of money to cause inflation in the asset markets, but which inevitably inflate energy and consumer goods to the detriment of consumers.
Unbelievably, China's M2 money supply has been increasing by 28.5 a year, which could come back and haunt them before it's all over. Government-controlled banks have infused loans worth $1.2 tillion into the economy in attempts to stimulate growth. That's an extraordinary 25 percent of the overall Chinese economy.
All that could and eventually will burst from the artificially created market boom.
China has been buying up a huge amount of gold and the Shanghai gold market has benefited from it. China is now on track to overtake India as the leading consumer of gold in the world as it builds up its stockpiles. Rumors are the gold the IMF is ready to unload will be acquired by China over the years going forward.
China is also poised to increase gold output by 3 percent this year, bringing the total to about 290 tons. Even so, that's far below the 400 tons they consumed in 2008.
With that in mind, China could import even more gold over the next several months, of balance off the eventual gold correction to come.
Investors in the Shanghai market are counting on Beijing to inflate even more in the asset markets to balance things off with the gold.
The question is whether Beijing will continue to loan at the levels it did in the early part of 2009, as it could generate even more inflation that could harm consumers and make it difficult to live.
Much of the existing monetary policy from Beijing has been to shore up their regions which were hit hard by the drop in global trade and exports, as their stimulous plan focused primarily on infrastructure projects.
Growth for Chinese corporate earnings are of majore importance, with the Shanghai stock index soaring higher in bubble territory. Massive industrial companies in 22 Chinese provinces saw their profits plunge -21.2% in the first half to 894.14 billion yuan, but the fall was less from the first quarter’s 32% slide, and now, “less bad,” means signs of a recovery.
Best case scenarios are growth rates in the Chinese industrial sector to reach 30 percent for the fourth quarter because of the government insertion of cash.
That's probably going to be far from the reality though as China’s Bank of Communications a more healthy, but significant growth rate of over 9 percent for the third quarter and close to 10 percent for the fourth quarter.
Surging markets in China are helping hold up the BRIC nations, including Brazil, India, and Russia, which have the four best performing stock markets this year. Brazil’s Bovespa Index has grown by 79%, India’s Sensex Index is up 63%, and Russia’s RTS Index has surged by 62-percent. The S&P-500 Index by comparison, is up 9.4% this year, while Japan’s Nikkei-225 index is up 7.5-percent.
The ongoing strength of China’s economy has brought back the de-coupling debate, which hinges on the theory that the emerging economies in Brazil, Russia, India, China, (BRIC) can continue to grow in regardless of the declining G-7 economies. The so-called BRIC countries accounted for half of global growth in 2008 - China alone accounted for a quarter, and Brazil, India, and Russia combined equaled another quarter. BRIC has accounted for over 90% of the rise in consumption of energy products and metals, and 80% of grains since 2002.
The cycle of events are now swinging back in Russia’s favor, as global speculators flock back into hard-hit resource shares trading in Moscow. Russia’s central bank slashed its main interest rates for the fourth time in less than three-months, after Moscow said the local economy contracted an annual 10.2% in the January-May period.
The Russian rouble has rebounded 16% against the US-dollar, since the first quarter, as Urals blend crude oil has gained close to $70 a barrel, and base metals inceased much higher, boosting demand for Russia’s currency, a world leader in commodity exports. Russia is the world’s second-largest oil exporter behind Saudi Arabia, and supplies a quarter of Europe’s natural gas needs. Russia is also the world’s largest nickel and palladium miner, the second largest platinum miner, and the fourth-largest iron ore miner, behind Brazil, Australia, and India.
After reaching a record high of $597-billion last August, Moscow’s foreign currency reserves were depleted in a major way during the second-half of 2008, as the central bank spent more than $200-billion shoring up the Russian rouble and strengthing the capital position of domestic banks. This year’s uptick in Urals blend crude oil has improved the Kremlin’s coffers, to the tune of $404-billion today. China, the world’s second-largest oil guzzler, imported 3.83-million barrels per day in July, or 25% more than a year earlier, the fastest pace in close to two years.
The BRIC nations are having second thoughts on how their US-dollar currency reserves are managed, underscoring a power shift from the United States, which sparked the global financial crisis. Russian chief Dmitry Medvedev has repeatedly questioned the US-dollar’s future as a global reserve currency. China is allowing companies in its southern provinces of Yunnan and Guangxi to use yuan to settle cross-border trade with Hong Kong and Southeast Asia to reduce exposure to the US-dollar.
Reserve Bank of India chief Duvvuri Subbarao says India’s modest dependence on exports will help Asia’s third largest economy, to weather the “Great Recession” and even stage a modest recovery later this year. Even during the depths of the October massacre in the Bombay Sensex Index, India managed to retain a 5.3% growth rate in the fourth quarter, and India’s banking system had virtually no exposure to any kind of dangerous asset generated in the United States.
India’s factory output fell by 0.25% in January, the first decline this decade, and export earnings have dropped for six straight months. In January exports were 16% down from a year earlier falling to $12.3-billion. So the Reserve Bank of India battled to rescue the Bombay stock market, by cutting its lending rates six times from September thru April, by a total of 425-basis points.
The Indian Sensex index began to decouple from Wall Street and Tokyo in early May, after it rallied 14% for its biggest weekly gain since 1992, when Indian Prime Minister Manmohan Singh won a second term. Bombay stocks surged at the idea that Singh’s new government, shorn of Communists, would privatize up to $20-billion of state-owned assets, increase foreign investment in highly profitable crown jewel companies, begin deregulation of banking and financial services, and get rid of restrictions on the closing of factories.
India’s manufacturing sector, measured by the Purchasing Mgr’s Index, remained at a strong reading of 55.3 in July, or 2-points above China’s, implying a strong industrial recovery in the second half of this year. If the decoupling of China, India, Russia, and Brazil becomes a reality, it could be good for the developed G-7 nations, as growing wealth in BRIC nations could, in theory, increase demand for goods made in weakend nations like Japan, Germany, and the United States.
A decoupling between the emerging BRICK nations and the more developed G-7 economies would mean a huge shift in the global financial markets, away from the traditional pattern of emerging markets dancing to the tune of G-7 economies, which still account for 60% of global GDP. Instead, increasing independence could lead to a greater sphere of influence of the emerging giants, led by Beijing.
In the United States, Fed chief Bernanke is pumping a “bailout bubble” for Wall Street, similar to the policies of his mentor “Easy” Al Greenspan, who inflated the housing bubble, the sub-prime debt bubble, and the high-tech bubble. It’s a never ending cycle of boom-and-busts of bubbles, engineered by central banks. The revival of the “Commodity Super Cycle,” might already be already in motion, and if a global economic recovery gains traction, soaring input costs, would begin to crimp the profit margins of the giant Asian industrialists.
All the liquidity that’s been unleashed into the global banking system would play havoc with accelerating inflation. History shows that central banks won’t pre-empt inflation by withdrawing liquidity early. Instead, the money printers tend to inflate bubbles to dangerous proportions. Add to the mix, the vast leverage of the US-dollar and Japanese yen carry trades, it’s going to be a wild ride for the US Treasury bond market, which is increasingly dependent upon the whims of BRIC.
The many assertions about a turn around because of government interference and intervention around the world is a dangerous assumption to make, and it's far from certain that we're in a recovery of any sort at all.
But when a real recovery does come, the BRIC nations should be at the forefront of it.
BRIC Markets Business
How a little time changes everything, as potential investment in China and Asia has swung from extremely negative sentiment to a huge emotional uplift as the Shanghai stock market index has exploded by over 90 percent so far in 2009. The influx of capital from brokerage firms into the market makes the rally unsustainable based on economics, as eventually the rally will correct, but in the meantime the rally has made people a lot of money.
For several years Beijing has been struggling to keep deflate and inflate its stock market, and unfortunately has been using the same misguided printing of money to cause inflation in the asset markets, but which inevitably inflate energy and consumer goods to the detriment of consumers.
Unbelievably, China's M2 money supply has been increasing by 28.5 a year, which could come back and haunt them before it's all over. Government-controlled banks have infused loans worth $1.2 tillion into the economy in attempts to stimulate growth. That's an extraordinary 25 percent of the overall Chinese economy.
All that could and eventually will burst from the artificially created market boom.
China has been buying up a huge amount of gold and the Shanghai gold market has benefited from it. China is now on track to overtake India as the leading consumer of gold in the world as it builds up its stockpiles. Rumors are the gold the IMF is ready to unload will be acquired by China over the years going forward.
China is also poised to increase gold output by 3 percent this year, bringing the total to about 290 tons. Even so, that's far below the 400 tons they consumed in 2008.
With that in mind, China could import even more gold over the next several months, of balance off the eventual gold correction to come.
Investors in the Shanghai market are counting on Beijing to inflate even more in the asset markets to balance things off with the gold.
The question is whether Beijing will continue to loan at the levels it did in the early part of 2009, as it could generate even more inflation that could harm consumers and make it difficult to live.
Much of the existing monetary policy from Beijing has been to shore up their regions which were hit hard by the drop in global trade and exports, as their stimulous plan focused primarily on infrastructure projects.
Growth for Chinese corporate earnings are of majore importance, with the Shanghai stock index soaring higher in bubble territory. Massive industrial companies in 22 Chinese provinces saw their profits plunge -21.2% in the first half to 894.14 billion yuan, but the fall was less from the first quarter’s 32% slide, and now, “less bad,” means signs of a recovery.
Best case scenarios are growth rates in the Chinese industrial sector to reach 30 percent for the fourth quarter because of the government insertion of cash.
That's probably going to be far from the reality though as China’s Bank of Communications a more healthy, but significant growth rate of over 9 percent for the third quarter and close to 10 percent for the fourth quarter.
Surging markets in China are helping hold up the BRIC nations, including Brazil, India, and Russia, which have the four best performing stock markets this year. Brazil’s Bovespa Index has grown by 79%, India’s Sensex Index is up 63%, and Russia’s RTS Index has surged by 62-percent. The S&P-500 Index by comparison, is up 9.4% this year, while Japan’s Nikkei-225 index is up 7.5-percent.
The ongoing strength of China’s economy has brought back the de-coupling debate, which hinges on the theory that the emerging economies in Brazil, Russia, India, China, (BRIC) can continue to grow in regardless of the declining G-7 economies. The so-called BRIC countries accounted for half of global growth in 2008 - China alone accounted for a quarter, and Brazil, India, and Russia combined equaled another quarter. BRIC has accounted for over 90% of the rise in consumption of energy products and metals, and 80% of grains since 2002.
The cycle of events are now swinging back in Russia’s favor, as global speculators flock back into hard-hit resource shares trading in Moscow. Russia’s central bank slashed its main interest rates for the fourth time in less than three-months, after Moscow said the local economy contracted an annual 10.2% in the January-May period.
The Russian rouble has rebounded 16% against the US-dollar, since the first quarter, as Urals blend crude oil has gained close to $70 a barrel, and base metals inceased much higher, boosting demand for Russia’s currency, a world leader in commodity exports. Russia is the world’s second-largest oil exporter behind Saudi Arabia, and supplies a quarter of Europe’s natural gas needs. Russia is also the world’s largest nickel and palladium miner, the second largest platinum miner, and the fourth-largest iron ore miner, behind Brazil, Australia, and India.
After reaching a record high of $597-billion last August, Moscow’s foreign currency reserves were depleted in a major way during the second-half of 2008, as the central bank spent more than $200-billion shoring up the Russian rouble and strengthing the capital position of domestic banks. This year’s uptick in Urals blend crude oil has improved the Kremlin’s coffers, to the tune of $404-billion today. China, the world’s second-largest oil guzzler, imported 3.83-million barrels per day in July, or 25% more than a year earlier, the fastest pace in close to two years.
The BRIC nations are having second thoughts on how their US-dollar currency reserves are managed, underscoring a power shift from the United States, which sparked the global financial crisis. Russian chief Dmitry Medvedev has repeatedly questioned the US-dollar’s future as a global reserve currency. China is allowing companies in its southern provinces of Yunnan and Guangxi to use yuan to settle cross-border trade with Hong Kong and Southeast Asia to reduce exposure to the US-dollar.
Reserve Bank of India chief Duvvuri Subbarao says India’s modest dependence on exports will help Asia’s third largest economy, to weather the “Great Recession” and even stage a modest recovery later this year. Even during the depths of the October massacre in the Bombay Sensex Index, India managed to retain a 5.3% growth rate in the fourth quarter, and India’s banking system had virtually no exposure to any kind of dangerous asset generated in the United States.
India’s factory output fell by 0.25% in January, the first decline this decade, and export earnings have dropped for six straight months. In January exports were 16% down from a year earlier falling to $12.3-billion. So the Reserve Bank of India battled to rescue the Bombay stock market, by cutting its lending rates six times from September thru April, by a total of 425-basis points.
The Indian Sensex index began to decouple from Wall Street and Tokyo in early May, after it rallied 14% for its biggest weekly gain since 1992, when Indian Prime Minister Manmohan Singh won a second term. Bombay stocks surged at the idea that Singh’s new government, shorn of Communists, would privatize up to $20-billion of state-owned assets, increase foreign investment in highly profitable crown jewel companies, begin deregulation of banking and financial services, and get rid of restrictions on the closing of factories.
India’s manufacturing sector, measured by the Purchasing Mgr’s Index, remained at a strong reading of 55.3 in July, or 2-points above China’s, implying a strong industrial recovery in the second half of this year. If the decoupling of China, India, Russia, and Brazil becomes a reality, it could be good for the developed G-7 nations, as growing wealth in BRIC nations could, in theory, increase demand for goods made in weakend nations like Japan, Germany, and the United States.
A decoupling between the emerging BRICK nations and the more developed G-7 economies would mean a huge shift in the global financial markets, away from the traditional pattern of emerging markets dancing to the tune of G-7 economies, which still account for 60% of global GDP. Instead, increasing independence could lead to a greater sphere of influence of the emerging giants, led by Beijing.
In the United States, Fed chief Bernanke is pumping a “bailout bubble” for Wall Street, similar to the policies of his mentor “Easy” Al Greenspan, who inflated the housing bubble, the sub-prime debt bubble, and the high-tech bubble. It’s a never ending cycle of boom-and-busts of bubbles, engineered by central banks. The revival of the “Commodity Super Cycle,” might already be already in motion, and if a global economic recovery gains traction, soaring input costs, would begin to crimp the profit margins of the giant Asian industrialists.
All the liquidity that’s been unleashed into the global banking system would play havoc with accelerating inflation. History shows that central banks won’t pre-empt inflation by withdrawing liquidity early. Instead, the money printers tend to inflate bubbles to dangerous proportions. Add to the mix, the vast leverage of the US-dollar and Japanese yen carry trades, it’s going to be a wild ride for the US Treasury bond market, which is increasingly dependent upon the whims of BRIC.
The many assertions about a turn around because of government interference and intervention around the world is a dangerous assumption to make, and it's far from certain that we're in a recovery of any sort at all.
But when a real recovery does come, the BRIC nations should be at the forefront of it.
BRIC Markets Business
Saturday, August 1, 2009
China, India Still Growing
Brazil and Russia slowing
BRIC is an acronym referring to the fast-growing developing economies of Brazil, Russia, India, and China. The acronym was first named and prominently used by Goldman Sachs in 2001. Goldman Sachs asserted that since they are developing quickly, by 2050 the combined economies of the BRICs could pass the combined economies of the current richest countries of the world. The four countries, combined, currently account for more than a quarter of the world's land area and over 40% of the world's population.
Goldman Sachs did not attempt to say that the BRICs would organize themselves into an economic bloc, or a formal trading association, rather that their combined growth would be substantial.
Even so, there are strong indications that the four BRIC countries have been seeking to form an 'alliance', and thereby converting their growing economic power into greater geopolitical clout because during the 21st century, success in global economy is judged by internal relations within like-minded groups for gains by collective bargaining. This has been easier said than done though.
On June 16, 2009, the leaders of the BRIC countries took part in their first summit in Yekaterinburg, in Russia and issued a declaration calling for the establishment of a multi-polar world order. The Foreign Ministers of the BRIC countries had met previously on May 16, 2008 also in Yekaterinburg. President Luiz Inácio Lula da Silva, President Dmitry Medvedev, Prime Minister Dr. Manmohan Singh, and President Hu Jintao, the respective leaders of Brazil, Russia, India and China, attended the summit.
The key focus of the summit was connected to improving the current global economic situation and discussing how the four countries can better work together in the future, as well as a more general push to reform financial institutions.
Remember that in last April in London, the G-20 leaders met in a summit. One of the decisions was the revamping of IMF and World Bank to ensure other nations are given greater influence and senior positions of IMF and World Bank will be open to candidates from the developing world.
There was also discussion surrounding how developing nations, such as those members of BRIC, could be better involved in global affairs in the future. In the aftermath of the summit the BRIC nations suggested that there was a need for a new global reserve currency that is 'diversified, stable and predictable,' although it would be a huge burden, gamble and risk for any country to do that in the near future.
The statement that was released stopped short of making a direct attack on the perceived 'dominance' of the US dollar, something which the Russians have been critical of. However, it still led to a fall in the value of the dollar against other major currencies.
One week prior to the summit, Brazil offered $10 billion to the International Monetary Fund. It was the first time that the country had ever made such a loan.
Brazil had previously received loans from the IMF and this announcement was treated as a significant demonstration of how Brazil's economic position has changed. China also announced plans to invest a total of $50 billion and Russia planned to invest $10 billion.
BRIC countries are future growth engines of the world. These countries are emerging more quickly than most nations from the global economic crisis.
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, other fossil fuels, and uranium 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.
Though the BRIC countries have their differences, there are some who believe that this new bloc can play a major role in international arena. The importance of this should be perceived because of the reality that the world's largest growing economies got together on the same platform and discussed their respective concerns.
An interesting reality is that the world is neither dominated by a uni-polar power nor multi-polar powers. Currently we live in a non-polar world and the balance of power is going through a time of change.
The fact is the world itself is in transition. The world has changed since 1945, when Big-2 (US and UK) used to decide the fate of the free world. By the end of 20th century, Big -2 became G-7, then-G-8 only to be replaced by G-20 by the 21st century.
Things are going to be a lot different even 10 years from now with the emerging BRIC economies moving forward.
Brazil and Russia slowing
BRIC is an acronym referring to the fast-growing developing economies of Brazil, Russia, India, and China. The acronym was first named and prominently used by Goldman Sachs in 2001. Goldman Sachs asserted that since they are developing quickly, by 2050 the combined economies of the BRICs could pass the combined economies of the current richest countries of the world. The four countries, combined, currently account for more than a quarter of the world's land area and over 40% of the world's population.
Goldman Sachs did not attempt to say that the BRICs would organize themselves into an economic bloc, or a formal trading association, rather that their combined growth would be substantial.
Even so, there are strong indications that the four BRIC countries have been seeking to form an 'alliance', and thereby converting their growing economic power into greater geopolitical clout because during the 21st century, success in global economy is judged by internal relations within like-minded groups for gains by collective bargaining. This has been easier said than done though.
On June 16, 2009, the leaders of the BRIC countries took part in their first summit in Yekaterinburg, in Russia and issued a declaration calling for the establishment of a multi-polar world order. The Foreign Ministers of the BRIC countries had met previously on May 16, 2008 also in Yekaterinburg. President Luiz Inácio Lula da Silva, President Dmitry Medvedev, Prime Minister Dr. Manmohan Singh, and President Hu Jintao, the respective leaders of Brazil, Russia, India and China, attended the summit.
The key focus of the summit was connected to improving the current global economic situation and discussing how the four countries can better work together in the future, as well as a more general push to reform financial institutions.
Remember that in last April in London, the G-20 leaders met in a summit. One of the decisions was the revamping of IMF and World Bank to ensure other nations are given greater influence and senior positions of IMF and World Bank will be open to candidates from the developing world.
There was also discussion surrounding how developing nations, such as those members of BRIC, could be better involved in global affairs in the future. In the aftermath of the summit the BRIC nations suggested that there was a need for a new global reserve currency that is 'diversified, stable and predictable,' although it would be a huge burden, gamble and risk for any country to do that in the near future.
The statement that was released stopped short of making a direct attack on the perceived 'dominance' of the US dollar, something which the Russians have been critical of. However, it still led to a fall in the value of the dollar against other major currencies.
One week prior to the summit, Brazil offered $10 billion to the International Monetary Fund. It was the first time that the country had ever made such a loan.
Brazil had previously received loans from the IMF and this announcement was treated as a significant demonstration of how Brazil's economic position has changed. China also announced plans to invest a total of $50 billion and Russia planned to invest $10 billion.
BRIC countries are future growth engines of the world. These countries are emerging more quickly than most nations from the global economic crisis.
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, other fossil fuels, and uranium 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.
Though the BRIC countries have their differences, there are some who believe that this new bloc can play a major role in international arena. The importance of this should be perceived because of the reality that the world's largest growing economies got together on the same platform and discussed their respective concerns.
An interesting reality is that the world is neither dominated by a uni-polar power nor multi-polar powers. Currently we live in a non-polar world and the balance of power is going through a time of change.
The fact is the world itself is in transition. The world has changed since 1945, when Big-2 (US and UK) used to decide the fate of the free world. By the end of 20th century, Big -2 became G-7, then-G-8 only to be replaced by G-20 by the 21st century.
Things are going to be a lot different even 10 years from now with the emerging BRIC economies moving forward.
Brazil and Russia slowing
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