Rise of a Global Economic Super-Power: BRIC (Brazil, Russia, India, China)? (major emerging global markets or new world order?)

The term “BRIC” coined by Jim O’Neill at Goldman Sachs, represents the economies of Brazil, Russia, India and China combined. The term was first used in a Goldman Sachs Research Report titled “Dreaming with BRICs: The Path to 2050” and it argued that by 2050 the combined economies of the BRICs could eclipse 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 more than 40% of the world’s population and hold a combined GDP of 18.486 trillion dollars. On almost every scale, they would be the largest entity on the global stage. And, most important, these four countries are among the biggest and fastest growing emerging markets.

The size of China’s economy overtook Germany’s economy in 2007 and  Japan’s in 2010. Goldman Sachs now believes that the Chinese economy will overtake the United States by 2027. The latest prediction by Standard Chartered Plc. says China will overtake the U.S. to become the world’s largest economy by 2020. And then China’s economy will be twice as large as the U.S. by 2030 and account for 24 percent of global output, up from 9 percent in 2010. The BRIC countries have reached these levels of economic growth by simultaneously stressing education, foreign investment, domestic consumption, and domestic entrepreneurship…

In the article “Build Your Fortune BRIC by BRIC” by Nicholas A. Vardy in The Global Guru, writes: By dint of their sheer size and population — and their collective decision to embrace their own particular brand of capitalism — BRICs are the economic future of the world….today they already account for a combined GDP of $15.435 trillion dollars on a purchasing power basis. By that measure, they are already collectively larger than the United States.

However, BRICs have to get a lot of things right in order to imitate the success of Japan, Germany and South Korea. Potential problems include China’s oppressive regime, India’s choking bureaucracy, Brazil’s history of policy flip-flops and Russia’s gangster capitalism… These economies are collectively already about 15% bigger than the United States; however, the U.S. GDP ($14 trillion) is almost 40% larger than all four combined ($8.6 trillion). Using real GDP, the average American is almost 15 times richer than the BRIC counterpart…

BRIC is now BRICS: In 2010 South Africa was invited to join the group and so the acronym BRICS. South Africa despite lagging behind the other members in terms of economic growth became the first African country to be admitted to BRIC. According to a paper published in 2005, Mexico and South Korea are the only other countries comparable to the BRIC, but their economies were excluded initially because they were considered already more developed and they are members of the Organization for Economic Co-operation and Development (OECD).

In the article “BRIC becomes BRICS” by JP van der Merwe, analyst writes: Key factor for South Africa’s elevation to the BRIC group is South Africa’s prominence within the Southern African Development Community (SADC). South Africa is undoubtedly the most influential member of the SADC group and with this regional bloc come a large market of just over 250 million people. Brazil, Russia, India and China no doubt recognize the potential of this region and see South Africa as the key in tapping into this large market…

In the articleSouth Korea Better BRIC Candidate than South Africa by Nasreen Seria, Goldman Sachs, writes: South Korea’s economy and growth forecast make it a stronger candidate than South Africa to join the BRIC group of major emerging markets… South Korea, Indonesia, Mexico and Turkey are “growth economies” because they each account for about 1 percent of global gross domestic product…

South Africa’s economy of $285 billion compares with South Korea’s $833 billion, Turkey’s $615 billion and Mexico’s $875 billion, according to World Bank data…Goldman Sachs identifies 11 emerging markets — Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam — that have fast-growing populations and the economic potential of the BRIC countries…

In the article “Building a BRIC Foundation” by Roya Wolverson writes: Just how deep the ties can be between the BRICs is a matter of debate. Many analysts have noted the roadblocks to the group establishing the “common goals, common actions” touted by Russian President Dmitry Medvedev in Russia’s Vedomosti. Anders Aslund of the Peterson Institute says the BRICs have “made sense for a decade as an investment theme,” but that differences between Russia’s foreign policy and that of other BRICs could make consensus unlikely.

Other experts are also skeptical that the BRICs can resolve their differences. The Carnegie Endowment’s Uri Dadush says; intransigence over China and India’s ongoing border dispute and a history of competition between China and Russia could be insurmountable obstacles. “I don’t see it as a cohesive group that will be there pushing issues together fifteen to twenty years from now,” he told CFR.org.

In the article “How BRIC Innovators Will Defeat You” by Michael Schrage writes: The most striking sign of the BRICs’ significance to the world economy is their share of foreign-exchange reserves. All four are among the ten largest accumulators of reserves, accounting for 40% of the world’s total. China is easily the largest, with a staggering $2.4 trillion, enough to buy two-thirds of all the NASDAQ-quoted companies. It is the world’s second-largest net creditor after Japan. Russia’s foreign-exchange reserves were virtually zero when it began market reform in 1992; now they stand at $420 billion. If the BRICs were to set aside one-sixth of their reserves, they could create a fund the size of the IMF.

In the article “Busting the Brazil/Russia/India/China (BRIC) Myth of Challenging U.S. Global Leadership” by ArielCohen, PhD, Lisa Curtis , Derek Scissors, PhD, and Ray Walser, PhD write: Major myth is that BRIC Economies Are Eclipsing the U.S.: The International Monetary Fund estimates that the BRICs collectively are about 15 percent bigger than the U.S. Using standard GDP, however, the U.S. ($14 trillion) is more than 60 percent larger than all four BRICs combined ($8.6 trillion).

The BRICs combine for about 15 percent of the world’s economy, while the U.S. alone accounts for almost 25 percent.  On a per capita basis, the results are even more disparate. Adjusting for purchasing power, a U.S. citizen has almost eight times greater than the average BRIC citizen, and using standard GDP that number increases to almost 15 times.

In the article “Are BRIC Countries a Threat to the Dollar Standard?” by Ivan Martchev writes: As long as China keeps its currency pegged to the U.S. dollar, it won’t make a huge difference. However, once the Chinese currency is allowed to float freely and the Chinese remove numerous capital controls will the yuan become a threat to the dollar standard. When that happens, the problematic currencies of the West are likely to experience notable declines against the current BRIC currencies. The main beneficiary will be gold bullion, which has steadfastly refused to decline despite the dollar’s rally, and has been making all-time highs in euro terms. Assets dominated in BRIC currencies will also get a boost in value.

In the article “Taking the ‘R’ out of BRIC: How the Economic Downturn Exposed Russia’s Weaknesses” by Knowledge@Wharton writes:  Goldman Sachs in a follow-up report, put forward its so-called “N11” — or Next 11 — group of BRIC aspirants, including Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam.  But now many experts question whether the once promising BRIC label has begun to lose its luster — especially in the case of Russia.

Russia has done poorly as compared with its BRIC counterparts, as well as other oil-rich emerging economies due to “a combination of corruption, poor governance, government interference in the private sector, and insufficient investment in the oil and gas sector,” says Kalish. These problems and others — such as erosion of civil liberties — will continue to stymie growth unless they are tackled aggressively, according to experts…

In the article “In the Goodbye BRIC, Hello BIIC?” writes: Indonesia, the world’s fourth-most-populous country and largest Muslim democracy, and in the latest Global Competitiveness Report ranked Indonesia 44th out of 139 countries—up from No. 54 the prior year. (Russia came in at No. 63).  Economist Nouriel Roubini of New York University has argued that Indonesia should replace Russia in the bloc. “From an American perspective,” he wrote last year in a column, “Indonesia is an attractive alternative to Russia… Russia’s inability to develop into a mature economy has prompted calls  for the country’s removal from the BRIC group…

In the article “The Fifth BRIC” by Rob Marstrand writes: Think of Indonesia as the “fifth BRIC.” According to The Economist, Indonesian GDP will grow by 5.9% next year. That’s almost three times the World Bank’s 2.4% estimate for the developed economies. More important, this growth is being driven by the private sector, not by government spending. In Indonesia, the private sector accounts for roughly 90% GDP. The bulk of exports (89%) go to Asian nations. Despite this income growth, Indonesia still has the lowest unit labor costs in the Asia-Pacific region. This has attracted manufacturing activities from China. Employment growth is critical, because half of Indonesia’s population is 25 years old or younger…

As David Rothkopf wrote in Foreign Policy, “Without China, the BRICs are just the BRI, a bland, soft cheese that is primarily known for the whine that goes with it. China is the muscle of the group… They have effective veto power over any BRIC initiatives because without them, who cares really? They are the one with the big reserves and the biggest potential market. Deutsche Bank Research said in a report that “economically, financially and politically, China overshadows and will continue to overshadow the other BRICs…

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 unrealized potential has been widely recognized, but some commentators state that China’s and Russia’s large-scale disregard for human rights and democracy could be a problem in the future. There is also the possibility of conflict over Taiwan in the case of China and other smaller democracies that lie in the vicinity…

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 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). “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”)…

While acknowledging the significant risks in investing in emerging nations: “The emerging nations . . . represent the most promising markets for the next decades . . . Paced by superior economic growth rates and fundamentally attractive resources and opportunities, emerging nations appear poised to shake up the established order in the world’s markets…”