Future of the BRICS

Speculation is rife about the BRICS’ future and their sustainability and many western observers are already writing its obituary. The latest news about Brazil’s economy contracting by 3.8 per cent and the impending impeachment of its President Dilma Rousseff is another dark spot in the state of affairs of the BRICS.

When the four Emerging countries — Brazil, Russia, India and China  — met in 2006 at the margin of the UN General Assembly, a lot of western countries displayed skepticism about such a grouping because of the distance between the members and the lack of commonality. Yet the group has been meeting since 2009 with South Africa joining in 2011 and BRICS seemingly is going strong. It poses a direct challenge to the G 7 — the dominant industrialized countries’ group comprising of US, Canada, Japan, Germany, Italy, France and UK.

BRICS has strength in terms of size, population and resources and its combined GDP is $16 trillion.  Yet four out of the five members are facing grave economic problems mainly due to the sharp fall in commodity prices which have affected three members very badly.

China, the star performer in terms of economic growth in the world, has slowed down which seems natural because it is not possible for any country to have double digit growth for 30 years. China is still growing at 6.7 per cent and its retail and international trade are now picking up. Russia has temporarily got a setback due to the fall in oil prices as oil remains its main export accounting for 68 percent of its total exports.  Russia is the only developed country among the BRICS and will surely recover in the future from its economic problems. Its huge oil and mineral deposits and $ 379 billion in foreign exchange and gold reserves plus the advances it has made in science and technology over the last hundred years remain its main assets. Russia will always be among the world’s greatest technological and military powers.

Similarly, Brazil with its huge natural resources is a country with a future. It has temporarily fallen into hard times due to corruption and mismanagement of state finances by its president who is accused of manipulating them to cover up the budget deficit. But Brazil’s Bolsa Familia scheme has raised millions out of poverty and ought to be emulated by India.

China’s clout is not going to be diminished in the future either because of its huge military might. Its economy is still robust with huge investments in infrastructure and it has an educated and skilled work force which will remain attractive to foreign investors. China has foreign exchange reserve at $3.21 trillion, the highest in the world. It also holds $1.23 trillion of US Treasury Bonds and it can easily destabilize the dollar by dumping the Treasury bonds in the market. China is deliberately slowing down but its lower demand for raw materials is causing trouble for developing countries’ exports.

China’s investment in Brazil’s infrastructure is $50 billion and China is the most important investor in African countries. China’s Yuan is going to be included in the IMF’s SDR— the Special Drawing Rights which have the dollar, Yen, Euro and British Pound as the reserve currency. Yuan will also be one of the most important currencies in the world in which governments from all over the world can park their wealth. This was done in recognition by the IMF last year of China’s growing clout in global trade and investment.

South Africa is also a laggard and its economic growth is forecast to grow only at 0.9 per cent in 2016. The economy under President Jacob Zuma has suffered a big setback due to fall in commodity prices but also due to rampant corruption charges and rising inflation. There is high unemployment at 25 per cent and farmers are facing the worst drought of the century. South Africa is rich in minerals and has the advantage of being a multiracial middle income country.

The BRICS New Development Bank has started functioning in Shanghai and according to its head K.V Kamath, loans amounting to $811 million have been disbursed to all the BRICS countries in the first round of Green Energy loans. India’s Canara Bank has received $250 million for green infrastructural development projects. Giving untied loans to smaller developing countries in the future for infrastructure development is the mandate of the BRICS’ NDB.

India’s economy is indeed shining by comparison. It is growing at 7.5 per cent and is likely to grow at a higher rate if the monsoons are good. There are, however, a number of fronts to watch out for especially agriculture and manufacturing growth which remain areas of concern. Another problem would be inflation creeping back specially the Consumer Price or retail inflation due to drought. Like Brazil and South Africa, providing jobs for the youth is going to be tough for the Indian government. India’s investment in skill development is going to be important to enable the youth find jobs.

India is going to host the BRICS conference in Goa in October 2016 as the Chair of the group. There is no doubt that Prime Minister Modi’s agenda for furthering BRICS’ unity and cementing closer ties with each other will be taken forward. He already has outlined 10 ways in which BRICS can be strengthened in BRICS’ meeting in Ufa last year and these include cooperation in railways research, digital technology, agricultural research, auditing, holding trade fairs, film festivals etc. This agenda should be followed and not diluted.

The western world sees BRICS’ problems today as insurmountable which will lead to their crumbling down. But BRICS’ agenda of offering developing countries an alternative to their borrowing from the Bretton Woods institutions – the World Bank and the IMF — will remain most important in the future. After the TTP, signed between the rich developed countries and with no BRICS member in it, BRICS should make efforts in forming a competitive trade bloc. Under India’s leadership, BRICS may get a new lease of life at the forthcoming Goa summit in October (15-16).

This commentary originally appeared in The Tribune.

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Jayshree Sengupta