Since Jim O'Neill coined the phrase BRIC in 2001, the grouping has come a long way, from being formalised in 2009 to the incorporation of South Africa. Today, BRICS (Brazil, Russia, India; China and South Africa) is a formidable economic and political force to reckon with. The high economic growth of BRICS economies and the natural demographic dividend of the BRICS are signs that a structural edge relative to the rest of the world rests with the BRICS. The BRICS countries collectively represent almost 3 billion people (43 per cent of world population) which a combined nominal GDP of $14.8 trillion (about a quarter of global income), 17 per cent of World Trade, and an estimated $ 4 trillion in combined foreign reserves. They occupy 20 per cent of world territory and over the last 10 years, their aggregate income has more than quadrupled
1 . but as it stands today, BRICS countries seem to have lost steam along the way. While a long term potential to drive back into the stable high growth trajectory is not ruled out, as of now, there is sufficient reason to worry vis-à-vis BRICS.
Compared to the developed West, the BRICS economies have been performing badly in the last one year or so. The developed world, which comes with a history of high growth, seems to be on a slow path to recovery, even as growth plummets in the BRICS economies. While in terms of GDP growth rates, BRICS are still growing faster than the West, the BRICS graph is on a downward path.
First the growth figures. Whereas China has grown at more than 10%, reaching a high of 14% a few years ago, for the last three decades, its growth rate fell to below 8 percent last year on the back of slowing exports. India's growth scenario is bleak, with the government scrambling to make it to moderate 5%, while Brazil's growth fell from a high of 6% to 2.5% recently. South Africa and Russia registered growth rates of 1.9% and 1.3% respectively during 2013.
Three of the BRICS economies - Brazil, India and South Africa - are now part of what has come to be known as the 'Fragile Five' who share with each other macro-economic weaknesses such as large current account and fiscal deficits, and rising inflation coupled with political uncertainty. Back home, with general elections around the corner and anti-incumbency at an all time high, investor confidence has hit rock bottom, economic growth has fallen, investments have stalled, inflation has remained stubbornly above comfort levels and interest rates have gone up periodically. China, on its part, is on a path of growth that is unsustainable as debt fueled; export-led growth has ended up with huge public debt and an unhealthy dependence on world demand. Add to that corruption at local levels and rising social tensions, increasingly difficult to manage in an era of social media. And now that Russia is embroiled with Ukraine in a diplomatic tussle of great proportions, impending EU and US sanctions might hurt its energy sector and the economy at large. Brazil's mineral extraction industry on the other hand is disproportionately dependent on external demand and thus its growth is volatile in its very nature.
Truth is that the BRICS economies somehow found themselves in a comfortable arrangement during their heydays where high Chinese growth and consumption fueled great demand for commodities and major commodity exporters like Russia (energy), Brazil (minerals, agricultural products) and South Africa (raw materials) tapped into this demand to ride high on the back of primary-exports led growth. Chinese import from BRICS partners have gone up manifold over the years and while it is a sign of intra-BRICS trade going up, it also signals profound China-centrism and China-dependence, which, as it has been manifest already, is a flawed path to growth. The boom years eventually led to the end of the commodity cycle as it were, leaving other BRICS economies in the lurch.
Second, it seems that the good performance of BRICS was a byproduct of, or a result of, Western relative underperformance. For instance, after years of continued investor faith in the developing economies, all it took for investors to flock back to US markets was the Fed announcement that the Quantitative Easing would be tapered. As for the real economy, recent manufacturing PMI data from EU and UK showed not just a growth in recovery in the region but a parallel slowdown in China, where output fell to a seven-month low. French and German manufacturing output on the other hand registered strong growth, suggesting that they are on road to recovery, however patchy. India's industrial sector on the other hand is battling a horrible slowdown. Its gross fixed capital formation growth of 0.7% between April-September 2013 coupled with an abysmally low IIP (Index of Industrial Production) growth of 0.1% in January 2014, after registering a 20-year low in average IIP growth as of March 2013, points to the fact that the economy has almost come to grinding halt.
The premise on which BRICS was instituted was that it would be positioned as a viable alternative to the West in an increasingly multi-polar world, less and less dominated by the West. But while there has been some geopolitical solidarity in the recent past amongst BRICS countries, to continue to be relevant, it must continue to perform well on the economic front. Already newer formations like MINT (Mexico, Indonesia, Nigeria, Turkey) seem to be catching investor, academic and policymaker attention, while Philippines is keenly watched for its curiously high growth rates.
While BRICS economies continue to grow at a pace far more rapid than the Western countries, they need to sustain high growth not just to ensure social gains within these countries in the form of poverty reduction, welfare programmes, and most important of all, providing employment, but also in a bid not to lose relevance in an era of fast changing investment priorities.
The BRICS cornered 22% of global FDI inflows in 2013, which was higher than the share in 2012, indicating that the salience of the group as a major area of transnational economic activity is intact. But things could head the opposite direction anytime. While the BRICS constitute 40% of the global population and more than a quarter of global output, the real picture also includes a rising socially conscious middle class, growing inequality, political instability and economic volatility. There is a need to fix the BRICS, by altering growth strategies, reducing external dependence, securing domestic demand and investments, providing jobs to the unemployed, and aiming at lowering untenable inequality.
1. "On the BRICS of Collapse? Paper prepared by the Centre for the Study of Governance Innovation , Pretoria, South Africa.,
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