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BUILDING BRICS BY BRICS

While publishing the paper Building Better Global Economic Brics, Jim ONeill
knew full well that the BRIC countries (along with South Africa, added later) would be the
economic leaders of the future and the world would no longer rest in the sole hands of the USA.
But all these countries did not have a glorious past. Brazil, in 1989, just after suffering
through an endless period of stagnation, inflation and crisis, emerged out of cloud of the military
rule which was not letting the country rise ahead. Even after that, the leadership of Fernando
Collor went haywire and Brazil was still struggling to claw its way out of the economic crisis it
was facing.
After its independence from 200 years of British Rule in 1947, India was still battling
with the economic woes and was trying to establish itself in the world. It was not until 1991, that
India saw unprecedented economic growth, when liberalization reforms were introduced by Dr.
Manmohan Singh. This ended the License Raj and thus opened a whole new door of
opportunities for India.
China, on the other hand had great and efficient leaders. Jiang Zemin, Li Peng and Zhu
Rongji ,in the nineties. And under their administration, around 150 million peasants were pulled
out of poverty and China was already seeing an economic growth of 11.2%.
Russia, on the other hand, was having huge debts, high budget deficit during the late
nineties. The 1998 Russian Financial Crisis further declined the GDP of the country and the
economy was slipping into a doom. But in the next year itself, Russia saw Vladimir Putin as its
President who vowed to regain his countrys power and prestige.
The below table summarizes the above facts and shows how the GDP of the four
countries fared in the years 1998 and 1999.
Gross Domestic Product (in millions)

Brazil
Russia
India
China
$844,12
1998
6
$271,038
$429,366
$1,019,480
$586,92
1999
2
$195,907
$464,504
$1,083,284
So we can see that these countries seem to be so different, so disparate, separated
geographically and culturally, they never conceived themselves as a unit. Yet what they all
shared in the late 90s were large populations, underdeveloped economies and governments that
appeared willing to embrace global markets and some elements of globalization. To ONeill,
these characteristics made them natural sisters: they all had the potential for rapid future
growth. In 2001,he analyzed the emergence of these four economies and speculated that by 2050
their economies would surpass the G7 economies. Was that vision really true? Let us see some
facts and then we can come to some conclusion.

In 2001, China continued to increase its growth and joined World Trade
Organization. State-owned newspaper Peoples daily declared This is a historic moment in
Chinas reform and opening up and process of modernization. China was moving beyond its
established low wages sectors and was on its way to become a leading industrial powerhouse by
the increasingly sophisticated production of computers, pharmaceuticals and automobiles.
India too was not far behind. After the liberalization reforms of 1991, India began
carving its path in its economic reforms. The reforms allowed automatic approval for foreign
direct investment in many sectors. By the advent of the 21 st century, India had progressed
towards a free-market economy, with a substantial reduction in state control of the economy and
increased financial liberalization. With 190% percent rise in its stock market(2001-2005), India
was one of the fastest growing countries with an average growth rate of about 9% in the period
2003-2007.
Russia bounced back from the 1998 financial crisis under the leadership of Putin.
The domestic industries gained at a national as well as an international level due to the
devaluation of rouble. Deregulation policies also assisted in the Russian reform; the tax reform
helped bring more capital to the government. After 2000 until the global recession, Russia came
out with flying colors. Its GDP grew at a rate of 7% until 2008 ; its stock market increased upto
761% from 2001 to 2005. There was a boom in private consumption and the number of people
below poverty line reduced drastically from 30% in 2000 to 14% in 2008. In 2007 the World
Bank declared that the Russian economy achieved "unprecedented macroeconomic stability.
Russia had indeed come out of its economic doom in a very impressive manner.
Luiz Inacio Lula da Silva undertook the responsibility of pulling Brazil out of its
economic darkness. Lula renewed the agreements with the IMF(International Monetary Fund),
which infused money into the Brazilian market. Brazil slowly, but steadily was growing into one
of the largest economies of the world under Lulas government. Growth Acceleration Program,
was one of the programs initiated by Lula, and there were many other such programs which led
Brazil to the position where it is today. "Under Lula, Brazil became the world's eighth-largest
economy, more than 20 million people rose out of acute poverty." The Washington Post,
October 2010.

The table gives us the GDP and other measures of the development of the BRICs
in 2009 and thus substantiates the information written above.

BRICS:
Finally the vision of ONeill did come true! All these four countries had the power
of emergence and they did emerge out to be some of the fastest growing economies of the world.
All these four countries came together and joined hands in 2006 to realize the vision of Jim
ONeill. They had a series of meetings to bolster their relations until in 2009, the first formal
BRIC summit happened at Yekaterinburg. After this, there was no looking back. In 2010, South
Africa was invited to join the group and it was thus renamed BRICS.
South Africa too was very much similar in its growth story with the other four
BRIC countries. After 1994, there were changes in the government policies, which infused
growth and capital into the South African market, as a result of which inflation came down, and
public finances were stabilized. South Africa found itself to be a major tourist hotspot, and
through that it earns its major revenues.
Until 2014, there have been 6 BRICS summits. BRICS summits are the annual
diplomatic meetings where all the country leaders come over a single platform to discuss their
future developments for the BRICS countries.
In the last summit held in Brazil in Jul 2014, New Development Bank was
officially inaugurated with Shanghai as its headquarters. This step would change the groups
participation in the World Bank decision making system and would reduce dependency on the
US dollar by strengthening the international law.
The international monetary system itself depends a lot on the US dollar, or, to be precise, on the
monetary and financial policy of the US authorities. The BRICS countries want to change this.
Vladimir Putin, Russia: RT. 16 July 2014.

Reasons why BRICS would grow further


At present, the BRICS countries represent

3 billion people (40% of the world population)

a combined nominal GDP of $16.039 trillion (20% of world GDP)

$4 trillion n combined foreign reserves

18% of the world economy

BRICS would continue to demonstrate this growth because of several contributing factors which
can be summarized as follows:

Science and Technology: From 2002 to 2007, India, Brazil and China have
doubled their spending on research, and their collective share of global R&D has
increased from 17 to 24 %. This would lead to new ideas and innovation of the
BRICS industries.

Growing BRIC Middle Class: The rapid growth and demographics of India and
China have given rise to a huge middle class, which would drive the BRICS
economic development and expansion of the global economy. The below graph
shows us how the BRICs middle class would outrace that in the G7 countries.

Figure: Middle Class of BRICs and G7


countries

Economic Development: With improved education and infrastructure, huge labor


availability, financial market development, easing government policies,
technological readiness, increasing market size, better trade opportunities, the
BRICS countries have immense growth opportunities; they have to make full out
of it. China has already dethroned Germany to be the second largest economy in
the world after USA. Others in the group just need to follow the same path and
prove ONeills vision true.
In order to continue with their economic growth, the BRICS
countries should focus on the various obstacles they are facing currently: Access
to Financing, Inadequate Infrastructure, Inefficient government, Bureaucracy,
Corruption and many such issues. If they tread carefully on their current path, that
day is not far when BRICS would be the future US of the world.

References:

http://www.marketwatch.com/story/brics-nations-slowly-creating-a-new-powercenter-2013-04-01
http://www.globalsherpa.org/bric-countries-brics
http://www.asiapathways-adbi.org/2013/06/how-sustainable-are-the-bricseconomic-and-social-policies/ and www.wikipedia.org