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Brics Countries

In: Business and Management

Submitted By egm108
Words 3555
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TABLE OF CONTENTS

Definition of BRICS 2 A Brief History 2 BRICS Goals 3

First Declaration – Information Technology 3

Second Declaration – Industry Cooperation 4

Third Declaration – Agriculture 3

Reasons for Emergence of BRICS 5

Review of Economic Performance 6

Other Current Issues 7

References 9

Appendix 10 (BRICS Economic Data Table)
_

DEFINITON OF BRICS

A Brief History

In 2001, Jim O’Neil – an economist at Goldman Sachs – first coined the term BRIC and ever since then it stood as an acronym for Brazil, Russia, India and China. At the time, O’Neil was trying to predict where Wall Street investors could place their investment dollars. In their search for future high growth and therefore high profits within a span of one to two decades, O’Neil came up with recommending the BRIC countries as potentially good nations where to park investment dollars. In that same year, he went on to predict that over the first decade of the twenty first century, the economies of those BRIC countries would increase in a very significant way; so much so, that it would “outpace growth of some of the world’s largest economies” (Sharma, 2012). In 2015 his prediction is presently valid, but mostly for China, which has achieved impressive economic growth in the last few years, and for India, which despite its ambivalent economic performance and socialistic labor tendencies, it has managed to post some notable levels of economic growth.

At the beginning of the twenty first century, in search for new national markets where investment dollars could gain hefty returns, and partially as a result of sluggish economic performance in the US and Europe, Wall Street placed its sight on emerging economies such as China, Brazil and even Russia. O’Neil was not the only Wall Street economist or investor to actively seek other lands where money could be invested. There were others. However, it was he who brought the notion of BRIC to the forefront of American financial media.

During the first few years of the 2000s, the respective foreign ministers of these BRIC countries met informally and at irregular times. In the second half of the decade, they sought ways in which their countries could cooperate politically. This was no surprise since India has always aligned with Russia, even during the Cold War, as Pakistan aligned with America during those rather dangerous times. Brazil, a Latin American country, had lately also leaned toward leftist governments; therefore it was not surprising that Brazil was seeking political cooperation with China and Russia, a communist and a socialist country, respectively.

In 2009, in their first official meeting, and as an initiative of Russia, BRIC countries were formalized as a bloc of countries ready to start operations.

In 2010, South Africa, the “S” in BRICS – as an initiative from Chinese President Hu Jintao –became formally accepted by the four original countries in December of that year, right at the end of the decade. The country had sought membership in BRIC, and was finally granted membership, after several campaigns for inclusion.

Ever since, BRICS have had yearly summits. By now, they have had seven in total. In 2016, they are planning to meet for their eighth annual summit in New Delhi, India.

BRICS’ GOALS

BRIC countries do have ambitious goals. Their official website pinpoints the most important ones at this stage of their development.

The original talks in 2001 started by seeking ways to cooperate in the political arena. Today, in 2015, they seek cooperation in several spheres: economic, security and information technology.

How BRICS countries are seeking mutual cooperation and benefit can be ascertained from three major “declarations” they have officially drafted and posted in their website:

Declaration of the Participants in the Forum of the Brics Countries’ Leading Media Outlets “Towards Creating a Common Information Space for the BRICS Countries.”

Declaration of the Brics Industry Ministers Industrial Cooperation of the BRICS Countries: New Opportunities for Growth.

Joint Declaration of the 5th Meeting of the BRICS Ministers Of Agriculture and Agrarian Development

Declaration of the Participants in the Forum of the Brics Countries’ Leading Media Outlets “Towards Creating a Common Information Space for the BRICS Countries.”

This declaration intends to exchange opinions on the following topics: integration trends in the global information space, exploring media development models, and creating a common, sustainable, and productive information space for BRICS countries.

According to Russian leadership, the intention of this declaration is to eventually create a healthy discussion based on “plurality of opinions, journalistic ethics, openness,” (BRICS, 2015) and a mutual desire to explore and learn from each other’s cultures.

One of the specific goals of this declaration is to create a platform for exchanging information and content in which a partnership, among these five countries, can be built toward the creation and exchange of products and services.

Another interesting goal is that they want to strongly stimulate the role of the media with the intention of increasing and strengthening cooperation, seeking an outcome of friendship and mutual understanding of each country platforms. They seek to promote a political dialogue, trade and economic ties, and the exchange of cultural and humanitarian help.

In my opinion, this is a bold and somewhat dubious attempt to practice something that they cannot individually practice themselves. Journalistic ethics and plurality of opinion would entail freedom of the press. Interestingly, China and Russia are notorious for checking, restricting, and, often times, denying this basic freedom to their citizens.

Declaration of the Brics Industry Ministers Industrial Cooperation of the BRICS Countries: New Opportunities for Growth.

On account of the global economic situation produced by the global financial crisis of 2008-2009, and the volatility that it brought to global financial markets, this declaration purports to offer a better solution, or better vehicles of financial stability for BRICS countries. With this declaration, they intend to achieve by 2030, their objective of sustainable development. This includes attaining a modernized, resilient infrastructure; promoting inclusive and sustainable industrialization, and fostering innovation in the economic and technology spheres.

With this declaration, BRICS countries also intend to strengthen their industrial sectors seeking accelerated economic growth, and ways of creating jobs. This will bring them to creating a platform of favorable investment climate, which they can accomplish by promoting, attracting, and protecting mutual investments in joint projects in all of their industries.

The specific policies in achieving this bold goals are, among others, the sharing of new technologies in the fields of mining, pharmaceuticals, mechanical manufacturing, aircraft construction, railway equipment and green technologies.

It is difficult to see how this could be achieved, given the fact that China, India, and Russia have very poor track records in the field of the protection intellectual property rights. Currently, they are all making some progress; however, in order to achieve what they intend to, they would have to make a major improvement in such protection. The West has been very successful at innovation, within the fields of technological and industrial development, to a greater extent due to their substantial, strong, and conducive legal system. Within the philosophy of law, the theory of the rule of law, along with the development and protection of property rights, have played a major role in fomenting and sustaining the innovative spirit of entrepreneurs.

BRICS countries, which lack the appropriate institutions – such as systems of courts, a body of law, and trained professionals in the field – would have a very difficult time trying to achieve this goal. In order for them to accomplish this, they would have to fundamentally reform their political and legal system, and make it more conducive to the establishment of the institution of private property, the protection thereof, and the propagation of the rule of law within the bloc.

Surprisingly, they have agreed to use some of the UN’s own programs, such as the UN industrial development organization. They even have agreed, a least in principle, to facilitate the expansion of a cooperation with the UN. However, any meaningful results are yet to be seen.

Joint Declaration of the 5th Meeting of the BRICS Ministers Of Agriculture and Agrarian Development

Under this declaration, BRICS countries also have set a major goal, which mainly pivots around the issue of food supply security. They plan to enhance their agricultural trade agreements and investment, their conjoined agricultural research and development, their technologies and innovations related to agriculture, and the protection of the right to adequate food supplies. Particularly, they intend to do this, by strengthening family farming, and by the creation of a basic agricultural and informational exchange system of new technologies. They also intend to protect the environment, at the same time that they create technologies that might pollute it. In this declaration, BRICS countries also have express their willingness to work with the UN’s sustainable development Summit’s guidelines, held in September of 2015.

According to the Russian perspective, BRICS countries would rely substantially on the governments to conduct their research and development efforts. In contrast with the West, this seems to be counterproductive, for the successful R&D efforts that we find in the West are the byproducts of highly motivated individuals and firms in their pursuit of profits. The Western countries, especially the United Kingdom, the United States, Germany, and France, are at the forefront of R&D breakthroughs. Their successful R&D programs have produced the abundance of products and services that the Western economies now enjoy. If Western governments were involved in these R&D efforts, it was at a very minimal level. Most of it is the product of private companies and individuals. The fact that BRICS countries are trying to accomplish the same thing through a government concerted effort is something new, which based on past experience, has a very little chance to succeed. Just think of what happened to Russia. In the technological front, Russia is pretty much always behind the West. This lagging could be explained by the fact that Russia’ R&D is controlled by the state; and not by individual firms. Similarly, in China whose R&D has been to a greater extent, on the spying on Western countries and on corporate espionage to basically steal technological innovations. This trend is changing of late. China is not only setting the stage to protect intellectual property rights, but also to invest in their own R&D efforts.

It seems that BRICS countries have a specific target of protecting food supplies, because in the past, they had been very poorly managed. It seems that these countries do not lack resources for feeding their citizens; rather, they lack the managerial know-how, the technological know-how that the West had been developing and enjoying for decades, especially since the latter half of the 20th century.

This lack of managerial know-how, and technological development, has been the direct byproduct of entrepreneurial ingenuity that can hardly be found elsewhere besides the West. If the BRICS countries intend to come to the same level as the West, they would have to reform their economic institutions even further, let alone their political institutions, to facilitate this kind of ingenuity.

REASONS FOR THE EMERGENCE OF BRICS

Russia and China have been, for several decades now, trying to achieve significant progress in their efforts to compete with Western nations in the fields of science, technology, and economics. To some extent, they are not comfortable with the leadership that the United States, and other Western nations have in those fields. Through the medium of BRICS, these two nations are trying to accomplish the same thing that they could not accomplish on their own, individually. With the cooperation of India, South Africa, and Brazil, they are attempting to challenge Western leadership.

Perhaps the most palpable event that triggered some level of confidence, and provided the necessary impetus for China and Russia to form BRICS, was the 2008-2009 financial crisis created in the United States. Many political leaders, of many nations, saw (as still do) the cause of that crisis as the lack of moral and economic failures of the USA. To a certain degree, the lack of foresight, leadership, and the emphasis on short-term profits – peculiar of United States capitalists – the world’s nations lost their high regard that they once had for the United States’ financial leadership. Leveraging on this type of lack of confidence from the world’s nations, BRICS countries decided to band themselves as a block of countries ready to challenge the West, starting with the economic front, with plans to add the scientific and technological front soon later.

This is very evident in the fact that BRICS countries are creating a direct competitor to the IMF and World Bank – the BRICS Development Bank. This Dew development Bank will be funded with $100 billion in capital, all coming from the five BRICS countries. The purpose of this New Development Bank is mainly to help BRICS countries in balancing their account on the balance of payments. In their minds, political leaders of BRICS countries think that this banking institution is the result of the lack of transparency and reform that is long overdue at the IMF, under the leadership of the USA. China and Russia have been, for some time now, seeking reforms at the IMF. Because those reforms have not been forthcoming, nor IMF leadership has expressed an interest on the issue, BRICS countries have gone ahead with the creation of their own world banking institution.

The New Development Bank also aims at helping other poor and developing nations. By doing so, they are in direct competition with the World Bank and the IMF.

Within their future sight, BRICS countries also aim at inviting other developing nations into their foil. Although at this time there is nothing formalized, in the past, they have expressed some interests in inviting Argentina, Mexico, Indonesia, among others. Argentina, Indonesia and Turkey have also expressed strong interest in joining BRICS. Egypt, Iran, Nigeria, Sudan, Syria as well as Bangladesh and Greece have recently had shown some interest in joining also. This interest of several nations to join BRICS should be of some interest to the United States, if it doesn’t want to lose its leadership in the world. Perhaps, the U.S. should be more inclusive in their handling of the IMF and World Bank. They should pay attention to the grievances that BRICS countries have particular towards the IMF.

It seems then that BRICS countries are creating more than just a regular trade agreements. With the banding together, and the possible future inclusion of other developing nations, BRICS is aiming at nothing less than becoming of formidable, capable competitor to the United States leadership in the world.

REVIEW OF ECONOMIC PERFORMANCE DATA (as of 2014)

Russia presently holds the presidency of BRICS countries, and it claims that the bloc contains 42% of the world’s population (3.06 billion); 26% of the planet’s land; and 27% of the world’s GDP ($39.9 trillion).

When looked at it with more scrutiny, BRICS’ economic performance is not that great. Despite their size (population) and its geographic reach, BRICS can only muster an average of $7,991 GDP per capita in 2014. This may be an indication of their rather poor technological level in economic efficiency and their relatively low human resources development.

Their GDP growth rate is driven by China at 7.3% and India at 7.4%; the other three countries are way behind this level of growth. These three countries bring their average economic growth down to 3.34% when combined.

Their average unemployment rate is 10.17% with South Africa having a whopping 25%, the highest of them all, while China’s rate is barely 4.04%. The total unemployed is 212.5 million workers, and those living below the poverty line (BPL) amount to 548.2 million. One problem, within the realm of politics, is that if a war is ever started against the West, a sizeable portion of these many millions of unemployed individuals could be drafted.

The source of their GDP is composed of an average of 31.08% of manufacturing output and 61.06% in services. This indicates their developing economies have a good mix of economic activity; indeed en route to probably becoming fully developed economies, if we measure it by an increasing portion of GDP being generated from the “service” sector.

In the realm of current account balances of trade, except for China with a healthy $219.7 billion and Russia with $57.41 billion, all other countries have negative balances. Their total combined balance of trade is $137.29 billion. In terms of current dollars, they had a total exports of $3.52 billion and a total of imports of $3.024 billion, leaving them with a net exports of $0.499 billion. This is reflected in their share of GDP’s exports at 25.80% and imports at 25.32%

Inflation is also placing restrictions on stability of their economic growth. With Russia’s inflation rate at 7.8% being the highest and China’s 2% being the lowest, BRICS countries have an average of 5.75% when combined.

Economic and technological innovations are major factors that drive economic development and sustaining the growth of developed economies. BRICS countries have a combined average of 0.60, as measured by the Global Innovation Index. This index tracks innovations in 141 countries.

Governments play an important role in economics. Even the most capitalistic country in the world, the USA, has some form of government intervention in the economy by way of many legislative decrees from various agencies. The political stability of nations have a major impact on their economic stability. And this is reflected on how stable and effective governments are, in general. When measured the stability and effectiveness of 141 countries, the Global Innovation Index ranks BRICS countries with a combined index of 0.49. With Finland (1.00) being the most stable country, in 2014, and Sudan being the least at 0.00, BRICS sits slightly below from the middle of the pack. This may be an indication that BRICS may not have the political environment necessary to take their economies to the next level of development.

OTHER CURRENT ISSUES

CHINA’S SITUATION

Many view the Chinese communist party’s edicts of the “one-child” policy of the 1980 as the worst kind of intrusion on its people by a government. On October 30th, 2015, China’s political leaders announced that they will allow up to two children per family. Their fear is that the aging population is increasing out of hand, and the country will end up having to take care of a disproportionate number of old-aged Chinese by their dwindling younger population. The changing in policy is not bad; it is needed because their population is growing older, without a reasonable growth in the young population entering the workforce.

This means that China’s aging population is increasing much faster than its economic growth; the country is not getting rich fast enough for it. In order to tackle this problem, China will have to find a much faster way of growing its economy than it is presently doing at 7%, or thereabouts.

The problems is compounded because the race for faster economic growth has to be sufficient to absorb the cost of financing its older population with increasingly less working people, as well with a semi developed – and according to some, much less developed – system of retirement finance. This is another pitfall that China is facing in its imitation of the market economies of the West, wherein a fairly well developed system of retirement planning does exist.

Within the next few decades this population issue may hamper what China can contribute to the further development of BRICS.

RUSSIA’S SITUATION

One interesting fact about Russia – according to Nicholas Eberstadt, the Henry Wendt Scholar in political economy – is that Russia’s export revenue as an exporter of oil, gas and other energy related products, does not even come close to the level of Belgium. He claims that Russia has not attained any meaningful revenues higher than Belgium, nor even in a single year. This issue alone leaves a lingering doubt as to the real status of Russian economic power.

Since one of Russia’s main sources of revenue is their exports of gas, mainly to Western Europe, and their income level has not even matched that of Belgium, this can very will indicate that their contributions to the future of BRICS may not be as great as once thought.

INDIA’S SITUATION

India has a lot of socialistic policies specifically related to labor and land. These policies hampered its competitive advantage in the manufacturing sector. The fact that India has not risen as a manufacturing hub or power of the world – after China’s labor cost has been rising – is an indication that India’s political leaders are so mired into their outdated policies that they are not seeing the opportunity being missed. Except in the realm of software technology, India may not be a great contributor to BRICS.

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REFERENCES

BRICS Website: http://en.brics2015.ru/russia_and_brics/

SHARMA, Ruchir, 2012, Broke BRICs, Why the Rest Stopped Rising. Published by the Council on Foreign Relations. Foreign Affairs Magazine. https://www.foreignaffairs.com/print/1108476 Global Innovation Index https://www.globalinnovationindex.org/ International Monetary Fund www.imf.org The World Bank
worldbank.org

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