The acronym BRIC came into being a little over a decade ago when a Goldman Sachs report held out India’s prospects as a major world player along with Brazil, Russia and China. South Africa joined this grouping in 2010 — adding an S to the acronym is considered by cynics to be the sole achievement of this grouping! There have been four rounds of BRIC summitry. A striking feature of the statements issued at these summits is that this grouping supports a multi-polar, equitable and democratic world order and seeks a greater voice and participation in institutions like the International Monetary Fund, the World Bank and the United Nations.
But whether the BRICS countries are able to come up with a common candidate to challenge the US nomination for the next president of the World Bank is far from obvious. Strategic analysts perhaps exaggerate the importance of this grouping when they argue that it represents an alliance of mid-sized economies that could lead to a serious attempt to counterbalance the US. At the recent Delhi summit, the grouping decided to expand intra-BRICS trade through greater use of local currencies than the US dollar and examine the possibilities of setting a development bank like the World Bank.
The outcome of these four summits is hardly substantive since the grouping is far from being cohesive enough to have a geopolitical or strategic significance in the world economy. Brazil is geographically distant from the other BRICS. Russia, India and China have proximity but there is a lot of strategic rivalry between them. India and China are scrambling for oil and raw materials abroad. Brazil and Russia are riding a commodities boom. South Africa really is the odd one out since its economic size is the smallest. Its growth is also much slower than the others. It also has the highest rate of unemployment.
Despite the contradictions among the BRICS, the main reason this grouping is taken seriously is that its member economies are expected to become the future engines of global economic growth when the powerful economies of the world like the US and the European Union have entered a phase of maturity and stagnation. The BRICS countries, in the aggregate, are expected to overtake the US by 2015, if not earlier. Brazil’s economy is larger than Italy’s. India and Russia will be larger than Spain, Canada or Italy. China is now the world’s second-largest economy after having overtaken Japan and is rapidly closing in on the US.
The BRICS countries were also resilient enough to recover fast from the global crisis of 2008-09 than most other economies in the developed world. China was one of the first economies in the world to emerge from the crisis and return to its rapid growth trajectory of 10 per cent. India experienced a sharper contraction but attained more than nine to 10 per cent growth in 2010. Russia and Brazil, for their part, experienced a boom in commodity prices. Looking to 2025, these BRIC economies along with Indonesia and the Republic of Korea are together expected to account for more than half of global economic growth.
The BRICS are also the new growth drivers for low-income countries (LICs ), considering the growing importance of their trade and foreign direct investments (FDIs) in such economies. LICs’ exports to BRICs are around half the value of their trade with the EU and the US. FDI, too, has been booming: initially, much of this BRICS’ investment in the LICs went to natural resource industries. Now, much of it is going into agriculture, manufacturing and service industries, which can boost the productivity of LIC industries. (See the IMF report, “New growth drivers for low-income countries: The role of BRICs”.)
The resilience of BRICS during the 2008-09 crisis provided significant support to LIC growth, thanks to their ever-increasing linkages. According to the IMF working paper “Low Income Countries’ BRIC Linkage: Are there Growth Spillovers?” by Issouf Samake and Yongzheng Yang, there is compelling empirical evidence on the spillover effects from the BRICS to the LICs: the resilience of the BRIC economies during the financial crisis may have added 0.3 to 1.1 percentage points to LIC growth, as compared with a scenario in which BRIC GDP declined at the same pace as advanced economies.
For such reasons, the impact of BRICS might be felt more on fostering South-South cooperation and somewhat less on changing the global architecture of governance. Flows of development financing have surged from the BRICS to LICs, especially in Africa where it has largely gone to countries with natural resources, proximity and cultural, language ties similar to the traditional donors. (See the IMF working paper, “BRICs’ philosophies for development financing and their implications for LICs”, by Nkunde Mwase and Yongzheng Yang.) But this paper indicates that such financing by the former incorporates a different philosophy than the traditional donor community in terms of the focus on mutual benefits than on one-size-fits-all conditionalities. BRICS’ development financing is also concentrated more on infrastructure that can serve to address the deficits in this respect; alleviate growth bottlenecks and help in overall poverty reduction.
From the Ivory Tower will make research from the academic world accessible to all our readers