The Heyday of BRICS - Is It Over.
Over the past several years, the most talked-about trend in the global economy has been the so-called 'rise of the rest', which saw many developing economies swiftly catching up to or even surpassing their counterparts in the developed world. Four major emerging economies were behind this change. They are known as the BRIC: Brazil, Russia, India, and China.
These four countries were originally grouped by Jim O'Neil as BRICs in 2001. At that time, it was expected that these emerging economies will realize fast economic growth and would be larger in size than some of the developed economies. In 2006, this group officially became a diplomatic-political entity called BRIC. South Africa officially joined in 2011 and the acronym was extended to BRICS.
The BRICS are a heterogeneous coalition of competing nations who share a fundamental political objective: 'to maintain their independence of judgment and national action in a world that is increasingly becoming economically and socially interdependent.' Besides, they aim to 'meet economic needs through infrastructure development, and growth in domestic consumption and trade.'
The BRICS were considered as the key drivers of global economic growth at a time when western economies were struggling with austerity measures. The strength of the BRICS economies stems from their growing importance in global trade, rising domestic demand and intra-group trade in national currencies to avoid the US Dollar (the greenback). BRICS' collective contribution to world GDP has increased from 11% in 1990 to 25% in 2011. Within the group, China has the largest economy with fastest growing GDP. Between 2000 and 2011, BRICS members have realized positive GDP growth with South Africa recording the lowest average annual growth of 3.5% and China with the highest at 10.2%.
Forecasts typically showed that China was on the verge of overtaking U.S. as the world's largest economy. But with falling growth trend in the world economy since 2009, Chinese growth is slowing sharply, from double digits down to around seven per cent. Rest of the BRICS is tumbling too: since 2008, Brazil's annual growth has dropped from 4.5% to 2%; Russia's, from 7% to 3.5%; and India's, from 9% to 6%.
Global slowdown of 2008 was not blamed on BRICS. In fact, the IMF put the blame on the U.S. and EU for not keeping their houses in order. No doubt, China's growth trajectory was slowing, but it was partly due to lower demand for its exports by the U.S. and EU.
The greatest threat to the BRICS is believed to be from western mismanagement of their economies. The Eurozone crisis and Washington's propensity to export inflation via 'quantitative easing of money supply' threatens the BRICS. Another threat is self-inflicted, that is their political desire to act alone and not as a group, especially when getting affected from policies of Washington and Brussels. This is evident from Brazil's rage against the USA's quantitative easing but almost zero collective response of BRICS.
The BRICS have different foreign policy agendas. They are not considered as a group of natural fellows. They are very different politically, in terms of their values and development potential, and in terms of the economic fundamentals. They even have quite a few conflicts among them. But they all share the idea that they are important countries. Therefore, they are taken seriously especially as the established powers are declining, and they want the World Order to change for that reason. Ironically, they are separately demanding the developed world to listen to their complaints. Consequently, they are unable to create a united front to demand a "new international order".
The current international economic and financial order is undergoing irreversible change because it is exhausted and out of new ideas. The "Washington Consensus" has long been designed to protect and advance the interests of the rich economies. Changing this hard reality has been difficult. Nonetheless, the Great Recession of 2008 has somewhat changed its calculus. It is important to note that the BRICS are not forcing this change; they are embracing and adapting to this change. They are not very strong to challenge the western might. This is because; Russia is increasingly portrayed as a distorted petro-state, India is ensnared in red tape and the Chinese economy is slowing. Therefore, those hoping the BRICS to present themselves as an alternative to western-centric international order any time soon are surely disappointed.
Given the world economic outlook, the BRICS are now more interested in developing trade amongst themselves; being a potential area of their cooperation. To counter some of the developed countries' policies, Russia is discussing with China and other BRICS partners for the establishment of a system of multilateral swaps. This will allow intra-BRICS transfer of resources. In fact, in the New Delhi Summit (2012) the BRICS leaders agreed on new measures to facilitate greater trade within the bloc. This includes a deal to extend credit facilities in the local currencies of other BRICS countries. They also discussed to set up a joint BRICS Development Bank with initial capital of $100 billion, which would serve as a counterweight to the World Bank and IMF.
The BRICS have different problems. China and India have obviously been very successful in the last twenty years or so. Brazil has been improving, though it has some problems now - slow growth at the moment. South Africa has found it more difficult to sustain its growth. Russia is presently quite volatile. Clearly, India and China in the BRICS bloc are massive countries of a different scale than the others, with extraordinary potential and impressive growth records.
In the future, it would depend on whether the BRICS manage to sustain their development process. If China's average growth rate falls to about 7.5% per annum, it will still grow faster than the world economy. With this growth rate, China is likely to rise to become the biggest economy in the world by the early 2020s. India is much behind China. Tracking it against China, it's about fifteen years behind. India is going more slowly; it has huge governance and other problems.
Other three BRICS are different from China and India. Brazil is likely to become more important. It has big economy with big potential for growth. South Africa is quite a small country by the standard of the BRICS. It is not likely to be a major world player any time soon; though it's very important country in Africa. Currently, Russia is declining fast with plummeting oil prices; recession is already looming on its economy. This will definitely affect its growth prospects for some time in the future.
Till the recent past BRICS markets represented prospects driven by the 'commodity super-cycle.' Then the rapid growth of China and India drove up demand for natural resources, which augmented fortunes of raw materials exporting countries including Brazil and Russia. High growth in BRICS strengthened their currencies, improved their financial standing and raised corporate profits. But now with considerable decline in growth, the commodity exporting countries who once faced a bright future are descending the cliff. Some believe that by saying "new normal" to their slowdown BRICS are actually disguising the reality. Indeed the virtuous cycle of the BRICS is transformed into a vicious cycle.
To be influential and game changers in the global arena, BRICS will have to be more resilient. Although, they have been growing fast but they are nowhere near to the western countries' might in terms of per capita income and size of the GDP. The BRICS need to continue with real and meaningful reforms. These countries have plentiful room to (re)structure their economies to be more competitive globally for sustained growth and alleviating poverty.