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Today, the third world has been taking on a new look in the domain of the global economy. BRIC (Brazil, Russia, India, and China) economies, for instance, are emerging dominant forces in the global landscape as Goldman Sachs estimated that the combined force of these four countries could outperform the currently dominant G6 members (US, Britain, France, Japan, Germany, and Italy) in monetary terms by the Year 2050.
In view of the importance of issues emerging for promising intra-BRIC economic cooperation, and launch of BRIC Business Alliance (BBA), ASSOCHAM organised a conference on “Investing in BRIC Economies: Opportunities and Challenges” on 18 April 2007 in New Delhi. The main objective behind the launching of BBA at the conference was to focus on the strengths of each of the four countries in relevant fields and to flesh out the potentials which are so far untapped. Opened with a warm welcome speech by Mr Anil Agarwal, former President, ASSOCHAM, various eminent personalities and professionals from different departments and organisations participated in the conference. In addition to ASSOCHAM’s prominent members – Dr DK Ghosh, Chairman, India-China Business Alliance; Mr DS Rawat, Secretary General; Mr PK Sandell, Chairman, Eltec System –other distinguished keynote participants at the conference included Mr Luis Balduino, Economic Counsellor, Embassy of Brazil; Mr Nicholay Stepanov, Acting Trade Representative, Embassy of Russia; Ms Jenny Deng, Second Secretary, Embassy of China; Mr Tushar Poddar, India Economist, Goldman Sachs; and Dr Ramgopal Agarwala, Senior Advisor, Research and Information System for Developing Countries (RIS).
BRIC countries are widely divergent in their history, culture, and political stance. However, the countries have one thing in common, that is, huge economic growth potential. “Each of the BRIC countries has specific economic activity which can contribute to accelerate into a world of successful economies”, said Mr Anil K Agarwal. He further added that the formation of BBA is a new initiative to focus on the R&D sector of the group countries. When BRIC was first referred to as such in 2003, Goldman predicted China and India would be the dominant suppliers of minerals and raw materials. And Brazil and Russia would also form logical commodity suppliers to China and India. Projection of BRIC as a strong economic power is quite a possible dream because the four countries have fast growing economies with large sources of labour and mineral resources as well as they been changing the consumption and production pattern in the world economy.
With an average annual growth rate of around 9.8 percent since 1980, China meets all the criteria for an emerging market economy. It is followed by India and Brazil with average annual growth rates of 5.8 percent and 2.4 percent respectively. High growth rates in China and India, and recently also Russia, have increased their importance to the global economy. As of 2006, China ranked as the third largest exporter in the world, next to European Union and the US. About US$65.14 billion intra-BRIC exports in 2005 were, quite expectedly, heavily influenced by China. Next comes Russia (25 percent), followed by Brazil (18 percent), and then India (16 percent). Over the last ten years, the BRIC share of the global economy has increased by just over 1.5 percentage points. China is now the 7th largest economy in the world, followed by India, Brazil, and Russia at 12th, 15th, and 16th places. Products of some Chinese companies like Greek and SVA are very popular in Brazil. These Chinese companies have made investment and set up factories in Brazil, making positive contribution to the economic development and employment of Brazilians. There is also high prospect in trade in high tech sector between the two countries. Brazil and China jointly developed and launched two earth resources satellites, which are recognised as the model of South-South cooperation. The two countries also worked together to manufacture branch-line airplanes. Currently, Brazil and China have signed an MoU on strategic partnership between China Telecom and Brazil Telecom. All these have opened a new chapter for the all-round cooperation between the two countries in the high and new technology field. Of the annual average global GDP growth at market prices of 3.9 percent since 2000, 0.5 percentage points originate from growth in BRIC nations. Praising the initiative role of ASSOCHAM in establishment of BBA, Ms Jenny Deng, during her speech at the conference, expressed that cordial alliances among BRIC countries could enhance a tremendous growth in trade and economies of the member countries. “Historically India and China have had good trade relations. Therefore, we hope that BBA could develop a better economy for both countries,” she added.
A more interesting prediction is that over the next 50 years, Brazil’s GDP growth rate will average 3.6 percent and the size of country’s economy will overtake Italy by 2025; France by 2031; and UK and Germany by 2036. Depicting how the Brazilian economy is enjoying a sustained period of growth and stability, Mr R Viswanathan, Joint Secretary, Ministry of External Affair, expressed that Brazil is the only BRIC country having 180 years of undisturbed continuity in social and political parameters. “India and China suffered long suppression of colonial rule; and Russia just resolved after the dissolution of Soviet Union. However, Brazil never had such unstable social and political turmoil except for their historical dispute with Uruguay around 130 years ago”, Mr Viswanathan said. He further said that Brazil once suffered from inflation and external debt, but today the country is totally unhooked from any sort of financial restraint with no more debts to the IMF. “Brazil has three times the area of India’s cultivable area and human resources play a major role in economic development in the country,” Mr Viswanathan added.
The most striking feature of BRIC trade in goods is the rise of merchandise trade between China and Brazil, and China and India in recent years. Currently, with Brazil having trade balance in its favour, bilateral trade between Brazil and China has gone up from US$14.20 billion in 2005 to US$16.38 in 2006. In Brazil around 40 million hectares of land are engaged in agro-based activities without disturbing the environmental balances in Brazil. Sectors that the country has more chances to get profits with Indian expansion are technology, petroleum, food, alcohol, aviation, and steel industry. India becomes a global reference in IT, but it is still lagging behind in some areas such as space satellite, mining, banking, and tourism. This will open space for the entry of Brazilian companies in India. Around 70 percent of India’s energy consumption depends on imports from overseas. India has already manifested its interest for government-owned Brazilian oil company ‘Petrobras’ investment in the country. Mentioning the recent developments amongst the BRIC nations Mr Balduino said, “In the last two years, both trade and commerce among the BRIC countries have been rapidly growing”.
Nine out of 28 Indian states have decreed the 5 percent blend of ethanol to gasoline. Therefore, Brazil, which already exports alcohol worth US$110 million to India every year, may get the opportunity to expand its business much more. Concerning the success story of bio-fuel use in Brazil, Mr Viswanathan said, “Seventy-seven percent of automobiles in Brazil use ethanol as fuel and the country has vast sugarcane cultivation and has done successful research and development in cellulostic devices”. India imported about US$192 million of soybean oil and US$ 118 sugarcane from Brazil in 2005-06, which alone accounted for over 50 percent of India’s export to Brazil. There is till large space in cooperation in the planting and development of soybeans. In the aviation sector, the number of domestic passengers in India grows at an annual rate of 25 percent. Such expansion of the Indian market is a great opportunity for Brazilian aircraft manufacturer ‘Embraer’, which sold ten aircraft to the Indian government last year. “Alliances amongst countries were developed by statesmen only, but today, BBA is the one and only middleman coordinating among the BRIC countries. And Brazil is not a lone cowboy; the country wants alliance”, Mr Viswanathan concluded.
Among the BRIC countries, it is expected that Russia’s GDP per capita will be the highest in the group. Interestingly Russia’s economy is predicted to overtake Italy in 2018, France in 2024, UK in 2027, and Germany in 2028. Asserting the bright future of the country’s economy, Mr Nikolay said “The Russian economy is growing at the rate of about 7 percent and there is steady flow of foreign investment in a wide range of sectors, particularly in banking; for example, Sun Groups is the largest investment in Russia”. Interlink amongst Russia, India, and China is considered as a perfect trilateral fit, in terms of inter-BRIC relations. The three nations would stand on a common platform and expand the base of trilateral trade in specific areas such as energy and IT. “If you look into the past there were silk routes where these countries operated their trade in different aspects. Still, these three regions could build a powerful alliance,” Dr Arun K Mohanty, Professor, Jawaharlal Nehru University (JNU) said during the panel discussion session at the conference. Dr Mohanty reiterated that China is a promising manufacturing hub among the three BRIC nations. With an example on trilateral development in the IT sector, Dr Mohanty mentioned that India’s software with hardware from Russia and China could boost the sector to a top global level.
Today in the three BRIC countries namely Brazil, China, and India, there are relatively high proportions of young people compared to Western Europe, while the share of the population that is active in the labour market is approximately the same. In Russia, a larger percentage than in Western Europe are active in the labour market. Based on the projection that this situation does not change significantly up to 2050, the demographic distribution in the BRIC countries would gradually resemble those of Western Europe. According to estimates, Russia will be the leading BRIC country in terms of education. Based on a number of World Bank indicators, the country’s education level does not seem to differ significantly from the mature market economies and illiteracy is almost non-existent. “There is a certain lopsidedness called ‘hazard of projection’ in any estimate theory, but BRIC projection for 2050 is that the actions we do today, will in practice, show results after 20-30 years” asserted Dr Ramgopal Agarwala. He also mentioned that agriculture and manufacturing in BRIC countries could boost by a hardy 2 percent in development in the long-term. “So, in India, we should plan our long-term policies on service sectors like accountancy, laws, health, etc”, Dr Agrawala added.
As a concluding part of the conference Mr PK Sandell summed up the recent development and reforms which have increased the global significance of the BRIC countries. “BRIC countries have a bright and strong future; though I’m too old to witness the changes after 50 years, that’s for our younger generation”, Mr Sandell jested. The key challenges faced by the BRIC countries will be to maintain robust and sustainable growth in order to reduce the gap in living standards as compare to developed economies. Reforms of the financial sector in order to handle rising capital flows and mobilising of domestic savings into productive investments will also be important. “BRIC is the brick to build our alliance in the world,” Mr Sandell concluded.
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