What’s happening to the BRICS?

The term BRICS was coined by Jim O’Neil (now Lord O’Neil) who envisaged that the economies of Brazil, Russia, India, China and South Africa would pull ahead of economies such as the USA, the UK and France by 2040. There have been tremendous gains in some of these countries, China recently claimed that it had eradicated extreme poverty, whilst figures show that millions in India have been lifted out of poverty. However, the prospect of overtaking the advanced economies has not been realised just yet. With the current pandemic and geopolitical events, it appears that the 2040 prediction is in serious doubt. Here, we look at each country and some of the factors which have affected the prediction.

China

China’s percentage change in GDP since 2001 has been over 997%, which is more than double that of the next closest which is India (440%). China was also the only BRIC nation to have positive GDP growth during the pandemic as the economy recovered 2.3%. In the 2000s, emerging market growth was putting to shame the figures being seen in developed markets. This was largely driven by the commodities boom and China’s huge dependence on minerals such as coal and large infrastructure projects. Global trade and the rise of industrial bases in places such as China and India also resulted in the spread of global supply chains which allowed emerging economies such as China to begin producing and exporting goods. Between 1990 and 2008, China saw its share of global exports rise from 2% to 9%, whilst its share of global GDP rose from 4% to 12%.

The commodities boom was driven by China’s huge investments in infrastructure.

However, China has been affected by the external slump in commodities prices and the internal policies of the State. The State’s failure to continue liberalising and diversifying the economy has resulted in an overdependence on state-owned enterprises and manufacturing. The increase in global manufacturing productivity has pushed down the price of manufactured goods which was once the staple of Chinese growth in the early 2000s. Similar internal shocks have also been seen in Brazil.

Brazil

During the pandemic, Brazil’s economy contracted -7% as it suffered one of the worst effects of the Covid-19 Pandemic which sadly claimed the lives of 550,000 Brazilians. Prior to the pandemic, overreliance on commodity exports meant that its economy had contracted for eight consecutive quarters dating back to 2017. Internal factors had an added impact with political turmoil, corruption scandals, and a presidential impeachment. Recently, Brazil’s GDP has returned to pre-pandemic levels with the IMF predicting a 5.7% growth in real GDP figures. Public debt stood at 99% of GDP in 2020, but this is expected to decrease to 92% by the end of the year.

There are significant challenges that constrain Brazil’s growth projections. Inflation has reached double figures, the currency has depreciated and the labour market has been suffering under exceptionally high unemployment rates especially amongst the youth, women and Afro-Brazilians. Although public debt is expected to reduce, it is still at unsustainable levels which could restrict fiscal flexibility.

India

In 2001, India could hardly be seen amongst the top 12 economies by GDP, but it has now risen to be one of the top 6 economies globally. The expected economic miracles have disappointed many in recent years and the effects of the pandemic have not bettered the situation. India’s economy had been slowing prior to the COVID-19 pandemic.

India has now risen to be one of the top 6 economies globally.

After reaching 8.3% in 2017-18, growth decelerated to 4% in 2019-2020. This was due to a decline in private consumption and shocks to the financial sector (the collapse of a large non-bank finance institution), which compounded pre-existing weaknesses in investment. Private consumption is the backbone of India’s growth and this has fallen by 10%, whilst investment overall has fallen by 13%. Manufacturing, which has been crucial to global exports has also been severely affected by supply chain disruptions and mobility restrictions that were introduced to contain the Covid-19 pandemic.

Policy decisions have also had a negative impact as the Modi government abolished the commonly used banknote and failed to create 10 million jobs as promised. With the impact of the pandemic, the plans to build a $5 trillion economy could be pushed back.

Russia

Russia’s potential growth rate has been trending downwards since the global financial crisis. This has been exacerbated by a reliance on commodities as witnessed in Brazil. The economy boomed in the noughties as Russia went through a phase of fast catch-up growth. However, petro-dollar driven catch-up growth was more or less exhausted by 2011 when growth started to slow, even though oil prices were still over $100. By 2013 that growth was completely exhausted and economic growth went negative. Since then, no new model has been developed and no serious attempt to fix Russia’s economic problems has been made until now.  Geopolitical tensions in Crimea and US sanctions have also had a negative effect on trade and investment. The IMF estimates that sanctions have shaved 0.2% off Russia’s growth every year between 2014 and 2018.

The economy experienced double-digit growth in the second quarter of 2021 which was largely driven by high commodity prices and a strengthening in the labour market. The government only invested about 3% of GDP into stimulus spending – one of the lowest amounts of any government – yet the recession in Russia (a 3% contraction in 2020) was milder than in most other large markets of the world.  While near-term recovery will be contingent on the stemming of the pandemic, longer-term economic prospects will depend on boosting potential growth through promoting economic diversification, levelling the playing field for the private sector, improving governance – particularly of state-owned enterprises, and taking advantage of shifting global value chains.

South Africa

Growth during the pandemic declined by -8% and unemployment levels have reached 34% in one of Africa’s largest economies. Mining has been essential to South Africa’s growth and its largest export partner has been China. This is indicative of the wider Chinese demand for resources, China’s global demand for metals increased to 40% from 2001 compared to 3% before. Growth in South Africa had been struggling prior to the pandemic with averages of only 0.8% in the five years prior to 2020. The country has also been suffering from political turbulence, the riots which ensued following the jailing of ex-president Jacob Zuma are estimated to have cost the country 50 billion rand in lost output. High income inequality rates have not been addressed by previous governments which have exhibited corruption and mismanagement. The government has pledged to make reforms and incept economic stimulus through infrastructure development which is highly labour intensive. Aside from this, the government is seeking to address the mismanagement that has plagued state-owned companies such as Eskom and others in the transport, communications and energy sector.