Brazil, Russia, India and China: Forces to Be Reckoned With

In a 2001 research paper entitled “Dreaming with BRICs: the Path to 2050,” investment bank Goldman Sachs introduced the notion that Brazil, Russia, India and China could surge to become four of the largest economies in the world. Since then, they’ve been racking up growth figures that make it seem intensely possible.

There’s no political or economic union between these four nations; they’re simply four of the largest of the world’s emerging markets. Brazil and Russia are major commodity exporters; the former specializing in soybeans, coffee and iron ore and the latter in energy products. China and India, on the other hand, boast tons of cheap labor and claim increasing shares of manufacturing and services outsourcing. However, there is a symbiosis between the four of them, with industrial China and India demanding commodity building blocks from Brazil and Russia, raising their individual gross domestic product (GDP) levels through mutual trade.

The BRIC

Brazil is the slowest growing of the four BRICs with a GDP rate of merely 5.4% in 2007 and 25 consecutive quarters of growth. In the past four years the Brazilian real appreciated 83% against the U.S. dollar, the best performance of all the world’s most actively traded currencies, and per capita GDP has risen to $9,700.

Russian GDP growth in 2007 reached 8.1% after nine years of expansion. Partly due to the largest number of higher-education graduates in Europe and partly due to a flat income tax of 13%, per capita GDP is a respectable $14,700. The federal budget has been in surplus since 2001; it has paid down Soviet-era international debt by 31% and amassed the third largest foreign currency reserves in the world (behind China and Japan).

India grew at a 9.2% clip in 2007 but has the farthest to go of the BRICs, with per capita GDP at $2,700 and over 27% of their massive population below the poverty line. Agriculture remains a major part of the economy and 60% of employment.

China, the largest and still growing the fastest, is slowing its 2007 11.4% GDP growth down to something nearer 10.0% for 2008 as the global economy and demand for manufactured products slows. (Keep in mind they’ve been racing at that pace for the past 30 years.) To prevent becoming simply a cheap labor center, China is now pushing the education of scientists and engineers, hoping to attract R&D funds as well. Per capita GDP has risen steadily and has reached $5,300, although 10% of the population remains below poverty.

The 2001 Goldman Sachs report predicted the BRICs would produce 10% of the world’s goods by 2010. In August 2008 they’re already producing 15%.

In recent years, these nations have grown so fast that their rising demand pushed commodity prices through the roof, with skyrocketing crude oil, iron ore, coal and copper prices directly attributable to China alone. Their demand for technology is equally high. In 2005 the BRICs spent US$65 billion for IT products; by 2009, that’s forecast to reach $110 billion or 8% of the global market—the same as Japan. For companies looking for export markets to develop, those are mouthwatering numbers.

Problems at Hand

Each of the BRICs has problems in their economic machinery. Brazil, for example, still maintains import tariffs to protect domestic producers. Their inflation remains high at 6.3% per year, and the central bank has raised interest rates to a jaw-dropping 13.0% in their attempt to cool domestic demand. Russia has one of the worst organized crime problems in the world, and the industrial sector still hasn’t recovered from decades of Soviet neglect, while India has basic infrastructure problems such as poor roads and unreliable power supplies. China’s problems include lax environmental regulations leading to 20 of the 30 most heavily polluted cities in the world and a serious image problem after global recalls of unsafe products.

Economic futurism is fraught with peril. So many assumptions must be made—questions not only economic but also demographic, governmental, environmental and industrial, among others—that it can be difficult enough selecting an international stock for investment, much less predicting the developmental growth path of four separate nations. Many variables must come together to make the Goldman Sachs BRIC dream a reality, some of which, such as policies supportive of growth, are up to the BRICs themselves, while others, such as natural disasters, are not. Whether or not they achieve the goal set for them, this emerging economic force will play an increasingly strong role on the global stage.

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