Building BRICS of the future

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Gulf Today

Foreign direct investment and development financing from Brazil, Russia, India, China and South Africa (BRICS) to low-income countries are making a significant impact in some key areas, the International Monetary Fund said in a report released last week as leaders of these nations concluded a summit at Sanya in China.

The summit was the third in a series which began at Yekaterinburg in Russia in 2009 as an annual get-together of Brazil, Russia, India and China. In 2001, Jim O’Neill, head of economic research at Goldman Sachs, the global investment banking firm, had pointed out that these nations were doing better than the developed G-7 countries and predicted that the four would continue to grow faster than them in the decade ahead.

In a paper, titled “Building Better Global Economic BRICs,” O’Neill considered four different scenarios for the period and concluded that in all four the relative weight of the BRICs rises, with China in the lead and the other three also growing relative to the G-7 countries.

The acronym BRICs which he coined gained currency. With South Africa’s entry into the group at Sanya the last letter (‘s’) also got capitalised. Ahead of the five-nation meet, the Chinese Communist Party newspaper People’s Daily said the BRICS nations’ rapid economic growth, populations and contributions to the world made them “the anchor of the global economy and politics”.

BRICS hold 40 per cent of the world’s population. In 2010, they together accounted for nearly 20 per cent of the world’s gross domestic product. Thanks to their faster growth rate, the combined economy of BRICS is expected to overtake that of the European Union this year and that of the US by 2014.

According to the International Monetary Fund’s projections, by 2016 BRICS will have a combined GDP of US$ 21 trillion against $18.8 trillion of the US. A BRICS document says they are projected to pass the combined G-7 output by 2035.

A declaration issued at the end of the Sanya summit voiced BRICS’ hopes and concerns. Their hopes centred on a role in global financial decision-making commensurate with their clout as nations which currently account for 45 per cent of the world’s economic growth. Their main concern was the high volatility of commodity prices which posed a threat to the global economy.

They called for quick realisation of the IMF reform targets agreed to at the G-20 summits so as to ensure that the international financial institutions reflect the new economic realities. They sought increased regulation of derivates markets to stabilise commodity prices. They wanted the international community to work together to increase production and provide funds and technological support to developing countries to establish “a more equitable and fair world”.

Glossing over differences among themselves, the five nations agreed to use their own currencies in place of the US dollar while issuing credits or grants to one another and called for reform of the United Nations system and to restructure the Security Council by including more emergent economies so that it can deal with new challenges successfully.

China, which has foreign exchange reserves worth $ 3 trillion, is an ardent advocate of increased use of national currencies in global trade. Russia, which has used its own currency in bilateral trade since the days of the Soviet Union, also favours it. Others do not share their enthusiasm fully because of reservations over currency valuation. India wants high priority for UN reform, but China is inclined to go slow on it.

The reference to Libya in the Sanya declaration indicates the group’s potential to evolve into a political force. Opposing the Western air strikes in Libya, it said, “We share the principle that the use of force should be avoided.”

The IMF report in low income countries (LIC), released on Friday, said that while the industrialised countries remained their dominant development partners, their ties with BRICS had increased rapidly during the past decade and become new growth drivers. BRICS financing had helped boost LIC exports and productivity, it added.

Interestingly, China, which has outstripped Japan and is way ahead of the other emerging economies, explained that promotion of BRICS did not imply antagonism to the West. “China is a developing country and that fact does not change because of its rapid economic growth,” the party paper wrote. “Therefore, China does not want to be the leader or even replace some developed country.” --Gulf Today, Sharjah, April 18, 2011.