Rise and Rise of BRICS

Brazil, Russia, India and China originally constituted the BRIC nations. As mentioned in a Goldman Sachs report in 2003, these four nations formed the basis for investments in fast growing, developing economies and since then, the four-letter acronym has caught on like fire in the business world. The report claimed that these four nations would be wealthier than most of the current economic heavy weights, by 2050. Initially intended to be looked at from a purely business or investment point of view, the BRIC nations are now influential political, economic and social players in the global scenario as well. Although it was not anticipated that the BRIC nations would form an economic bloc amongst themselves, they have been holding annual summits since 2009, first meeting in Yekaterinburg followed by Brasilia, Sanya and New Delhi. In December 2010, South Africa was invited to join the exclusive group and the latter has since been referred to as the BRICS.

Ever since its conception, the group’s foremost priority has been the furthering of international trade in goods and services amongst its member countries. Touted as the emerging economies of the world, there are a number of bilateral and even plurilateral agreements between them. These agreements range from trade agreements to labour movement agreements. Although the BRICS nations have not created a secure currency reserve, which at times is referred to as one of its criticisms, it has created an economic bloc which seeks to benefit from the associations it has within its members. According to Brazilian lawyer Adler Martins who has published a paper titled "Contratos Internacionais entre os países do BRIC" (International Agreements Among BRIC countries), there are a number of common agreements that have been ratified by the BRIC nations which aim at utilising these agreements for mutual benefit. 

BRICS Impact on Global Trade

The purpose of the BRICS nations has been to further their interests through the partnership provided by the economic bloc, BRICS. BRICSSince all these nations are emerging markets at various levels of development, they have common goals. Hence, by associating with each other through trade agreements, they liberalise movement of goods, services and labour between themselves. This liberalisation gives wider access to international markets and hence, increased production and growth. The interesting part about the BRICS countries and especially India and China is that they are involved in production of complementary goods and services. An example of this would be the electronics segment. While China excels in production of cheap and high quality hardware, India specialises in developing software and providing customer care services (through BPOs). Thus trade in these mutually exclusive fields would be beneficial to both nations as explained by the theory of comparative advantage. Also, China is a manufacturing heavy economy while India has a bigger tertiary sector providing services. Hence, their export products are varied, making trade between them highly beneficial. Chinese goods accounted for 10 per cent of India’s total imports in the year 2008. At an absolute value of around US$ 31 billion, this figure details the high volume as well as share of trade between the two countries.

In the future, China and India are expected to maintain their dominance in the export of goods and services respectively, while Brazil and Russia continue to be lead exporters of raw materials such as metal ores and oil.

The BRICS group together accounts for 40% of the world’s population which goes to show to what extent liberalised trade arrangements among these nations will result in market access expansion. As a result of the latest BRICS summit in New Delhi, the BRICS nations have signed an accord which aims at providing easy availability of credit for trade purposes. Under the BRICS Inter-bank Cooperation Mechanism, credit will be provided in the local currencies which will give a boost to trade activities amongst these countries. Trade between the BRICS accounted for almost 15 per cent of world trade and 25 per cent of world gross domestic product (GDP) as of 2010.  The recent developments within the BRICS also include a system of avoiding turbulences due to global financial crises, which will be discussed in the section below. This takes us to the next section on financial consequences of the BRICS.

BRICS Impact on Global Financial Scenario

The BRICS nations, China and India in particular have been largely unaffected by the global financial crisis of 2008. This insulation has been attributed to the policy and market openness levels in these countries. While they continue to remain cautious in their approach to financial openness and external involvement in domestic markets, the BRICS have seen an exponential rise in foreign fund flows over the past decade. To illustrate this fact we observe that FDI flows to BRICs from the EU peaked at €200 million in the year 2007.  These figures testify to the great investor confidence in the BRICS. These countries have not only weathered the sub-prime mortgage crisis, they continue to have the highest growth rates in the world. While China and India have a real GDP ranking of second and third in the world, Brazil and Russia close in at seventh and sixth place respectively. Also, India and China’s real GDP growth rate has been fifth and sixth highest respectively on a global level. Thus, despite the sudden withdrawal of FDIs and FIIs observed from time to time, as is evident in case of India recently, there is a generally high level of investor interest and confidence in these economies.

Institutional investors have identified these emerging markets as sources for diversification of their investment portfolios. This leads to high return, risk adjusted investments for them. From the perspective of the BRICS, these investments have contributed to the economic growth and development of these nations.

Further, in the recent G20 summit held in Los Cabos, Mexico in June 2012, the BRICS countries discussed the possible creation of a unified financial system. Such a system would allow the BRICS nations to have a central foreign exchange reserve pool which would make funds available to the BRICS nations in time of need and also protect their economies from turbulences in the international markets. The provision of a currency swap arrangement would keep markets liquid and provide an additional insulation from global economic crises which may be emanating from developed countries. The Chinese government has also offered to share its substantial foreign exchange reserves (to the tune of $3 trillion) held by its central bank, to the unified foreign exchange fund.  This would make a huge amount of capital available to any of the BRICS nations in times when their domestic reserves are not sufficient to weather the storm.

These attempts at financial integrity and creation of a support system would ensure that the BRICS stay at the top of their game, even when the world faces the threat of a financial crisis. Although culturally varied in nature, the BRICS nations are making a conscious attempt to integrate at economic and political levels.
International Influence

But some disagree …

Two members of the BRICS, namely China and Russia, are permanent members of the UN Security Council, while India and Brazil are top contenders for spots as permanent members. This puts the covetable veto power in their hands and goes to show the great amount of influence that the BRICS are capable of exercising over world affairs. However there is a school of thought that puts the meteoric rise of the BRICS as a thing of the past without the same growth pattern expected in the future. These critics have dismissed the annual summits and meetings among the BRICS as “a photo-op and talking shop”.  A number of political conflicts and diplomatic issues are peppered among the short history of the BRICS. India and China have ongoing political skirmishes surrounding the Tibet freedom movement and Arunachal Pradesh border; on whom, both factions have taken polar opposite stands. Further, major domestic issues within these countries such as the state of human rights in China and Russia, and India’s border issues with Pakistan, have acted an impediment to the unhindered growth and development of these nations.

Since China is foremost in GDP growth and accounts for a large chunk of the total GDP growth among the BRICS, some critics are of the opinion that without China the BRICS would simply be a lacklustre group of countries which would not have access to the vast reserves and muscle that China provides. 

However, despite the criticisms, the BRICS have emerged as a force to be reckoned with, and are touted to be the most powerful nations of the new economic age. Hence, collaborations among them might go a long way in fulfilling the grandiose plans that the BRICS have envisioned for themselves in the near future.