The Brics Will Continue to Dominate the World
Global business environment BRICS will continue to dominate the world’s economy! 25/11/11 BRICS will continue to dominate the world’s economy! BRICS also referred as “golden Brics” have been in the last 10 years leading powers of our global economy.
BRICS are composed of five very different countries with diverse pattern of growth; Brazil, Russia, India, china and most recently South Africa; with one point in common, their desire to grow in prosperity and security On almost every scale, the so called BRICS have a greater entity on a global stage, representing 40% of the worlds of the world’s population and almost 25% of the world’s land coverage, (Blake Hounshell,2011). Due to their enormous growth, the BRICS will soon change the ranking of national economies considerably, where the United States will not be the leading economy.
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As a result they are the only a key powers able to help us survive this economic disaster. Throughout this essay we will be emphasizing the main features that make BRICS so dominant and then will go on to talk about potential outburst of future Brics. But in order to do so, this essay will argue in favor of the Brics, and how we should perceive it as an opportunity rather than a threat. Additionally we will be taking into account the political and social influence of brics on to the rest of the world and its affects.
All of these 5 countries have been contributing enormously to the world’s economy in diverse ways. Russia also referred as “the world’s gas station”, is rich in oil and gas resources where as Brazil also known as “the world’s raw material base” is abundant in soybean and iron ore, while China so called “the worlds factory”, has a strong manufacturing sector, and India, appears to be the world’s office since it has a highly professional employees in IT and service sector.
As a result, Russia and Brazil can provide raw materials to China and India, while those can provide good services and products for the former two,( Mu Xuequan,2011). In fact contributing to a quarter of its economic output, in other terms combined together, the BRICS have a GDP of 15. 435 trillion dollars last year. The BRIC powers will contribute to 60% of global growth by 2014 according to the IMF (the economist, 2011). Although the BRIC countries encounters different patterns of growth, where china has a greater economy than all other 4 powers combined and South Africa’s economy is ? f India’s. This demonstrates how BRICS powers are no longer an artificial organization founded on equivalent economic performance, but increasingly a political team representing the developing world, determined to outrun western influence in major international forum. (The economist, 2011) Regardless to their political, social, or environmental challenges, the BRICS will continue to play an ever growing role within the world’s economy.
They have the capacity to change the world by threat and opportunities they represent from their economic and political point of view. As a result of an improved educated population, low cost labour and lowering of barriers of trade, the speed in which the Brics are over taking the world’s economy is gigantic, it could mean that the BRICS could potentially overcome the financial crisis that we are facing,(Pierre Haski, 2010). As mentioned above, brics are becoming a threat to many countries, but essentially China could take over the United States as the leading power.
Indeed research made by Goldman Sachs’s, chief economist Jim O’Neill 2001,(the inventor of the term BRIC)forecasted in his article “The World Needs Better Economic BRICs” that in 2050 China and India will become the leading economy, with Russia and brazil not far behind. They have been able to manage international trade agreements between one another, which has helped them enhance their growth in FDI, allowing them to have a greater influence over the worlds.
Graph 1 shown below demonstrates the changes we will be faced with, a world where western countries are no longer the leading power but being overcome by what we so call developing countries or what we should now call developed. How we see the world today will undoubtedly differ in 30 years; Brics increasing economic power could lead to Brics overtaking the world’s economy and will probably mean a loss for Europe and US, making the world much more competitive. However they are other potential emerging countries that should be taken into account.
Indeed Goldman Sachs acknowledged another group of economically vibrant and promising developing countries categorized the “Next 11” in its 2005 Economics Paper No. 134 “How Solid are the BRICs? ”, The Next 11 consists of a broader group of emerging markets with the potential to play significant roles in the global economy, including: Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam. We can identify in graph 1 some of those countries potentially being in the top 24 most powerful countries in 2050.
Japan and Germany being considered as enormous worlds producers, according to graph 1will be pushed back by emerging markets in 2050 from being in the top four down to top 10; this shows the growing influence the brics has over our world market. Graph 1 Source: global Sherpa 2011 This sudden change is connected, to the recent growth in population of china (20% of world population is chiness, this is enormous! ) and India which therefor means more labour and so can produce more compared to a country with a smaller population.
If we look closer to the population and economic growth, we can make a link; where China and India have the largest population in the world has the highest GDP growth. Purchase Power parity(PPP) also needs to be taken into account, countries such as china and India are very attractive to investors as the exchange rate are very interesting , for the same amount of money an investor will be able to buy more in India for instance than England, this can lead to an increase in economies of scale, (Jose Cassiolato 2010).
China has a stable low inflation which makes it less risk taker for investors to invest. It can also be explained by demographic aspects, among other factors, that directly affect the likely size of its economy and its ability to function as a machine of global economic growth. Between 2000 to 2008, the combined BRIC countries share of the total world economy output rose from 16 to 22%, all together; they accounted 30% of the increase in global output during this period.
As shown on graph 2, china is way in front of the other 3 brics, with a growth of 10, due to their extreme productivity, (Global Sherpa, 2011). As a result should we perceive these economic changes as a threat for western countries or on the contrary should it be seen as an opportunity? In the last decade the world has experienced a significant transformation in the location and distribution of production. To adapt to those changes, world policy making forum in Europe should re-organize and be adjusted to integrate BRIC epresentative, in order to benefit from those emerging markets. (Jim O’Neill, 2001) The outburst of these emerging countries has changed our lives considerably, it enables the world to benefit from cheaper product, from mid to even lower class and so lead to an increase in consumption. Investors can also be appealed by exchanges rate; for example china Yuan is strong against the dollar which can lead to economies of scale.
However some investors might prefer to invest in other markets such as Egypt and South Korea as they are some disadvantages with trading with the brics; China’s communist regime, known for low Quality goods; Brazils fragile political situation and Russia’s hostile environment, (Peter Havlik 2009). For large corporations it might be seen as an opportunity for exports from Brics, as many benefits are engaged, such as cheap labour, in China and India, as factories are deciding to delocalize their factories into emerging markets with cheaper labour.
However we are now in a really difficult situation, where in order to breakout of this never ending crisis we need help from these emerging markets. China is able to help use by stimulating global demand during crisis in order to stabilize the economy; china has taken a positive fiscal policy and a moderately easy monetary policy to cope with the crisis. ( BBC news, 2007 ) Graph 2; Source global Sherpa 2011 Initially the decision to bring South Africa into the 4 BRICS also raised interrogations as Mexico, South Korea, and turkey have been left behind.
As a matter of fact, all of these countries mentioned have played a key part within the growth of world’s economy. Jim O’Neill, commented, “For South Africa to be treated as part of BRIC doesn’t make any sense to me, there are lots of other growth economies that have more justification to be added to the Bric club than South Africa “. South Africa GDP only comes up to one- sixteenth of China’s output, and an annual growth of just 3. 5%, far behind China with a growth of 10. 3% in 2010.
We can see in graph 2 how South Africa’s population is only a fraction of only 50 million people compared to even Russia which had initially the smallest population in the former 4 brics, (Global Sherpa, 2011). South Africa’s population limits the potential size of its economy and the country’s ability to function; not only this but its economy is less than one quarter of Russia’s which has the lowest. As a matter of fact it would have been much more logical to choose Indonesia as the next golden BRIC as it has higher potential.
Looking back at graph 1 forecast, we can see Indonesia being the 7th biggest power in 2050 whereas South Africa is the 21th. Indonisias population is 4 times bigger compared to South Africa. Having a GDP of 540. 3 billion in 2009, double the size of South Africa, (The economist ,2011). So in an economical prospective, the former brics has chosen South Africa as a strategy and not as a consequence of its economy. However, South Africa could have been chosen for other reason than economical. South Africa was probably included In the 4 BRIC power in 2009 mainly due to the interest of accessing Africa’s resources and markets.
Indeed, being Africa’s strongest emerging economy, South Africa could be the leading economy to burst out, Being the world’s fourth largest source of gold and diamonds, and having more than three-quarters of global platinum reserves, this could explain the sudden interest in including South Africa in the golden BRICS. It can also be connected to the continent monopoly over much of the world’s strategic mineral resources, and its land space for expansion in agriculture (Sebastien Hervieu,2011). Looking from a different perspective, when it comes to the countries relationship and influence over Africa.
South Africa serves as a gateway to the continent in what concerns developed (north) and developing (south) world. China is seeing a major potential within South Africa as by 2005 China has invested 1. 6 billion dollars in Africa. (BBC news report 2011). Furthermore, Mexico’s economy is also full of potential mainly due to the North American free trade agreement (NAFTA). It now trades more than Argentina and Brazil combined and more per person than China. (The economist, 2011). The investment rate, being more than a fifth of GDP is well ahead of Brazil’s.
This raises interrogations on why Mexico was not chosen to be the next BRIC when it has such potentials. This source shows how Mexico could be taking over Brazil in the next few years and so should be included in the Brics. According to the World Bank, Mexico is the easiest place in Latin America to do business and the 35th easiest in the world. Much Ahead of Brazil being the 127th. So investors might prefer to look to invest in Mexico rather than Brazil as it has a much friendlier business Environment. As a potential BRIC, Mexico could emerge its growth in emerging ountries such as the brics, (Chase Buckner, 2011). Source: the economist, Mexico’s economy Overall, with all the information gathered, we can conclude that certainly BRICS powers will continue to take over the worlds market, They will influence our economy and be the leading powers in an economic sense in the future, and will continue to influence our economy; however, we should not just end to the 5 brics but also consider other potential countries with a trend of growth, the other potential 11 referred by Jim O’Neill should also be integrated in this frame of mind.
It is essential for Europe to adapt to those changes in order to benefit and should not be perceived as a threat. And integrate new world policies to adjust to incorporate this new trend, Brics. Bibliography The economist, (2011) Mexico’s economy; “making the desert bloom”; can be found on: http://www. economist. com/node/21526899 Jim O’Neill (2001), Goldman Sachs; paper no:66 page 2-5 “building better global economic BRICS” Jim O’Neill (2001), “the world needs better economic brics” Jim O’Neill (2005); how solid are the brics, “next 11” paper no 134
The economist,( 2011),Indonesia’s middle class; Missing BRIC in the wall Fei Liena, Liu Yunfei,( 2011),BRICS countries embrace strong economic recovery, structural shift; can be found on: http://www. defence. pk/forums/world-affairs/103112-brics-countries-powerful-group-world-china-daily. html Sebastien Hervieu ,(2011), Guardian weekly, article history, “South Africa gains entry to Bric club” Blake Hounshell, (2011),”BRICS: a short history, anthropology of an idea Global Sherpa, (2011), globalization, world ranking and international development: http://www. lobalsherpa. org/bric-countries-brics BBC news (2007) “china in Africa: developing ties” Jose Cassiolato and Bengt-Ake Lundvall, 2010 The Brics-project – first draft of position paper David Walton (2001)Transatlantic Differences in Merger Policy: Not Such a Big Deal J. Nordvig – Rasmussen(2001), The Next Wave of EU Enlargement: Opportunities in Convergence Peter Havlik (2009) “EU and Brics: challenges and opportunities for European competitiveness and corporation N. 13 industrial policy Chase Buckner (2011); “Mexico’s growing economy”