Rising Importance of BRICS in the Global Capitalist Economy
In 2001, Goldman Sachs introduced the acronym BRICS which stands for Brazil, Russia, India, China and South Africa. This term was coined as part of an economic development program that was to forecast global economic trends over the next fifty years. The main finding was that BRICS countries would collectively play a vital role in the development and eventual nourishment of the global economy (Lo et al, 2014, p 6). The prediction of this study was that in the next half century, these economies would surpass the growth level already achieved by developed economies, such as the U.S and Japan (Singh 2013, p. 8). The main objective of this paper is to assess the impact of BRICS on the global economy. Through understanding the rising importance of BRICS in the global economy, interpreting evidence of a shift in dominance, and considering implications for sustainability.
The Rising Importance of BRICS in the Global Economy
BRICS comprise countries that were once in the league of developing countries, but have developed into emerging economies. In the last 10 years, they have consolidated their power to ensure a strong position in the world economy (Lo et al, 2014, p. 8-9). Through an analysis of Gross National Income (GNI), it is evident that China, India, and other Middle income Countries (MICs) are threatening to expand their share of the global GDP at the expense of the Organization for Economic Cooperation and Development (OECD) countries. With this trend, BRICS are expected to be contributing about 50% of the Gross Domestic Product on the global platform by 2015 (Singh 2013, pp. 8-9).
In the process of becoming major forces in the global economy, BRICS have remained stable by intensifying their economic cooperation by associating with other developing and developed nations in developmental initiatives. In addition, among the group of rising economies, BRICS play a vital and systematic role in the development of the global economy (O’Neill, 2011, p. 55). Three main aspects that support their relevance as chief players in development cooperation are the outstanding size of their economies, high growth rates, which have led to significant growth in the world economy, and the demand for a more stable and powerful political voice on the international scene that corresponds with their economic status (Lo et al, 2014, p. 7).
It is important to note that BRICS economies are not the only participants in the development of the global economy. Other emerging economies exhibit a few of the characteristics shared by BRICS. The groups identified by Goldman Sachs as the next eleven include Bangladesh, Korea, Nigeria, Turkey, Vietnam, the Philippines, Egypt, Turkey, Iran, Indonesia, and Mexico. These countries have improved their position on the global economic platform. However, unlike BRICS these countries do not meet all the mentioned conditions necessary to be global economic powers (Singh 2013, p. 8).
South Africa has been identified as one of the new entrants to the group of BRICS. Despite its acceptance, it does not demonstrate all the characteristics shown by the other members of the group. Of the countries that form BRICS, South Africa has the smallest economy. With a Gross Domestic Product (GDP) forming about one third of Brazil’s (Jones, 2012, p. 45). Compared to other powers, such as China and India, the fraction is much smaller (O’Neill, 2011, p. 125). Nevertheless, South Africa is Africa’s leading economy and has become an important player on continental as well as global political, economic, and social platforms. It is highly ranked in the category of Upper- Middle income countries (O’Neill, 2011, p. 126). It is important to note that like other members of BRICS, the country has enjoyed relative political stability as demonstrated by the four peaceful elections that it has held since the end of apartheid (O’Neill, 2011, p. 128).
The rise of the next 11 countries. A threat to BRICS countries
The next 11 countries are the most likely successors of the BRICS economies. This is related to the fact that over the last 10 years these countries have been experiencing a slow but steady economic growth rate thereby acting as potential threats to BRICS countries such as Brazil that are experiencing a decline in their economic growth. The group known as theNext 11, which includes Bangladesh, Nigeria, Indonesia, Pakistan and the Philippines among other states share the trait of rapidly growing populations combined with significant industrial capacity. These factors indicate a growing consumer market characterized by increased earning potential which creates business opportunities for local and international investors. These countries have demonstrated population growth significantly higher than those of the developed economies. This is an indication that they have greater consumer market potential which businesses can target since higher growth rates are an indication that there will be a rapid expansion of the market. The growing consumer market and industrial growth has had a major impact on the GDPs of these countries (Euromonitor International, 2008, p. 13).
Chart 6.0 (Euromonitor International, 2008, p. 13)
Chart 6.0 shows the rise in GDP per capita of the Next-11 countries (Euromonitor International, 2008, p.1).
Chart 7.0 (PWC, 2011, p.22)
Chart 7.0 shows the GDP of the world’s largest economies by 2050 (PWC, 2011, p. 22). Among the BRICS countries China and will be ahead of the US in terms of GDP. Among the Next 11 states Mexico and Indonesia will have joined the top ten list of the world’s largest economies in terms of GDP.
The growth of BRICS GDP at the expense of the developed countries
The share of the global GDP produced by the US, UK, Germany, and Japan have declined over the period from 1989- 2011. The United States experienced a slight decline in its GDP from 22.6% to 18.5%. The UK declined from 3.8% to 2.8% of their share of the global market. Germany went down from 6.3% to 44%. Japan also experienced a decline from 8.1% to 5.4%. There has also been a rise and decline in the GDP of the BRICS economies. Brazil, for instance, declined from 3.65% to 2.8%. Russia also declined from 4.9% to 3.7%. India experienced a rise from 2.4% to 5.65%. China experienced the greatest rise by registering 14% from 2% (The World Bank 2011, p. 45).
Table 1.0 (The World Bank 2011, p. 45): GDP trends of leading world economies 1990- 2011
Chart 1.0 (The World Bank 2011, p. 45)
Chart 2.0 (The World Bank 2011, p. 45)
Chart 3.0 (World Bank, 2013, p.60)
Chart 3.0 displays the rising levels in the share of BRICS countries GDP in terms of purchasing power parity (PPP) (World Bank, 2013, pp.60). At the initiative of China, South Africa joined BRICS.
Figure 1.0 (World Bank, 2011 p.50)
According to figure 1.0, as of 2010 China had already surpassed Japan in terms of GDP and other members of BRICS a showed improvement in their GDPs compared to the previous years (World Bank, 2011 pp.50). According to the above figure, by 2050 the US is expected to lose its global economic dominance to China. India Brazil and Russia are expected to surpass all other economies except those of the US and China.
Factors that have helped in developing BRICS economies
In terms of demographics, BRICS include two of the world’s most populous countries and the rest have substantial populations. China, for instance, comprises about a fifth of the world’s population, closely followed by India, which has about 17%. Brazil follows with a further 2.9%, while Russia and South Africa stand at about 2.2% each. In addition, these countries have abundant resources and therefore they play a vital role in industrialization and impact differently on the global economy (The World Bank 2013, p. 68). As communist societies, Russia and China faced harsh political and economic challenges at the collapse of the Soviet Union in the late 1980s, and the subsequent collapse of communism to capitalism. Despite challenges such as the Asian economic crisis of the 1990s, China emerged unharmed as Russia began employing strategies to rebuild its lost economic glory. Through the economic reform processes introduced, BRICS countries began gaining economic strength, which helped them emerge with confidence on the global front, especially in the period from 2001-2008. Some of the most important milestones realized during this period were when China joined the World Trade Organization in 2001, which opened up modernization processes for its industries. By 2003, Brazil had kick-started a period of exceptional economic development. It is important to note that by 2007, China had overtaken Germany to become the third largest economy. This was further reinforced when Brazil joined China and some of the gulf states to become a global creditor for the first time in 2008 (The World Bank, 2013, p. 67).
During the period between 2001- 2010, BRICS states realized significant development on both the economic and political fronts. In 2010, these countries collectively accounted for more than 39% of the global population and about 31% of the land mass. This group constituted about 25% of the world’s Gross Domestic Product (GDP) in terms of Purchasing Power Parity (PPP) compared to 17% in 2000 (The World Bank 2013, pp. 65-66). There is an expectation that these figures will rise along with improvements in economic indicators. In the same year, China replaced the US as the leading manufacturer in the world and replaced Japan as the second largest economy in the world (Wolf, 2011, p. 13). In terms of its economic size in nominal terms, China has experienced a fourteen times increase, Brazil’s economy has grown by about four times, India more than four times and South Africa more than three times. In the ranking of global economies, China comes second. If the current growth rates witnessed in BRICS countries are anything to go by then by 2050, China will consolidate its position as the leading supplier of manufactured goods, and India a dominant supplier of services. Russia and Brazil would be chief suppliers of raw materials (Daniels, 2009, p. 51).
Chart 4.0 (World Bank, 2013, p.56)
Figure 2.0 (World Bank, 2013, p. 59)
The above figure and chart indicate that as long as BRICS countries continue with their transformation of their economies. In chart 4.0 the level of democracy in China is considered as wanting but it does not interfere with its economic development. Its communist government minimizes risks associated with corruption as evidenced in figure 2.0 above. The market economies in 2912 were relatively stable an indication of growth (World Bank, 2013, pp.56, 59).
The participation of Russia in the global economy fluctuated over the last 10 years. With reference to the latest World Bank Ranking on the basis of 2012 GDP, Russia has overtaken Germany to become the fifth largest economy in terms of PPP. Russia’s economy is driven by oil export and its GDP stands at $3.4 trillion. These changes have brought into perspective the importance of BRICS in restructuring the global economic order. The countries forming BRICS are currently recognized as some of the fastest growing economies in the world engineered by structural adjustment and reform programs observed during the 2008- 2010 financial crisis that these countries had to endure. The programs include the reform to the state- controlled financial system in China to liberalize the economy of the country (Golubev 2013, pp.1-3).
In terms of foreign policies of BRICS countries, it is important to note that the environment in which these countries operate are dominated by variability in the geopolitical setting. All these counties are unmatched in their neighbourhoods with the exception of China, Russia and India. It is important to note that while Brazil and South Africa face no power rivals, China, India and Russia are neighbours. In numerous ways China and Russia are united as they focus on the United States as their main rival in both political and economic development. These countries perceive any policies initiated by the US in their localities as being directed against them (Bertelsmann 2013, p. 2).
The above statistics are a clear indication that BRICS states have growing importance on the global economic platform as reflected in various economic and demographic indicators. The indicators in this case include an increasing share in the global GDP, increased foreign- exchange reserves and an increase in their Foreign Direct Investment (FDI) arrivals and expenditure. Brics countries have played an essential role in the current trend in global investment. Their FDI outflow account for a tenth of the the global investment outflow and a third of those from third world and emerging economies. Some of the patterns that encourage the inward FDI patters include the maintainance of a relatively resilient FDI inflow to crisis compaed to the developed countries which witnessed a 30% decline 2009. This pattern enables a fster recovery in time of crisis(Betelsmann 2013, p. 2). If viewed collectively, BRICS states have become forces to reckon with considering that their share of global GDP has risen from about 10% in 1990 to about 25% by 2012. This by implication is an indication that the BRICS economies have grown by about 150% over the last 20 years (Singh 2013, p. 11). While it is argued that BRIC countries have greatly achieved important milestones in terms of an improvement in their GDPs, it is important to note that member countries have contributed in varied capacities, and some have failed to make any meaningful contributions to the overall GDP. China is the highest contributor while South Africa is the only country whose share in the world trade has not realized any significant improvement in the last 20 years (Singh 2013, p. 12).
Implications for Sustainability
The rapid rate with which the BRICS economies have been developing has in recent years closed the gap between the developed world and developing nations. It is important to note that if the growth patterns that have been experienced in the last 20 years are to continue without interference then these states must learn to deal with considerable obstacles that every individual country faces in its path towards development. These obstacles mainly arise from the threat of political and social instabilities emanating from extreme social inequalities. Other challenges arising from inadequate infrastructure to keep up with the pace of rapid economic transformation. Furthermore, the challenges that face these countries also include environmental problems, demographic pressures on employment opportunities, education and social welfare systems (Betelsmann 2013, pp. 1-2).
Russia for instance, is one of the weakest performers among the BRICS states with regard to its government’s weakness in the area of enhancing proficiency. Other weaknesses lie in its central government strategic planning capacity, interdepartmental coordination and execution capability. With reference to its political patronage and bureaucracy, Russia lacks the involvement of experts and relevant stakeholders (Jain, 2006, p.77). This has resulted in inconsistency in the communication and implementation of policies. This means effective policy-making initiatives in Russia are impossible. The Russian Federation has been ranked as one of the worst performers in the organizational reform capacity criterion, which refers to institutional self- reform abilities. When comparing structures that ensure the involvement of the civil society, only China ranks worse. This is because ineffective institutional reforms minimizes peoples’ involvement in developing a democratic political environment which is necessary for economic growth (Betelsmann 2013, p. 2).
The favourable demographic development in India makes the country’s economic stance appear more promising. It is however important to note that the optimistic projection of economic growth by 2050 heavily relies on India’s ability to overcome massive regional and economic disparities (Lo et al, 2014, 55). India needs to improve its infrastructure and make progress in the fight against poverty to reduce the poverty gap and reform the education and health sectors. The Indian government has however demonstrated reasonable progress in implementing effective policies (Betelsmann 2013, p. 2). Inasmuch as there are significant regional inequalities, there is a need for the government to do more to fight widespread corruption in the country by reinforcing oversight mechanisms (Singh 2008, p. 37).
As a country that has high levels of manufacturing needs there is need for more resources such as land to improve on China’s investments in both the manufacturing and service sector (Lo et al, 2014, 56). This had led China to purchase more land in Africa to ensure that they meet the increasing demand for manufactured goods and services. To further meet these demands, BRICS countries have recently experienced an increase in the use of electricity and other fossil fuel resources which in turn have led to emission of greenhouse gases. These gases have possibly contributed to global warming and climate change that may threaten the existence of humankind on earth (Singh, 2008, p. 38).
To ensure sustainable growth of BRICS economies and those of developed and developing nations, countries need to take responsibility for environmental destruction by initiating policies that will advocate for the use of renewable sources of energy (Lo et al, 2014, 16). A paradigm shift is also necessary in the advanced capitalistic economy to ensure that more research is done on the possible use of renewable energy sources (Singh 2008, pp. 39-40). The predicament between growth and environment has become more critical for China and other BRICS states. In 2008, for instance, BRICS contributed to about a third of global carbon dioxide emissions. This is while failing to take into account emissions resulting from unfriendly use of land resource (Lo et al, 2014, 56). These countries with the exception of Russia have witnessed rapid economic growth in the last two decades. The outstanding economic growth in BRICS countries has over the years lifted many from poverty. However, there is a need for global leaders in these countries to apply an equal amount of effort in initiating policies that protect the environment. China for instance experienced a large increase in carbon emissions in 2009 when it recorded more than 900 million tons, which was attributed to its standardized economic growth (Wu 2008, p. 4-6) as indicated in the chart below.
Chart 5.0 (EIA, 2011, pp. 59).
Chart 5.0 shows the continued increase in the emission of carbon IV Oxide in the atmosphere (EIA, 2011, pp. 59).
The last 20 years have seen the rise of Brazil, China, India, Russia and South Africa as powerful global economic forces. This is attributable to initiatives that these countries undertook to ensure economic growth. It is important to note that as these countries improved in terms of GDP, developed countries such as the US, UK, Germany and Japan experienced a decline in their share of the global GDP. In terms of minimizing pollution is a need for all countries to effectively participate in developing policies that protect the environment while at the same time ensuring sustainable economic growth. It would be beneficial if they applied an almost equal amount of energy to initiate policies that will help in minimizing the polluting effects on the environment. China, for instance has an aim of cutting down on the consumption of coal to below 66% of the entire energy use by 2017. This will be down from about 67.9% in 2012 (GovInn 2013, p. 16). The country also plans to increase the share of environmentally friendly sources of energy to about 13% by 2017 which will be an increase from 11% in 2012 (GovInn 2013, p.18). There are still plans in China to implement new motor vehicle standards by the end of 2014 and ensure that all diesel supplies are in accordance with numerous environmental standards. These and other strategies initiated by BRICS states will be ways through which these countries will ensure that their citizens and industries reduce their consumption of materials considered harmful to the environment. It is important that even as BRICS countries and developed countries such as the US, UK, Japan and Germany compete for economic dominance they should ensure that they initiate policies that protect the environment from harsh industrial activities. This will be in an attempt to secure the world against a possible ecological collapse which may prove devastating to all economies.
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