Posted in Finance Articles, Total Reads: 3588
, Published on 13 May 2014
BRICS- The Group Acronym stands for the intended developed powerful Economies of future- Brazil, Russia, India, China and South Africa respectively. The name BRIC was suggested by Jim O'Neill in 2001(for Brazil, Russia, India and China) for the 4 economies which were in similar stage of newly advanced economic development. South Africa was the 5th country to join in the year 2011.
In English language, the word “BRICK “stands for a concrete material used in masonry/ building construction. The recognition of the “BRICS” in economic terms is only the first Brick, which will change the functioning and power of trade in future. Currently, approximately 42 percent of the World Population, approximately 25 percent of the Global Gross Domestic Product (GDP) is contributed by these 5 Economies. According to the Goldman Sachs, the BRICs nations will emerge as the most developed economies by 2050, surpassing the GDP and development of US, UK and other already developed Economies. China will stand at Rank 1, India at Rank 3, Brazil at Rank 4 and Russia at Rank 6 in terms of their contribution to world GDP. These Economies will show exuberant growth for all economic and social indicators like employment, Purchasing Power Parity, Human Development Indicators etc.
However, these Economies can be faster and quicker towards the same development if they integrate economically. The strength of the BRICs nation is such that each economy’s /country’s need can be fulfilled by the other 4 economies.
The Economic Times has rightly phrased “China is the workshop of the world, Russia is regarded as a petrol station, India is the office, Brazil and South Africa provide raw materials .“ and thus these Economies can together act as a self sustaining and self fulfilling Trade Bloc in future. The details of their Trade in terms of major exports and Imports, further clarifies the same.
Brazil is a country rich in natural resources and agricultural products. It is the biggest exporter of coffee, soya bean, beef, sugarcane and many other like products. It is also a popular exporter of Iron Ore, Diesel, crude oil etc. Owing to its Natural resources reserves. The major Imports of Brazil are Cars, Petroleum gases and car components.
Russia on the other hand exports natural resources like coal, crude petroleum, refined petroleum which act as the scarcest resource for China and India. Its major imports include cars, packed medicaments computer products, pharmaceutical products, plastics, medical equipments and broadcasting equipments.
China which is synonyms with the word “ Manufacturing “ , manufactures and exports everything from a safety pin to clothes, shoes , vehicles in bulk. Besides EU and US, India, Brazil and Russia are on the list of its top 6 trading partners. Oil, Machines, ores and medical equipment are few of Chinas Major Imports.
India exports refined petroleum, packed medicaments, iron ore and cars. While the major imports of India include petroleum gas, gold, diamond etc. India is also marked for cheap labor, Information Technology services and expertise in the service industry..
South Africa is the smallest in terms of size and GDP of all the 5 nations. Top It is world’s biggest exporter of chromium and platinum (8 percent of total exports) and is rich in many other mineral resources like gold, coal, iron ores etc. Other exports include motor vehicles, car parts and diamonds.
What is clear from the above mentioned facts is the Degree to which one Economy’s Deficiency/Requirement can be fulfilled by the other economy (Other 4 BRICS nations). An example of the same is Russia, which exports the most important natural resource (Crude Petroleum) and imports pharmaceutical products, cars etc. China and India are one of the biggest importers of crude oil and iron ore, which is required in large quantities for fulfilling the demands of the burgeoning population of both the economies. Similar is the case with all other 4 economies where India Processes and converts Crude Petroleum to refined petroleum along with export of cars, pharmaceuticals etc. These are the major imports of China, Brazil, Russia and South Africa. If each of the other Country actually prefers to trade with the other 4 BRICS economy, the amount and degree of dependence on the developed economies like US and UK will fall sharply.
This concept has been identified and addressed by the BRICS nations. A number of Trade agreements have been signed amongst the 5 countries and a number of them are still in talks. There are more than 20 cooperation formats within the BRICS countries which are aimed to enhance trade and development amongst the nations. Recently, the 5 economies agreed on 11 prospective directions of scientific and technical cooperation on aeronautics etc. It is a move to modernize and integrate the Global Economic System and one of the first steps towards Cooperation .An example of the same is that in particular, in 2013, Russia and China signed 21 trade agreements, including a 100 million ton oil supply deal. The two governments signed an agreement to jointly build an oil refinery in the Eastern region of Beijing, for the benefit of both the parties. Russia is also trying to divert trade from The NATO economies to BRICS and has successfully increased Beef and other similar products imports from Brazil in 2012. US and UK have been unsuccessful in causing the “scarcity” of products for Brazil. India on the other hand is strengthening its foot on the Service Economy by providing cheap, skilled and efficient labor to all these Economies.
Ahead of this Trade in terms of goods and Services is the huge Socio-economic pressure which is soon to occur in China and Russia. China’s demographic projections suggest that its labor force will peak by 2015 and decline thereafter. In Russia, the working population is projected to decline sharply by 20 million in the next decade. Thus, the future requires young and enthusiastic people to sustain the 2 economies. The answer to this Socio-Economic Problem is the Young populations of India and South Africa which can help reduce the problem of Russia and China. India and South Africa both have the potential to supply cheap, skilled labor to these countries in future.
Thus, integration and further cooperation among the BRICS nation will only help them climb the stairs to being “Developed Economies “faster.
The article has been authored by Smridhi Khanna, PGDM from FORE School of Management.
The statistics were collected from EXIM Bank and other sources like