Tuesday, November 4, 2014

Unity is strength: will BRICS set the example?

This group of countries has received increasing attention since the term 'BRIC' was introduced in 2001. Brazil, Russia, India and China distinguished themselves at the time from other emerging markets by their large, rapidly growing economies and young middle class. In subsequent years, the BRIC countries grew very fast indeed. But what are the prospects a decade later?

The growth success of China has now been proven and Brazil has emerged as the most important economy of South America. But the global economic crisis still had an impact on these countries. From 2002 to 2012 the Chinese economy grew an average of 10.3%, India 7.2% and Russia 4.7%. For 2014, the growth forecasts are much lower. The World Bank recently also stated that China would benefit by focusing not so much on a fixed economic growth percentage, but instead invest more in its infrastructure and such.
The BRIC countries themselves differ greatly. Although they are placed under one heading in terms of growth potential, they are absolutely not comparable. China and India mainly grow through labor-intensive production and cheap labor. Brazil and Russia on the other hand rely more on their raw materials. Not surprisingly that the growth figures differ greatly in recent years.

Stock markets

Last year the stock exchanges and currencies of the BRIC's also performed significantly below par, mainly because they were under the assumption that tapering of the stimulating measures in the United States would have a major impact on cash-flow to- and from these countries. Since 2011, South Africa is also among the BRIC countries; then renamed BRICS. Altogether the BRICS now make up about 20% of the global GDP.

Joining forces 

The fact remains that the BRICS, in spite of the economic slowdown in recent years, not only get an increasingly important position economically and politically, but can also have demands. They could further strengthen that position by working together for example. This joining of forces has been expanded significantly in recent years.

The BRICS have repeatedly expressed their dissatisfaction about the dominance of the West on trade and financial markets. The foreign exchange market is dominated by the US dollar as a reserve currency for instance. But also the political agenda of the United States remains globally leading.

A big hit

The formation of the new BRICS Development Bank got a big hit this year. The intention was that the bank has access to a buffer of 100 billion dollars. This can be used for development projects and financial support to countries and currencies. The new bank has to compete with the IMF and the World Bank. Since China is the largest contributor is no surprise that the head office is in Shanghai. However, the power is distributed fairly supposedly, he main positions are rotated over a certain period of time.

Also politically, 2014 was an exciting year for the individual countries. Brazil, India and South Africa all held elections. The most recent elections in Brazil, won by incumbent President Dilma Rousseff, is seen as positive for the further development and continuity of the BRICS, even though the financial markets initially thought differently. Rousseff is a strong supporter of further cooperation and is praised by other countries to fight poverty and income inequality.

Setting the example 

If the BRICS succeed to further strengthen their position on the world stage, they will set the example for the rest of the emerging markets. Maybe also for the EAGLE's or other frontier markets, all groups of countries that also expect a lot of growth. Indonesia and Turkey are waiting to be included in the group of five.

Due to aging in Europe, low growth is expected in the upcoming years and it's a good idea to think outside the box as an investor. Nothing stays the same, that also goes for the currently existing economic powers in the world. The BRICS could very well be the next most important economic bloc.

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