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BRICS – Potential, Opportunities and Challenges – Dr AI Moolla
The Emergence of BRICS
• In 2001 Goldman Sachs executive Jim O Neill in his article “The world needs better economic
BRIC’s” clustered countries at a similar stage of rapid economic development whose assets
were worth investment.
• He discovered that Brazil, Russia, India and China fell into this category and accordingly
coined the acronym BRIC.
• He did not expect the BRIC countries to form a political and economic club to play a role in
global governance.
• He however did not support the inclusion of South Africa in the BRIC summit believing that
the South African economy was not big enough to join the emerging economies club.
• South Africa was nonetheless officially admitted into the club at the BRICS summit in Sanya,
China on 13 April 2011. Emerging powers were not terribly concerned with GDP as a
qualification. It was concerned in developing the world economic and
political situation and realised that South Africa was
the gateway to Africa.
The Emergence of BRICS
• While there are many critics that claim that the BRICS initiative is overstated, it cannot be
denied that the BRICS economics are having a huge influence on the world economy.
• Over the past 5 years, more than a quarter in world growth has emerged from the BRICS
economies.
• It is also projected that by 2050 the BRICS economies will lead world GDP even though they
may not be leaders in GDP per capita
China
Russia
India
Brazil
SA
BRICS accounts for more than:
• 40% of the world’s foreign
exchange reserves;
• 40% of the world’s
population;
• 25% of the world’s land area.
Source: BRIC model projections
GDP and GDP per capita projections - 2050
Economic gravity shifts to Asia
China set to take pole position
Share of the world
Source: Goldman Sachs
* South Africa not included
Growth in middle class in the next decade
Number of People with income over $3000 in the BRICS
Billions
4
3.5
3
2.5
2
1.5
1
0.5
0
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Source: BRICS Model Projections
Future Predictions
BRICS exchange rates
BRICS Exchange rates could appreciate by close to 300% by 2050
China
289%
India
281%
Russia
208%
Brazil
129%
0%
50%
100%
150%
200%
250%
300%
350%
Source: BRICS Model Projections
Brazil
“The Jaguars”
• Over the next 50 years, Brazil’s GDP growth rate averages 3.6%.
• The size of Brazil’s economy overtakes Italy by 2025; France by 2031; UK and Germany by
2036.
• Challenges: lack of openness, lower education levels, lower savings and investment, higher
public and foreign debt.
• Lower convergence rate at first, then catch-up with China.
• Critical issues: Foreign and public debt constraints; Infrastructure; Openness to trade
“The Brazilian economy is booming. It is hotly tipped to achieve the prestigious Investment Grade as early as
next year, and by 2050 Brazil is predicted to have grown into one of the world's largest economies,
alongside China, the US, India, Japan and Russia” – Goldman Sachs
Russia
“The Bears”
• By 2050, Russia’s GDP per capita is by far the highest of the BRICs.
• Demographic dynamics drive GDP per capita path.
• Russia’s economy overtakes Italy in 2018; France in 2024; UK in 2027 and Germany in
2028.
• Critical issues: Life after Putin; The Transition from Oil.
India
“The Tigers”
• India’s growth rate remains above 5% throughout the period.
• India’s GDP outstrips that of Japan by 2032.
• India could raise its income per capita in 2050 to 35 times current levels.
• Still, India’s income per capita will be significantly lower than other BRIC countries
• Critical issues: Openness; Basic Education; Policy Coherence; Environmental issues
China
“The Dragons”
• China’s GDP growth rate falls to 5% in 2020 from its 8.1% growth rate projected for 2003.
• By the mid-2040s, growth slows to around 3.5%.
• Even so, China becomes the world’s largest economy by 2041.
• High investment rates, tapers off though projection period.
• China’s per capita income could be roughly what the developed economies are now
(about US$30,000 per capita).
• Critical issues: Financial System Reform; Political Transition, Environmental issues
South Africa
“The Lions”
•
Remains principal gateway to Africa
•
Continent's leading economy
•
Sophisticated financial and legal system (ZAR currency highly traded)
•
Better placed structurally / cyclically than developed countries to weather financial
crisis
•
South Africa’s financial system remains intact, no bailout required
Development stages
Adult
India and China
• + 1 billion people; $2 - $5 trillion; GDP 8% - 10%
• growth potential
• Geographical size – inconceivably massive, 2 out of 4 already major
nuclear powers – present a major future world presence / dominance
Puppy
Russia and Brazil
• Russia : 120 million people, Brazil : 190 million people;
• Economies + $1 trillion, GDP growth 5% - 6%
New Born
South Africa
• 50 million stagnant population, $0,3 trillion economy
• and 3,5% growth potential
Africa
The Emerging GIANT
• The African continent has a total annual GDP of US$1.6 trillion in 2008
(McKinsey & Co) – a little higher than Brazil or Russia
• $860 billion combined consumer spending in 2008
• In 2009 it recorded an estimated 5% growth and thus added US$70 billion
to the World economy;
• The African continent has over 1 billion people
Africa’s GDP has
doubled in the
• The continent is more democratic than ever before
last century
Trade between
Africa and
BRICS has been
double the
global average
A large continent with 54 countries and 922
million people. It has an enormous variety of
cultures, industry sectors, business drivers,
trading partners, historical connections,
religions and political parties. It is blessed
with considerable natural resources
Africa
BRIC countries have long recognised Africa as the next
economic frontier – the region with the fastest
growth after China and India
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One billion people making an impact on consumer markets
Unexploited mineral wealth
60% of the worlds uncultivated agricultural land
The youngest age profile of any continent
Functioning and reforming democracies
The literacy rate is at an all-time high
South Africa’s accession to BRICS means that Africa is now also represented
and will have its voice heard
Current Challenges
Financial
Stability
Economic
Stability
African System
Energy crisis
Food
Security
Political
Stability
Courtesy Dr. C. Nonkwelo
Africa in 30 years
• Nigeria will become the largest economy in continent in less than
20 years time.
• The African continent will have over 2 billion people in 40 years
• The African economy will be more integrated
• The levels of democratization will be greatly expanded
• The number of educated people will be much more than today
Opportunities in South Africa
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Investment and trade
Private companies will find easier access into BRICS countries
Partnership opportunities
South Africa already biggest emerging economy
SA companies active in at least half of all African countries
Increase competitive edge / ranking
Government increased commitment on infrastructure spend
Education receives the biggest budget
SA corporate – strong levels of cash flow
SA business now expanding to the USA and Europe
What has South Africa to offer
 Sophisticated financial markets
 Soundly regulated and well regarded banking system
 Clear intellectual property adherence rules
 A stable and democratic government
 Forefront of Africa’s regional integration efforts (AU)
 Far easier to do business in South Africa than in BRIC – World Bank Study
 The biggest investor on the African planet
“BRICS will actively promote trade and investment, which enhances
industrialization and promotes job creation – From BRIC to BRICS is the
better future for all” – Jacob Zuma
“South Africa is a major growth market in its own right and I do not
hesitate to recommend it to other investors” – Richard Branson
BRICS Impact
The BRICs Impact on Global Markets: A Transforming Event
• A sequence of pressures: crude, cars then capital
• The growth of a BRICs middle class could be a key market dynamic
• The timing of impact varies across the BRICs
• The next decade is likely to be the peak period for resource pressure
To ensure growth as predicted
• Sound,
stable macroeconomic policies
• Strong, stable political institutions
• Openness
• High levels of education
• ‘Miracle’ conditions are not needed.
Implications of the rise of BRICS
A (further) shift in economic power away from west .
The rise and reshaping of regional networks.
Changing consumption and production patterns.
A flow of capital back to the BRICS as the world rebalances.
Appreciation – through exchange rates or through prices?
The need to reshape international institutions.
BRICS – Projections and initial targets
The BRICs Projections
• The motivation: understanding shifts in global spending power
• The goal: a 50-year roadmap of growth and incomes
• The model: two parts to getting richer
• The results: a dramatic change if things go right
• The risks: conditions for converting potential to reality
BRICs Initial Targets
• Explore : security issues
• Reform : Support the reform of the IMF
• Joint research : Economic and trade issues
• Cooperation: in sports
• Promote: scientific, technological and innovation cooperation
In conclusion
“Over the next 45 it is possible if BRICS countries pursue good economic
policies that their economies collectively could become the biggest in
the world”
“It that is true, it will have an enormous influence on every aspect of our
societies and it will provide for those that have invested in the BRICS
dream pretty spectacular returns”
BUT WHATS REQUIRED
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Call for business ethics
Liberalization of markets and political institutions
Corporate social responsibility
Sustainable development
Partnership of women and men
A new paradigm of work
Consultation in decision making
Value-based leadership
Information technology explosion
Destabilization of our ideas of management
and leadership
“Education is the most powerful
weapon which you can use to
change the world.”
Nelson Mandela
THANK YOU