The 4th Industrial Revolution: The BRICS

The BRICS – and a New World Order

In 2001, Goldman Sachs predicted that a group of developing and newly industrialized countries could come to dominate Western economies. Since then, those countries have exploded and changed the landscape of world politics. So, what are the BRICS countries? BRICS is an acronym, for Brazil, Russia, India, China, and South Africa. Those five countries comprise nearly half of the world’s population, a quarter of the world’s landmass, and a fifth of the world’s GDP. Their combined GDP is nearly that of the United States, and growing. A major aspect of their alliance is the formation of a New Development Bank, to compete with the IMF and the World Bank. This gives them greater leeway to loan each other and other countries money for development, unrestricted by Western influence. Estimates as to their rate of growth tend to vary. Some say that they’ll overtake the G7 economies by 2027. Others suggest that they might achieve that goal by 2050. This will largely be fuelled by the rapid expansion of the middle class, and higher GDP x capita.

At the forefront is China. In 2013, they passed the USD 4 trillion mark in trade, and passed the United States to become the largest trade country in the world. China’s GDP could rival the US by 2020, as it is already by 2020, as it is already the 2nd largest economy. India’s expansion has led to the prosperity of the middle-class in recent years. Part of this is due to the fact that 10 of the 30 fastest-growing urban areas in the world are located in India. Brazil, which is oil and iron rich, grew to become the 6th largest economy in the world in 2012, briefly overtaking the UK. Russia, however, has seen economic difficulty and a declining population. Recent sanctions and geopolitical problems have increasingly isolated Russia from the rest of the BRICS. The final country, South Africa, was added to the group in 2010 despite having a significantly lower population and economy than any of the other. However, South Africa is the strongest African economy, and provides a significant foothold on the continent for China and India. Despite their strong growth, any have said it will be unsustainable as resources are depleted. A growing population will rapidly deplete them, and could sabotage the ability to grow at the same pace. Another critique is the overt dominance of China’s economy. Without China, the BRICS would have little political clout, and this gives China veto power over BRICS issues. In fact, China’s economy alone is larger than the rest of the BRICS combined. Additionally, all five countries have mixed records on human rights, and ongoing conflicts with their neighbouring countries.

Regardless, the BRICS have seen significant growth in recent years. Even if they don’t become the world’s dominant economies, they’ll still have far surpassed any expectations from the 20th century. Let’s take a short look at each of them, from an economic perspective:

Brazil[1]: This is the fifth most populous country on the planet (205 million) and the most influential power in Latinamerica. It is the largest national economy in South America and the seventh largest in the world. It’s agricultural output, coupled with the recent discovery of offshore oil reserves, had experts wondering if the nation was an emerging superpower. Since it has a large population, even though it’s GDP has grown, it occupies the 77th position in GDP x capita. It has been the world’s largest producer of coffee for the last 150 years. It has become the fourth largest car market in the world. Major export products include aircraft, electrical equipment, automobiles, ethanol, textiles, footwear, iron ore, steel, coffee, orange juice, soybeans and corned beef. It ranks 23rd worldwide in value of exports.

Russia[2]: 15th in GDP, it is the largest country in the world and the 9th largest population (142 million). It is 72nd in GDP x capita. The collapse of the Soviet Union brought a new landscape to Eastern Europe, with the re-emergence of countries like the Ukraine and the Baltics. However, Russia still kept most of the ex-Soviet’s Union territory. The post-Soviet time in the 1990s saw a rise in poverty. When Putin took office in 2002, the country was in bad shape. His strong leadership helped the country get back on it’s feet. Growth was primarily driven by non-traded services and goods for the domestic market, as opposed to oil or mineral extraction and exports. The average nominal salary in Russia was $967 per month in early 2013, up from $80 in 2000. Oil, natural gas, metals, and timber account for more than 80% of Russian exports abroad. Since 2003, the exports of natural resources started decreasing in economic importance as the internal market strengthened considerably.

India[3]: it is expected to be the fastest growing economy in 2016. It is known the world over for it’s IT companies and call-centers. International investors are driving growth in alternative energies, and pharmaceuticals and manufacturing industries. A young and rapidly growing working-age population; growth in the manufacturing sector because of rising education and engineering skill levels, and sustained growth of consumer market are driven by a rapidly growing middle class. Part of the challenges are modernizing the railroads and tackling widespread poverty. Many people lack access to electricity, food, and drinking water. 1/3 of the population of 1.25 billion people live in extreme poverty. Corruption and illegal untaxed earnings are widespread. Despite fast growth, due to it’s large population it is the 140th country in the world in GDP per capita.

China[4]: by the end of this year, China’s economy will pass all other nations to become the largest single-nation economy in the world. However, they also have the fourth largest land mass and the largest population. So their economy is large, but is it healthy and sustainable? China’s population (1st in the world, 1.4 billion) is disproportionately old and the country’s birth rate is low. Within a few years the working-age population will reach a historical peak and then begin a sharp decline. This will lead to fewer workers and higher wages. So they won’t be able to make goods as cheaply. China also has a low GDP per capita ranking (93rd in the world) and has a low standard of living. They rely on exporting goods to countries with higher average annual incomes per capita. This inhibits their ability to generate their own economy and makes them vulnerable to competing in developing economies. China is ranked number 80 on the Transparency International corruption scale. Also, 13% of the world’s poor population live in China, which is a strong indicator of economic disparity between the classes.

South Africa[5]: before and after the 1994 abolition of apartheid, South Africa was two very different countries. In the former, whites and non-whites were segregated, with many black residents forced out of their homes and denied citizenship. Since then, South Africa has flourished economically, but still struggles from extreme xenophobia, high income inequality, and rising crime. It is the 25th largest country in the world, with 53 million residents. It has one of the most diverse populations, with no fewer than 11 official languages recognized by the constitution. It is rapidly industrializing with the second largest GPD in Africa. It is one of the world’s top mining countries, producing platinum, coal, gold and diamond mines. Inequality is high. Unemployment is 25% and half the population live in poverty.

The BRICS bring about a New World Order. The emergence of Brasil, Russia, India, China and South Africa as superpowers means that they will have a bigger say at the game of world politics. Unfortunately, the fact that they get a bigger share of the pie means of course that other nations will be stuck with less. This is very hard to absorb for the nations of the “West”. Some nations though, like the UK, have been clever and do not contend the rise of China but embrace it. Of all the players China is, by far, the most serious cotenant to today’s economic powers. People forget that, before the 1800s, China was the leading nation regarding world commerce for at least a 1000 years. In their arrogance, they did not join the Industrial Revolution in time. Being mainly an agrarian society, they did not develop as fast as the industrialized nations, stagnating. Now, China is back in business big time.

This is the era of multi-polarism. In the Cold War, the world was divided in two: “the West” and “the Eastern bloc”. After the fall of the Berlin Wall, there was really only one superpower: “the West”. But after the financial crisis in 2008 and with the emergence of the BRICS, there have appeared several larger players in the dispute for world power. I consider there will not be such a clear alignment as there has been in the past. Multi-polarism, together with globalization, means a more balanced world. This is a good thing, because it means more opportunities for everyone worldwide.

BRICS countries are soon to represent 42% of the World Population’s, and 25% of global GDP. The establishment of the BRICS New Development Bank, as opposed to the IMF and World Bank, is an institution that will be used to provide with low interest loans to developing countries. The biggest difference to the previous institutions is that they do not demand a say in their target country’s political economy, or the way the manage the country. I always found it weird that if you get a loan from the IMF, you do not get a say any more regarding your own monetary policy. Discussions are being held to move away from the USD as the global reserve currency and perhaps at looking at a BRICS basket currency. The goal is to make it easier to do business and trade with each other, forming a sort of “Southern Bloc”. All of the countries are of course members of the G-20 group[6], which account for the largest 20 economies in the world.