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Thursday, 07 February 2013 16:40

BRICS Guide 4: BRICS Importance In The Emerging World Order

Written by Suresh P Singh (CUTS) and Memory Dube (SAIIA)

The BRICS growing importance for the world economy is reflected by various economic and demographic indicators. These include, but are not limited to, their increasing share in world GDP; share in world trade; trade openness and increasing forex reserves; and their foreign direct investment (FDI) inflows and outflows.

Regional/common market and share in global GDP

The BRICS economies, if viewed collectively over the last two decades, have emerged as a force to be reckoned with. This is duly reflected by the increasing share of BRICS in the world GDP. From a share of a little over 10% of the world GDP in 1990, BRICS now commands a share of more than 25%. This implies that the economic size of BRICS in terms of its share in world GDP expanded by 150% in the two decade periods.

Table 3: Overview of BRICS, 1990 and 2010

Country

Rank in world

GDP (PPP bn)

GDP ($ bn)

Share in world GDP (%)

Per capita GDP ($)

1990

2010

1990

2010

1990

2010

Brazil

8

2,172

508

2,090

3.3

2.9

3,464

10,816

Russia

6

2,223

1,465

3

10,437

India

4

4,060

326

1,538

3.1

5.4

378

1,265

China

2

10,086

390

5,878

3.9

13.6

341

4,382

South Africa

26

524

112

357

0.9

0.7

5,456

7,158

 

Source: IMF (International Monetary Fund) database, adapted from The BRICS Report 2012.

 

Share in global trade

As in the case of their share in world GDP, the BRICS share in world trade has also improved significantly over the last two decades, from 3.6% to over 15%. The primary contribution to this in terms of value has come from China, whose share has increased from less than 2% to over 9%. This is, however, not to argue that other BRICS countries have not contributed. Their shares have also increased, with Brazil’s share rising from 0.8% to 1.2%; Russia’s from 1.5% to 2.3%; and India’s from 0.5% to 1.8%. South Africa is the only country in the group whose share in world trade has remained constant over the last two decades.   

 img brics-guide figure1

Figure 1: Trend in BRICS share in global trade (%), 1990–2010. Source: UNCTAD, adapted from The BRICS Report 2012. India: Oxford University Press, 2012.

 Trade appears to have played a significant role in boosting the economic growth prospects of these countries. There is evidence to suggest that trade liberalisation has been seen and used as a tool for promoting economic growth and facilitating development in all the BRICS countries. BRICS countries have become more open, reflected by indicators such as trends in trade openness,[1] current account balance and forex reserves, among others.

In most of these parameters, BRICS countries have performed reasonably well, as reflected by Table 4. The rising GDP and forex reserves, increasing share in global trade, and trade openness augurs well for the group as a whole. They have bolstered the BRICS economic and political status at the global level and have helped BRICS countries to play a bigger role, as evidenced in the aftermath of the global crisis periods.

Table 4: Global integration and evolution of BRICS economies

Indicators

Year

BRICS economies

Brazil

Russia

India

China

South Africa

Trade openness

1990

6.9

6.9

17.4

24.3

2010

11.2

30.3

21.7

29.5

27.9

Current account balance (% of GDP)

1990

0.8

–1.2

1.3

1.4

2010

–2.3

4.9

–3.2

5.2

–2.8

Forex reserves (% of GDP)

1990

1.5

0

0.5

7.6

0.9

2010

13.7

30.4

18

48.8

10.7

External debt ($ bn)

1990

119.7

85.7

55.3

23.3

2009

276.9

381.3

237.7

428.4

42.1

Debt service ratio

1990

22.5

4.4

34.9

11.7

2009

23.4

17.7

5.9

2.9

9.3


Source: IMF, UNCTAD & World Bank, adapted from The BRICS Report 2012.

 

Trend in FDI inflows and outflows

Sustained economic activities buoyed by and coupled with a growth-oriented strategy in BRICS countries since the 1990s have resulted in significant infrastructural and other favourable changes. Together these have put the countries on a higher growth trajectory and increased market size of products and services. In other words, they have transformed BRICS countries into attractive destinations for FDI.  

Data demonstrates that FDI inflows in BRICS countries have increased at a compound annual growth rate (CAGR) of nearly 11% over a ten-year period, from nearly $81 billion in 2000 to over $221 billion in 2010. In comparison, FDI inflows in some industrially advanced countries show a declining trend (Table 5). The trend of FDI outflows is similar to that of inflows. FDI outflows from the BRICS countries have increased at a CAGR of over 35%, compared with a declining trend in some industrially advanced countries, as reflected by Table 5.

This is proof that BRICS economies are not only major destinations for FDI, but are also playing an increasingly important role in meeting global demands for capital.

Table 5: Trend in cross-country flows of FDI ($ bn)

Country

FDI inflows

FDI outflows

Inflows/outflows ratio

1990

2000

2010

1990

2000

2010

1990

2000

2010

BRICS

Brazil

1.0

32.8

48.4

0.6

2.3

11.5

1.7:1

14.3:1

4.2:1

Russia

0.0

2.7

41.2

3.2

51.7

--

0.8:1

0.8:1

India

0.2

3.6

24.6

0.0

0.5

14.6

--

7.2:1

1.7:1

China

3.5

40.7

105.7

0.8

0.9

68.0

4.4:1

45.2:1

1.61

South Africa

–0.1

0.9

1.6

0.0

0.3

0.5

--

3:1

3.2:1

Selected advanced economies

Japan

1.8

8.3

–1.3

50.8

31.6

56.3

0.3:1

0.2:1

0.02:1

UK

30.5

118.8

45.9

17.9

233.4

11.0

1.7:1

0.5:1

4.2:1

US

48.4

314

228.2

31.0

142.6

328.9

1.6:1

2.2:1

0.7:1


Source: UNCTAD, adapted from The BRICS Report 2012.

 

As far as the share of BRICS economies in global FDI inflows is concerned, in 2010 the group accounted for nearly 18% of total global FDI. What is more important is the fact that since 2000, there has been a sharp increase in the share of these countries in global FDI, when it was recorded at less than 6%.

 img brics-guide figure2

Figure 2: Trend in BRICS Share in FDI (% of global inflows), 1990–2010. Source: The BRICS Report 2012. India: Oxford University Press, 2012.

 

Trend in growth of labour force

BRICS countries continue to have a dominant share both in world population and labour force. In 2012, according to data from the International Labour Organization (ILO), BRICS constituted more than two-fifths of the world population, and, more importantly, constituted a little higher share in the economically active labour force (Table 6).

Within the BRICS countries, China accounts for the highest share in both population and economically active population. India, though having second-highest population, shows a relatively lower percentage of economically active compared with Brazil and Russia in the group. However, in terms of numbers, India has and will continue to have a huge economically active population in the coming years.

Table 6: Trend in economically active population (% of total population)

 

2000

2012

2020a

Brazil

68.1

69.9

69.4

China

77.0

73.9

71.4

India

59.5

55.5

55.1

Russian Federation

61.2

63.2

62.5

South Africa

52.2

52.5

54.3

Total (BRICS)

68.7

65.6

64.0

Total (World)

65.3

64.1

63.6

Share of BRICS in world population

44.8

44.2

43.4

Share of BRICS in world economically active population

47.2

45.3

43.7

a Projection.

Source: Based on ILO Labour Statistics.

 

Considering that some countries in the group, such as India, currently have a major proportion of their population below working age who would have migrated to working age by 2025, the dominating position of BRICS is expected to continue. For example, the labour force in India, which has a population of 1.21 billion, is expanding fast and integrating rapidly into the global economy. India is considered among the ‘young’ countries in the world, with the proportion of the workforce in the age group of 15–59 years increasing steadily. Considering that labour forces in economically developed countries are declining, this will have a huge implication for the world economies. Importantly, at the time of writing, only 2% of India’s total workforce has undergone skills training.

Similar challenges are faced by some of the other BRICS countries. It is expected that with increases in workforce coupled with skill development, BRICS economies will be in a more favourable position in 2020. BRICS countries have a great opportunity to meet the future demands of the world. They can, in fact, become the worldwide sourcing hub for a skilled workforce.

Preparedness: Competiveness, ease of doing business, ease of movement of people

The BRICS countries are gearing themselves towards preparing for a greater role in the international market. The drive is being supported by a number of initiatives in different BRICS countries to increase their global competitiveness, and to facilitate ease of doing business and promoting increased movement of people. For example, to facilitate ease of doing business in India, the government has introduced many initiatives.

These includ:

  • no added transaction costs;
  • enabling overseas investors to benefit from the opportunities in India by facilitating appropriate advisory and hand-holding services through market-driven knowledge partners;
  • catalysing sustainable business-to-business partnerships between Indian and overseas Indian businesses;
  • and enabling value addition to the investible knowledge skills and expertise of overseas Indians.

Brazil has also introduced measures to eliminate barriers to entrepreneurial activity by, for example, reducing the number of procedures, the number of days, and the cost associated with obtaining a business licence. Similar initiatives have also been adopted in other BRICS countries.

However, much still needs to be done in all five BRICS countries. According to the World Bank’s annual report, Doing Business 2012, Brazil was ranked 126th and Russia 120th out of 183 countries in the Ease of Doing Business. India was ranked the lowest in the group, at 132nd, although when compared with 2011 its position is up by seven places on the list. Two countries that appeared to be doing relatively better are South Africa and China (with 35th and 91st positions respectively).

The report also shows that since last year Russia has climbed up by three positions. This improvement in the country’s rating has resulted from a number of reforms implemented in Russia. These include reducing the cost of electricity by revising connection tariffs; eliminating the requirement to obtain cadastral passports on land plots; making it easier to file a commercial case by introducing an electronic case filing system; and making trading across borders easier by reducing the number of documents needed for each export and import transaction, and lowering the associated cost.

 

Table 7: Comparing BRICS countries in ease of doing business, 2009–12

Country

2009

2010

2011

2012

 Singapore

1

1

1

1

 Hong Kong

2

2

2

2

 New Zealand

3

3

3

3

 US

4

4

5

4

 Denmark

5

6

6

5

 Norway

10

10

8

6

 Russia

118

120

123

120

 Brazil

127

129

127

126

 India

132

133

134

132

 China

86

89

79

91

 South Africa

32

34

34

35


Source: World Bank, Ease of Doing Business 2012. Washington, DC: World Bank, 2012.

 

Read on: BRICS Guide 5: Trends In Intra-BRICS Co-Operation


 

 [1] Trade openness is defined as the sum of exports and imports as a percentage of GDP.

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