BRICS was carved out of a group formally initiated by Russia in 2002 – Russia-India-China (RIC) to address the challenges it faced after the break-up of Soviet Union.1 China and India’s dependence on Russian Military Industrial Complex (MIC) bailed out Russia from possible disaster in the early 1990s. Russia shares strategic defence relationship with both China and India. Russian MIC supplies approximately 70 per cent of India’s defence imports and is engaged in sharing hi-tech military technology with both India and China. For example, Russia and India are engaged in the joint production of the fifth generation combat aircraft PAK-FA/T-50 and Transfer of Technology for India’s nuclear submarine and aircraft carrier projects. Russia has agreed to export China SU-35 Super Flanker, S-400 Triumf Air Defence System (SA-21 Growler) and RD-93 jet engines.
The BRICS nations currently offer some of the most exciting investment opportunities in the world…
Brazil, Russia, India, China and South Africa (BRICS), encompass more than a quarter of the world’s landmass and 40 per cent of its population. Within the past decade, BRICS has contributed more than a third of the world’s GDP growth. Since 2000, the BRICS has grown from comprising one sixth of the global economy to currently comprising almost a quarter, in terms of Purchasing Power Parity (PPP), and analysts, such as Goldman Sachs and McKinsey, expect these trends to become even more pronounced in the next decade. Indeed, the BRICS, as an aggregate economy, is predicted to overtake the US by 2018 and will account for a third of the global economy (in PPP terms) by 2020 and almost half of all GDP growth.
China alone has 1.3 billion consumers currently and is forecast by McKinsey to become the third-largest consumer market in the world by 2025. By 2025, the population of the BRICs with incomes above $15,000 is forecast to increase by 200 million people, which is equal to the combined population of Germany, France and the UK. In light of this, the BRICS nations currently offer some of the most exciting investment opportunities in the world.2
The seventh BRICS Summit was held at Ufa (Russia) in July 2015. The agreement on the establishment of the New Development Bank was signed by the BRICS countries in July 2014 and seen as rival to the existing US-led institutions, the IMF and World Bank. The countries are expected to discuss the IMF reform that should give a louder voice to developing countries in decision-making, and the possibility of creating an independent BRICS rating agency3. Another 40 such projects set for consideration by the five-member group with “infrastructure” being a major among them.
However, this Russian initiative since 2006 has a long way to go as the group lacks essential political, economic, financial, and strategic qualities to emerge as an agent of change within the global order shaped by the West.
With the collapse of the Soviet Union, the bi-polar world order initially gravitated towards a uni-polar world order led by the United States…
While BRICS is understood as a new development in the area of multi-lateral institutions, in terms of ideology it has precedence in early efforts made by India and China soon after becoming sovereigns in 1947 and 1949 respectively. An initiative made by five sponsoring countries (Burma, Ceylon, India, Indonesia and Pakistan) at the Bogor Conference in 1949 led to the Asian-African Conference at Bandung, Indonesia in 1955 where a collective effort was proposed to rise against colonialism4.
Apart from setting forth realistic concerns for securing traditional security concerns of newly independent countries in Asia and Africa (sovereignty, territorial integrity, equality and mutual respect, non-interference, non-aggression, and peaceful co-existence) the idea of cooperation in the fields of economy, culture and religion found significant attention5. Despite the enormous common challenges faced by multiple nations in Asia and Africa, the conference exhibited the tensions among its participants given the different political and economic system practiced in many countries6. This initiative failed to seek a common ground and create a formidable block during the Cold War due to multiple reasons, including territorial disputes among many developing countries. However, the desire among the developing countries to create a mutually benefiting international world order did not sine die.
With the collapse of the Soviet Union, the bi-polar world order initially gravitated towards a uni-polar world order led by the United States supported by its NATO allies. However, the shift included the consolidation of power at a multi-polar level and continues to do so with more intensity with economic slowdown in US and other Western economy. This new development was quickly factored into the foreign policy of many countries including China and India. President Jiang Zemin officially incorporated the concept of multi-polar world (duoji shijie) into Chinese foreign policy at the 14th Congress of the Communist Party of China in 1992 to support China’s stance that a fair, just and peaceful world is only possible through multi-polarity.
The financial crisis in 1997 and 2000 led to a rethink in creating economic shock absorbers other than the International Monetary Fund (IMF) and World Bank (WB)…
China’s foreign policy since Jiang’s leadership acknowledged that a singular and unchecked superpower can be very dangerous as exemplified by the US invasion of Iraq without a UN sanction and the US/NATO actions in Kosovo.7 The multi-polar world order favored an international situation that Russia, India, and China and other developing nations sought in furthering their national development and interest. A major boost to this idea came with the ‘China – Russia Constructive Partnership Agreement’ of 1994 that was later renamed ‘China – Russia Strategic Agreement’ in 1996 which not only strengthened Chinese-Russian relations, but also their preference to multi-polarity as against the unipolar world order that had emerged after the collapse of the bipolar world order. The Shanghai Cooperation Organisation (SCO) was a manifestation of this preference for a multi-polar world order. India is an observing member at SCO and is contemplating a full membership in the near future.
BRICS was carved out of a group formally initiated by Russia in 2002 – Russia-India-China (RIC) to address the challenges it faced after the break-up of Soviet Union.8 China and India’s dependence on Russian Military Industrial Complex (MIC) bailed out Russia from possible disaster in the early 1990s. Russia shares strategic defence relationship with both China and India. Russian MIC supplies approximately 70 per cent of India’s defence imports and is engaged in sharing hi-tech military technology with both India and China. For example, Russia and India are engaged in the joint production of the fifth generation combat aircraft PAK-FA/T-50 and Transfer of Technology for India’s nuclear submarine and aircraft carrier projects. Russia has agreed to export to China SU-35 Super Flanker, S-400 Triumf Air Defence System (SA-21 Growler) and RD-93 jet engines.
Russia, India and China (RIC) have now moved towards Asia-Pacific and turning the global focus from a Western-centric order to a multi-polar order. In this regard, the establishment of BRICS Bank, officially termed New Development Bank (NDB) in July 2014, is likely to be an emerging alternative to the existing global financial system. Whether it is BRICS, SCO, G-20 or RIC, India, China and Russia have played major roles to engender a global debate not dominated by any particular ‘ism’. Russia also pledged to support India’s candidature for full membership of the SCO and UNSC.
China is currently the largest holder of foreign currency reserves on the planet, 54 per cent of its $3.2 trillion worth of foreign reserves are in US dollars…
China’s initiative in setting up the Asian Infrastructure Investment Bank (AIIB) with 57 founding member nations (37 from Asia and 20 from outside Asia) is another such move breaking away from Western-centric order9. Founder members will initially pay up to one-fifth of the AIIB’s $50 billion in authorised capital, which will eventually be raised to $100 billion. The gravitational pull of this idea has led to some western powers (Great Britain, Germany, France, and Italy) to join the AIIB while US, Japan, Canada stayed away perceiving extensive influence of China over investments made through the AIIB, lack of transparency and environmental concerns. According to Jin Liqun, Secretary-General of China’s interim Secretariat, which is establishing the AIIB, “Although China would have the biggest share in the bank, it would not dominate its operations.”10
BRI ‘C’ S – Centre of Gravity
The financial crisis in 1997 and 2000 led to a rethink in creating economic shock absorbers other than the International Monetary Fund (IMF) and World Bank (WB) which imposed restrictions on the Asian governments from increasing expenditure and imposing politico-economic reforms against the wishes of the governments.11 China improved its relations with Asian economies affected by these financial crises by remaining sensitive to import-export balance and refraining from interference.
A foreign policy based on the principle of non-interference was valued and sought to be institutionalised by creation of intra-regional free trade agreement. With this background, BRICS leaders set up a New Development Bank during the 6th BRICS summit in 2014 at Fortaleza in Brazil to mobilise resources for infrastructure and sustainable development projects within BRICS and other developing countries. The BRICS Bank will supplement the existing efforts of multilateral and regional financial institutions for global growth and development. China is expected to press for it to be based in Shanghai and to operate in Yuan, the Chinese currency. The BRICS Development Bank will initially be capitalised at $50 billion, with $10 billion from each of the BRICS members. China is expected to form the centre of gravity within BRICS given various forecasts which predict that China will soon surpass the US as the top global economic power. Whether this will happen as early as 2016 as the IMF predicted using purchasing power parity as basis of analysis or by 2020 or 2030 according to the World Bank, the “guesstimates” agree that it will be earlier than previous assessments.12
The quality of economy based on key demographic indicators stands highest for Russia and China, and lowest for India and South Africa…
China is currently the largest holder of foreign currency reserves on the planet, 54 per cent of its $3.2 trillion worth of foreign reserves are in US dollars. Since the 2008 global financial crisis, China has accounted for more than 35 per cent of all global economic growth.13 For the first time since 2003, China surpassed the US as the world’s largest recipient of global Foreign Direct Investment (FDI) in the first half of 2012.14 China has extended $12.5 billion more in loans to Sub-Saharan Africa in the past decade than the World Bank; $67.2 billion was also lent to the world’s poorest region between 2001 and 2010 compared with the World Bank’s $54.7 billion.
Measurement of Inequality within BRICS
The quality of economy based on key demographic indicators stands highest for Russia and China, and lowest for India and South Africa. China exhibits a balanced demography adding strength to its voluminous economy. For example, though China and India have populations exceeding a billion, the unemployment rate in India is higher along with infant and maternal mortality rate. This eliminates the advantages India has over China in birth rates.
The demographic indicators are valuable measurement of the quality of the economy and potential prospects for future. In terms of GDP, China exceeds all other members of the BRICS grouping with $9,185 billion followed by Brazil ($2,246 billion), Russia ($2,096 billion), India ($1,726 billion) and South Africa ($382 billion). Expect for steel production, where South Africa produces 92,180 million tonnes compared to Russia (69 million tonnes), China (779 million tonnes), India (78 million tonnes), and Brazil (50 million tonnes) and per capita GDP at current prices where Russia leads with $14,604 followed by Brazil ($11,171), South Africa ($7,810), China ($6,768) and India ($1,418).
China leads in many indicators to a size five times of India. India happens to be the weak link among the five members of the BRICS group with leading indicators in population, density of population, birth rate and maternal mortality rate.15 India does have an advantage in the total number of people with the age group of 24-59 (513 million) in 2012 compared with Brazil (96.2 million), Russia (75.3), China (935 million), and South Africa (22.2 million) given Russia and China’s slowing birth rates at 10.2 per cent, however this demographic divided is not an indicator to be taken for granted.
China leads in many indicators to a size five times of India…
India further shares the highest percentage of primary industry among BRICS grouping members at 25.7 per cent of the GDP in 2000 and 20.5 per cent in 2013 compared with Russia at 4.0 per cent, Brazil at 5.7 per cent and China at 10 per cent in 2013. However, as a percentage share of secondary industry in GDP, China leads at 43.9 per cent followed by Russia at 35.7 per cent, Brazil at 25 per cent and India at 22.6 per cent. In the tertiary industry, Brazil leads at 69.3 per cent followed by South Africa (68.3 per cent), Russia (60.3 per cent), India (57.0 per cent), and China (46.1 per cent).
Except for Russia, all other BRICS members consume more energy that they produce. For example, while Russia’s total primary energy production is 2,740 mtoe, its consumption stands at 1,893 mtoe in 2013, whereas India produces 448 mtoe and consumes 1,129 mtoe. India and China import 18 per cent and 16 per cent of their energy requirements respectively and Russian imports remain low at 1.6 per cent.
All five members share weak exchange rates with respect to the US dollar, with the Indian Rupee being the weakest at 65.07 Rupees per USD…
Measuring BRICS Financial Health
Expect for Russia, all other countries in BRICS grouping hold deficit in general government expenditure. As a percentage of GDP, Russia had a surplus of 1.4 per cent in 2000 and -0.5 per cent in 2013. India had a deficit of -6.6 per cent and -3.0 per cent in 2012, and China had -2.5 per cent in 2000 and -1.9 per cent in 2013. South Africa’s share of income tax to revenue stood highest at 41.3 per cent in 2011, compared with China’s 22.4 per cent and Russia’s 10.4 per cent in 2013. China leads in export-import among the BRICS nations followed by Russia in exports and India in imports. China’s total export-import is approximately four times that of India and Russia approximately.
Value of exports of goods and commercial services (in million US$) stood at 2,248,317 for China followed by Russia (590,345), India (446,079), and Brazil (282,442). Ratio of exports of goods and commercial services to imports of goods and commercial services stood highest for Russia at 126.2 per cent followed by China 111.5 per cent and India 78.1 per cent. Ratio of exports of goods to imports of goods remains highest for Russia at 153.6 per cent followed by China at 118.5 per cent, Brazil at 108.7 per cent and India at 61.2 per cent.
In terms of inflows of FDI (million US$) China registered itself as the most reliable destination for investment with $117,586 million followed by Brazil with $64,045 million, India $28,807 million, and Russia at $26, 118 million. Outflows of FDI (million US$) for both Russia and China increased five-fold since 2006 in 2013, however for India it decreased by 50 per cent since 2006 in 2013 and Brazil by nine times.