The recent BRIC conference had some economic editors, such as London based Liam Halligan, asking “is this the end of the dominance of the G20?” This can be put down to six major reasons. Will the BRIC nations really take the dominant stance in the world economy, or will the established nations keep their stranglehold on world economics. Also, if you are interested in the BRIC nations, what is the best way that we at Total Wealth Managment can advise you?
Jim O’Neill, the global economist for Golden Sachs, coined the phrase BRIC to describe the emerging markets of Brazil, Russia, India and China. In his 2003 paper Dreaming with the Brics: the road to 2050, he says these countries will be the most dominant world economies by 2050. More recently, commentators are stating the following in advancement for the cause of BRIC.
1. G20 are only giving vague promises regarding external stability
2. The failure of the G20 as a decision making body
3. IMF predicts by 2016, these four countries GDP will outstrip the US
4. Russia and China are now trading oil in Roubles, rather than USD
5. All BRIC nations are creditors to the US
6. Trade and business between Africa and BRIC nations is booming.
The idea is that China and India will be the major contributors of the manufacturing and services industries while Russia and Brazil dominate the raw materials sector. The figures back this plan as well; these countries encompass more than 25% of the worlds land coverage, 40%of the world’s population and have a combined GDP of more than $15 trillion.
At TWM we believe that grouping these countries together can be very risky and it’s better to separate each country to ensure they fit your risk strategy and portfolio mix. Grouping them together has been and is still used as a marketing tool. All four have different political systems, from a single party system to the largest democracy in the world.
Geographically, they are too far apart.
Although these countries do not have a single trade agreement, as the EU does, there is the Shanghai Cooperation Organisation that contains China and Russia and the IBSA Tri-National Forum that contains Brazil and India.
Economically, they all have one thing in common though — abject poverty.
All the countries have the potential to follow Jim McNiell’s dream but let’s just put them where they should be. Brazil groups with South America and the USA, Russia ties in with Eastern Europe, India (not forgetting the political turmoil in the region) with its neighbouring states and China within Asia.
Nice and simple.
Paul McLardie is a partner at Total Wealth Management. Contact him at Paul.firstname.lastname@example.org