BackBrics: The developing giant
Brics: The developing giant
PremiumPhoto : Adriano Machado/AFP
When a Goldman Sachs’ study predicted in 2001 that the Bric—Brazil, Russia, India and China—would emerge as a major economic force by 2050, few could have dreamt that these economies would play a transformational role on the world stage just a decade after the study was published. In these 10 years, not only have the four economies, the largest outside the Organisation for Economic Cooperation and Development (OECD), become powerhouses providing much of the dynamism to the global economy, they are also lending their voices for reforming global institutions to make them more democratic. Mindful of this role, the members of the formation have taken two major decisions: to meet annually, and to invite South Africa to participate in the 3rd summit level meeting, to be held this week in China. This marks the formation of the Brics.
In the sphere of trade and investment, the Brics are making major contributions by increasing their links with low-income countries. Economic linkages between these and the Brics have increased impressively over the past decade. The Brics have lent critical support to them, which has largely been responsible for the growth momentum that low-income countries have seen in recent years. A manifestation of this new synergy is the deepening in trade ties: Since 2001, trade between the two groups has grown by at least 25% each year. As a result, trade with Brics now accounts for half their combined trade with the European Union and the US.
Despite the relatively small volume of this trade (compared with that between LDCs and developed countries), investment flows and development assistance provided by the Brics to these low-income countries have started making their impact felt in some critical areas. Investment flows have started from a very low base, but have increased rapidly in recent years.
A sizeable proportion of the investment was initially made in the natural resource industries of the host countries. But with time, money is now flowing into not only agriculture and manufacturing, but also into a number of service sectors, most noticeably telecommunications. A feature of the involvement has been firms from the Brics partnering with small and medium-sized enterprises in LDCs. Besides putting in financial resources, the Brics have also provided technologies that are in keeping with the resource endowments of their low-income partners.
The Brics’ role in altering the contours of global economic governance has emerged prominently in the post-crisis world. This has been evidenced in the deliberations between the Group of Twenty (G-20) countries, an influential forum that is now considering changes in the rules governing global finance and trade, besides a host of issues that are essential for shaping the development paradigm. One of the most important points put forth by the Brics on this forum is the need to reform the Bretton Woods institutions to reduce legitimacy deficits. An important first step, according to the Brics, is to alter the governance structures of these institutions by increasing the voting shares of emerging market countries in keeping with their larger presence in the global economy.
While a small initial step in this direction has been announced, a more fundamental reform of the institutions needs prompt attention. In particular, an open and merit-based selection method must be allowed, a point that was emphasised in the joint statement at the end of the second Bric Summit in 2010. By doing so, a more inclusive decision-making process can be put in place in the Bretton Woods’ institutions.
The role of policy coordination among major economies cannot be understated, particularly during the recovery phase that the global economy now finds itself in. This has become eminently clear in the deliberations at the G-20 level, where members have adopted a multi-year action plan on development. This includes the critical issue of food security and the attendant problem of volatility in the prices of agricultural commodities, which affect the most vulnerable. At the second Bric summit, leaders had agreed to develop a strategy for ensuring underprivileged populations access to food, to reduce the negative impact of climate change on food security, and to enhance cooperation and innovation in agriculture technology. As global food shortages rear their ugly head once again, the forthcoming Brics summit would do well to provide a well-coordinated strategy for addressing this imminent threat.
Biswajit Dhar is director general at Research and Information System for Developing Countries, New Delhi
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