BRICS-a-Brac

This week’s annual summit of the BRICS nations - Brazil, Russia, India, China and South Africa - is notable for several reasons, not least because South Africa is the host this year.

It is the first in-person summit of heads of state since the pandemic, but President Putin of Russia will not attend due to the International Criminal Court indictment against him. Russia’s growing global isolation and escalating tensions between China and the US also mean the summit has received more media attention than previously.

Awkward
It is worth remembering that this rather awkward grouping of very different countries started out in a Goldman Sachs research paper 22 years ago, when then chief economist Jim O’Neil argued that the ongoing economic rise of Brazil, Russia, India, and China would necessitate a reordering of global governance institutions. He wasn’t wrong, but coming soon after the dotcom crash, the BRIC concept quickly became a marketing fad as the hot new thing in investments. This idea gathered further momentum when these countries emerged from the 2008 Global Financial Crisis in better shape than the West.

In 2009, the leaders of the four countries met to turn the acronym into a political club. South Africa was later invited to join, and formerly became a member in 2011. However, BRICS is still more form than substance. It remains an informal arrangement for now, lacking a founding charter, and importantly as we’ll see below, any kind of free trade arrangement. The one tangible creation of BRICS is the New Development Bank, set up as an alternative to the World Bank and other Western-led development institutions, but it remains small compared to them.

Far from collectively being the countries of the future, the BRICS have had divergent performances since the club was formed in 2009. Chart 1 shows that China’s spectacular gains in real per capita income continued, but as we now know, serious imbalances built up over this period, including a property bubble and associated rapid rise in private debt that is likely to create an overhang constraining growth in the years ahead. China’s declining population, like Russia’s, is also a structural headwind. India has also managed sustained improvements in living standards from very low levels of per capita income. With its large and relatively young population and high savings rate, India can continue to grow rapidly in the years ahead with the right government policies.

Click here to read more...