Considering their enormous growth potential, the considerable size of their domestic markets and a stable political scenario, four countries – Brazil, Russia, India and China – were selected by Goldman Sachs’ chief economist Jim O’Neill in the beginning of the last decade and they were collectively called BRIC.
The first summit of these countries was held in Yekaterinburg, Russia in June 2009.
South Africa (the ‘S’ in the BRIC) joined them formally at the third summit in 2011 and the ‘powerful coalition’ of BRIC bloc became BRICS.
These five powerful nations together are the home to almost 50 per cent of the global population, thereby making them a huge market in terms of size.
Their economies are 25 per cent of the world’s GDP.
Three of the world’s top ten economies are members of the BRICS, two of which are the world’s fastest growing economies.
They collectively have a 17 per cent share in the world trade. Given such statistics, the BRICS bloc is seen as a strong dominant force on the world economy and it is understandable that the idea of increasing intra-BRICS trade creates a lot of flutter in the global economic platform.
Challenges abound
While the trade ties among these nations have strengthened over the past few years and the volume of trade has also risen exponentially, it is widely believed that there is still immense scope for pushing it further.
However, weakness in the global economic scenario, coupled with various degree of risks and economic challenges these economies are currently withstanding along with lack of clear-cut trade political consensus stands as a dampener in the BRICS bloc trade.
Brazil, the largest economy in Latin America, has been a victim of falling commodity prices as the so-called ‘super-commodity cycle’ has reached its lower end.
Most of the BRICS countries struggle with labour rights issues, where rampant poverty and endemic corruption have compounded workers’ problems [Xinhua]
Its economic problems have increased in the backdrop of corruption and political uncertainty which has hurt the investment climate and confidence in its economy.
The tumbling oil prices accompanied by the West’s sanctions on Russia only deepened troubles for its economy, shrinking it by 3.7 per cent in 2015.
India, which is primarily a domestic driven economy, has shown resilience to global headwinds, and has emerged as a bright spot in the current muted global scenario.
China has experienced some slowdown as it is going through a process of transition and it is trying to make its growth more sustainable for the times ahead.
South Africa is the smallest economy among the five with a GDP of $312.8 billion and has grown at an average rate of 2.39 per cent during the last five-years.
The trade between different nations is determined by a mix of demand and supply factors in the countries with the growth of their economies playing a major part in guiding these forces.
Free trade agreement?
While trade practices such as protectionism and barriers (tariff and non-tariff) can impede the trade canals, friendly trade pacts and free-trade zones can push the movement of goods and services higher.
World trade is expected to grow at just 1.7 per cent during 2016 as per the WTO (September 2016 update) while it is likely to grow between 1.8 per cent and 3.1 per cent in 2017. With the global economy expected to slow to 3.1 per cent in 2016 (October 2016 update) as per the IMF, the pace of trade will be slowest since the crisis of 2008-09.
Although this does not sound encouraging in the global perspective, if we narrow down our focus and look at BRICS specifically, the growth projections look positive.
The average growth rate of the bloc will continue to stay ahead of developed nations such as the US, Europe and the world economy over the next couple of decades.
Therefore, these nations must lay emphasis on better intra-BRICS trade ties. This is also based on the theory that trade and economic growth are tied in a cause-effect cycle, and thus feed off one another.
Studies reveal that on the basis of the Finger-Krenin Index which considers the Degrees of Similarity in Export Structures and Relative Export Competitive Pressure Index (RECPI), “there may be a case for a free trade agreement among the BRICS group of countries”.
In fact, China proposed a free trade area for the bloc ahead of the BRICS summit but the idea hasn’t got an encouraging response.
That is mainly due to the fear that the domestic markets of these nations will be used as a dumping ground and would get swamped by Chinese goods and while China would gain traction for its goods, it may not cede ground to others in the mainland. While others feel that its openness will be limited by its ‘well-known’ invisible non-tariff barriers.
The idea of a free-trade area requires more deliberation as well as more confidence-building among these five nations to ensure that all participants are mutually benefited.
While a free-trade area is not an immediate possibility, these nations must engage in more economic pacts and partnerships to spur investment and trade, skill development, sharing intellectual capital and capital movement – which will help give a boost to these economies together and will further fuel trade links.
It is important that the political heads of these states trumpet the advantages of such trade-ties and such deals to educate its people to smooth the decision making in times ahead.
The canvas of BRICS is very broad and these nations have ample scope to come together for various projects and build deeper strategic ties which will eventually ease trade flows and boost economic prosperity.
A stance against terrorism
The eighth BRICS summit in Goa, India is underway with the heads of all member countries in attendance, trying to make the most of this opportunity to table their own agendas and trying to reach mutually beneficial agreements on several issues like free trade, sharing of defense intelligence, terrorism, economic growth, agricultural partnerships and other aspects where each member country stands of benefit.
With the backdrop of heightened tension between India and Pakistan, terrorism will remain the focus of this summit. India is looking to gather as much support as it can in its fight against terrorism.
While Russia has clearly backed India, it will be looking to get China to take a substantive stance on the same.
Further, it would look to smooth its relationship with the mainland on all fronts for better economic and geo-political environment between the them.
While trade agreements and investment initiatives will be a part of the summit, it’s the political and tactical cohesiveness which will be the focal point.
The BRICS bloc is a strong influence on the world economy and political consensus on varied issues can enhance their power at the global stage.
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