Na_puti_k_dolgosrochnoy_strategii_stran_BRIKS_angl

China

From 1978 onward, China gradually privatised agriculture and opened up to foreign investment and technology, thus speeding up its state-controlled economic transition towards a market economy, in particular since 1992. Driven by industrialisation goals, China has consistently channelled resources from the rural subsistence sector into industrial activities of higher productivity.

South Africa

South Africa has experienced difficulty in diversifying away from its emphasis on the development of natural resources. The fastest-growing sector of the economy has been the financial service industry, followed by the wholesale and retail sectors, with relatively little investment taking place in labour-absorbing manufacturing sectors.

1.3 BRICS in the global economy

The BRICS countries’ role as an engine of new consumption-driven growth may shift more dramatically and quickly than many analysts expect. Sustainable growth is the common theme that makes them a powerful and prominent force in the global economy. The BRICS economies jointly accounted for 8 per cent of global GDP in 2000; they are forecast to reach almost one quarter (24 per cent) of the world economy by 2019 (IMF, 2014). A Goldman Sachs (2003) paper predicts that the BRICS economies, which overtook Japan’s GDP in 2005, will surpass the United States by 2015 and the G6 by 2040.

TABLE 2

BRICS GDP in the global economy (2000-2019)

(In % of the world total at current price in US$)

These five countries participate in the international market in quite different ways. Manufactured goods account for 94.0 per cent of total exports from China, in contrast to 59.4 per cent from India and 42.0 per cent from South Africa. Exports of manufactured goods by Brazil and Russia account for 35.1 per cent and 19.3 per cent, respectively, of their total exports. Russia’s export basket is dominated by fuel and mineral exports (nearly 71.4 per cent), while agricultural products, fuel and mining products account for nearly 61.6 per cent of exports in Brazil. The demand for South Africa’s manufactured goods (nearly 42.0 per cent of total exports) has boosted the country’s exports and subsequently contributed greatly to economic growth (see table 4).

Technological developments across sectors in the BRICS economies are more visible over the past two decades, and may also be responsible for the changes in the composition of BRICS exports. The share of high-technology goods in the export baskets clearly indicates an upward trend.

A large percentage of the BRICS nations’ import baskets consist of capital goods, indicating the process of large-scale industrialisation in these economies, which is also reflected in their changing composition of commodity exports (see table 5).

1.4 Economic structure of the BRICS countries

The output structures of the BRICS economies have changed significantly when compared to previous decades. The declining share of agriculture in GDP has been a common trend over the years. While there has been consistent agricultural growth in Brazil and Russia compared to earlier decades, agricultural performance in India and China has shown greater volatility. Russia has experienced a decline in agriculture’s share of GDP, while in Brazil it has remained relatively stable (see table 8).

Agri-business plays a central role in Brazil’s economic development, engaging 35 per cent of its workforce and contributing almost 42 per cent of its exports. Brazilian agriculture has undergone dramatic changes in the past few decades. From a net importer of food grains until the 1970s, Brazil has emerged as the major net exporter of food products. A similar trend is witnessed in the case of India, where the Green Revolution and developments in biotechnology have helped the country become self-reliant in food production. With increasing global demand for food and the scarcity of arable land in the world, agronomic conditions will enable Brazil to continue its growth and become a larger supplier of agricultural commodities to nations around the world.

In China, especially since 1991 with the introduction of the socialist market economy system, many changes in urban areas were ushered in. The share of primary industry rapidly declined, while that of secondary and tertiary industries increased. In Russia, measures have been introduced to implement the National Project in Agro-industrial Complex. Among the BRICS countries, South Africa has the smallest share of agriculture in GDP, at around 3 per cent, and its services sector accounts for more than 60 per cent of total GDP (Oxford University Press, 2012, p. 9-11).

Similarly to agriculture, industry – especially manufacturing – has been losing share in BRICS nations’ GDP over time. This is true for all five countries, with the only exception of the share of industry (not so manufacturing) in China and India. China is the only BRICS economy where industrial output continues to dominate GDP – at around 45.3 per cent in 2012 (43.5 per cent in 1992).

Another common trend is the rising share of services in GDP. This sector now accounts for over half of GDP in all BRICS countries except China, where it grew from 34.8 per cent in 1992 to 44.6 per cent in 2012. This is a productive structure similar to that of developed economies. The basic difference is that the service sector comprises not only sophisticated, high-technology activities, but also those that come close to underemployment, and in emerging economies the latter tends to be predominant.

Source: World Bank, country database: <http://goo.gl/fl78xF>; Russia data for 2012: <http://goo.gl/7uTVoy>.

2 MAIN CHALLENGES

2.1 Challenges of the post-financial-crisis era

The rapid growth trend among the BRICS countries since the 1990s faced constraints following the global financial crisis that began in 2008. With the economic slowdown and setbacks in the financial markets in the United States and Europe, exports from BRICS countries to developed markets and investments in their respective economies declined.

The changing global financial conditions highlight the increasing sensitivity of emerging market economies (BRICS included) to changes in external conditions, as these economies have rapidly become integrated into the global economy. In essence, although domestic economic and structural policies remain important determinants of growth, external conditions also deserve attention. If impending changes in the external environment are dominated by an improvement in advanced economies, emerging market economies will benefit in both the short and medium terms. Conversely, if external financing conditions tighten, growth in emerging markets will suffer a relatively lasting effect. Even if external conditions deteriorate, the ability of emerging markets to weather such shocks will be affected by the domestic policies aimed at offsetting those shocks (IMF, 2014, p. 128).

Facing different recovering growth rates in emerging economies and the developed economies, the short-term economic policy of BRICS is confronted with a dilemma. The “rebalancing” of the global economy may lead to slow growth in total global demand and restrict the BRICS nations’ space for development.

Furthermore, the re-industrialisation based on the third industrial revolution of the West in the post-crisis era will pose great export pressure on the emerging economies depending on their market development, and also reduce the momentum for development. If the global climate change rules are reset, it might influence and even change BRICS nations’ choice regarding the path of industrialisation.

Certain measures should be taken by BRICS countries to boost their trade. One possibility would be a platform for the exchange of specific information. Not only should this platform release trade information and related policy information, but it should also provide information on social infrastructure planning and investment, which is closely related with trade, gradually making it a comprehensive information platform for trade and economic cooperation among the BRICS countries.

Exports and imports are subject to currency risk, because international trade transactions are mostly settled in major international currencies. Currency risk factors impede the growth of international trade, as exporters/importers are concerned about the implications of exchange rate fluctuations, especially during times of high currency volatility. A way forward could be to explore the prospect of trade settlement in domestic currencies. This would help mitigate the negative impact of currency volatility on trade and help promote the international use of the BRICS nations’ currencies.

China has already made a pioneering effort in this direction by settling some of its bilateral trade in renminbi and promoting an inter-bank and offshore bond market (Hong Kong-based) for renminbi. This would create investment opportunities and liquidity in the market, encouraging wider use of the renminbi for trade settlement. As far as Brazil is concerned, the Payment System in Local Currency (SML in Portuguese) with Argentina began to operate in October 2008. It is a unique system designed by both central banks, which carefully reviewed various international experiences in the area of payment systems, especially those of early intra-regional trade in Europe. All individuals and companies are eligible to participate in the SML in transactions relating to trade in goods and services (such as freight and insurance), which are either imports denominated in Argentine pesos or exports in Brazilian real.

Trade flows between two countries can indicate complementarity between the two economies, if the traded goods originating from each one are different, or some degree of competition, if there is similarity in the trade flows in both directions.

Spearman’s rank correlation coefficient is one measure for measuring the revealed comparative advantage in trade between two countries.1 As shown in table 9, there are three major types of trade relations among the BRICS. First, a stable trade complementarity: China’s trade relations with Brazil, Russia and South Africa are complementary, and the strongest complementary trade relations are between China and South Africa, featuring a typical U shape. China-Russia trade relations are also complementary, and show a stable and intensifying trend.

1. A negative coefficient generally shows a complementary nature of trade between the two countries, indicating that they export different products that meet each other’s need; a positive coefficient shows a competitive relation, indicating that the two countries export similar products that may potentially compete with each other. The absolute value of the coefficient shows the magnitude of complementarity and competitiveness.

Second, there is a stable trade competitiveness between South Africa and Russia, and South Africa and Brazil. The intensity of trade competitiveness in the two groups is high and increasing. Competitiveness is also strong in Brazil-Russia trade and Brazil-India trade, but this seems to be decreasing in magnitude over time. Trade competitiveness between Brazil and India is alswo decreasing. Trade competitiveness between Brazil and Russia features an inverted U shape.

Third, two pairs of countries have seen a change between competitiveness and complementarity. Trade between India and Russia was complementary before 2005, but by 2009 it had become slightly competitive. On the other hand, trade between India and South Africa has turned from competitive to complementary.

TABLE 9

Trade complementarity and competitiveness among BRICS countries (2001-2009)

Source: The Spearman’s rank correlation coefficient adopted from Wu (2012, p. 27). All pairs of trade relations are listed in the table.

BRICS countries should come up with proactive policies that reinvigorate their domestic economies and also establish strong economic relationships among themselves. It is important for them to forge stronger relationships to expand their domestic markets to revive growth. This will also help them reduce to some extent their excessive dependence on exports to markets in developed countries.

An open world economy will benefit all. BRICS countries are committed to establishing a post-Bali work programme to conclude the Doha Round, so as to build an “open, inclusive, non-discriminatory, transparent and rule-based multilateral trading system”, according to the Fortaleza Declaration released following their sixth summit (China Daily, 2014). As shown in table 10, there has been limited progress in the negotiations in the Doha Round so far. As the share of the BRICS countries’ trade and investment in total global trade and investment grows, they have been playing an increasingly important role in the multilateral trading system. The current mega agreements being negotiated, such as the Trans-Pacific