August 21, 2014

BRICs

Brazil, Russia, India and China (BRICS) are commonly viewed as the four ‘main’ emerging markets. Research by investment bank Goldman Sachs claimed that BRICS have made their ‘mark’ on the global economic landscape (May 20th 2011). Their research claims that they have contributed to over one third of the world GDP growth in the past ten years. The respective research from the group claims that they expect the BRICs tend to ‘continue and become even more pronounced.

Now the key question is why are these BRICs viewed as seeing as such strong emerging markets, and the answer to this is discussed below:

Brazil: Brazil is fortunate enough to possess a wide variety of commodities and natural resources. It is factors such as a solid supply of fertile land (which allows for regular harvesting) that have assisted Brazil in agricultural exporting. Typically, the respective resource captures demand from the ‘emerged’ West, however Brazil is also seen as benefiting from other emerging markets. For example, Brazil can supply the raw materials required by emerging markets as a result of its strongly developed mining and production fields.

Russia: Russia is commonly seen as a supplier of two key commodities; oil and natural gas. Similarly, Russia is viewed positively by some analysts due to its variety of natural resources, including up to 15% of the world’s gold reserves. Although analysts also provide further ‘plus points’ for Russia in that it features factors which are set to see strong economic growth. For example, wages are rising, income taxes are typically low (basic rate) and as a result this is spurring a boom in consumer demand. However, Russia is still commonly equated with large levels of political risks.

India: Despite many ‘emerged’ markets taking negative economic hits as a result of the financial crisis, India’s economy has continued to grow over recent years. One of the key differentiating factors of India is that its growth is viewed as being spurred domestic demand as opposed to exports. It benefits from a large and young population, and estimated that globally 1 in 4 people under the age of 25 live in India. It is these people who are experiencing increases in income and spending more. Likewise, India benefits from a skilled and young workforce, with a great number of English speaking graduates. Although a key concern remains for India’s infrastructure which is in dire need of improvement.

China: China is seen as a true ‘glowing beacon’ amongst emerging markets. It currently stands as  the most populated country, one of the biggest exporters (if not the biggest) and boasts the largest single car market. There is even talk of it becoming a larger economy that that of the US within the next 20 years. And while its growth to date has commonly been attributed to exports, some analysts note that China is to benefit from its own population. For example, there is a large and growing middle class population. Just like India, analysts note that wages are increasing and consumers are spending more on items such as luxury goods. Although this proposed ‘switch’ from an export led economy to a domestic led economy could take quite some time.