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18 June 2021
Dr. James PearceIt was 2012 and I remember what my supervisor told me well: BRICS are the future, and this is where the research (and) money will be going. In my American history class a few months earlier, the lecturer told us: BRICS will define the twenty-first century.
[B]razil, [R]ussia, [I]ndia, [C]hina and [S]outh Africa were the talk of Wall Street for a decade. Just days after 9/11, Goldman Sachs’ Jim O’Neil coined the term in a paper calling for a power shift away from the US and Europe. In November 2001, O’Neil again called for the BRICS to have a louder voice in geopolitics, even suggesting the G-7 include them. That same paper predicted that by 2040, the BRICS would overtake the G-6.
The concept of BRICS made enough sense; 40% of the world’s population and 25% of its land mass, these countries had the fastest emerging economies. At that time, Brazil and Russia’s economies were recovering from recessions and defaults, and on the up. China had joined the WTO after the Asian crisis, as well. If any nations could change the status quo and redefine globalisation, it was the BRICS.
At its peak in 2010, Goldman Sachs’ BRICS Investment Fund was worth over $800 million. University courses packed out with BRICS specific modules and programmes. History and politics undergraduate programmes diversified away from Europe and North America where possible to include them. I even purchased a newly written textbook in 2013 that was very optimistic.
And sure enough, those countries economies were doing very well, with equity funds established by the likes of HSBC. To many it seemed a no brainer, and for a while, it certainly looked that way. By 2010, BRICS accounted for 30% of global GDP. They were kept afloat and avoided the worst of 2008 by rising commodity prices, massive stimuli and quantitative easing.
Then in 2015, Goldman Sachs shut the investment fund and discussion of the BRICS all but stopped. By the time it closed, the fund had lost 88% of its value. It’s not as simple to say things were going wrong, because they weren’t – at least not entirely.
At the start of BRICS’ second decade, quantitative easing stopped. Russia and China were running a surplus, and were unlikely to be affected by it, whereas Brazil and India had deficits – and were badly hit. But again, it wasn’t just the economies. The domestic political situation in Russia and Brazil scared off investors, and booming economies in India and China (and elsewhere) raised eyebrows.
War in the Donbas and Syria, Crimea’s annexation and devaluation of the rouble following Western sanctions hit state coffers. Brazil experienced the Lava Jato scandal amidst its deep and lasting recession. President Dilma Rousseff was impeached – later to be succeeded by a far-right Congressman.
India and China’s economies continued to grow along with their populations, however. China maintained is stimulus and more importantly, its government and India’s were responding well to the domestic circumstances. Investors felt a lot more confident, and investment continued.
In Southeast Asia, meanwhile, countries like Indonesia, Thailand and Vietnam had all avoided serious and major economic crises and started to look more attractive.
Today the BRICS economies are producing vastly different results, meaning the consistency needed for investor confidence just isn’t there. China and India’s economies had grown between 50-80% on the eve of the pandemic, whereas Russia’s and Brazil’s economies had shrunk around 20%-25%. All were hit badly by the COVID pandemic, as well.
Russia’s economy become too reliant on commodities (as did Brazil’s) and the macro-economic picture looks bleak. Real incomes are down 13% and inflation is through the roof. Russia survived the worst of COVID through austerity measures and re-opening the economy earlier than Western Europe. Commodity prices recovered as have other key sectors, but people’s pockets simply haven’t.
Brazil’s GDP has recovered somewhat as the pandemic is dying down, but unemployment is at an 18 year high and poverty is at its highest in a decade. Important pension reforms took place in Bolsanaro’s first year, but other economic reforms stalled. Moreover, deforestation also shot up when he took office, and the realities of climate change throw another wrench at investors.
Brazil, Russia and South Africa also have young democracies that experienced backsliding over the past two decades, not to mention increased corruption. The political agendas of different states have often stalled their economic development. Moreover, the rise of China is starting to put the EU, G-7 and NATO on full alert.
The BRICS concept survives, even if only symbolically. A lot happened in the emerging economies outside of the bloc, too, meaning investors are eyeing up new targets, particularly in Asia and Africa. However, the sheer size and importance of these countries means that forming rivalling bloc is unlikely and difficult.
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